If the tax man ever comes knocking, make sure you have all your "ducks in a row". One regulation that will apply to you is employees' tax. Even if you only have one employee, it's important that you are up to date with employee-related taxes.
Every employer who pays remuneration, which is subject to employees' tax, has to register with the Receiver of Revenue as an employer.
Employees' tax is deducted from an employee's remuneration on a regular (usually monthly) basis. The deductions are made by the employer and are determined by using tables issued by the Receiver of Revenue.
The following definitions will help you understand how to calculate employees' tax.
Remuneration is seen as all payments and amounts payable, in cash or otherwise, whether or not for services rendered. This includes:
- salary and wages, including leave pay
- allowances and advances (excluding subsistence allowances)
- 80% of travel allowances
- overtime pay, bonuses, gratuities, commissions, fees
- pensions, superannuation allowances and/or retirement lump sums
- any amounts paid for services rendered
- amounts paid for variation of office
- any fringe benefits
Remuneration excludes the following:
- Fees paid to a person for services he renders in the course of any trade he does independently, for example fees paid to auditors, medical practitioners, lawyers, independent businesses. The payment for the services must not be payable at regularly daily, weekly, monthly or other intervals
- Disability pensions in terms of certain Acts
- Amounts paid to an employee to reimburse him for expenses incurred in the course of his duties
To register with the Receiver of Revenue, you need to complete an EMP101 form, which is available from the SARS website.
Employee is defined as:
- Any person (other than a company) who receives remuneration or to whom any remuneration accrues
- Any person who receives any remuneration for any services rendered to or on behalf of a labour broker
- Any labour broker
- Any personal service company or trust
- Any director of a private company who is not otherwise included in terms of paragraph (a) of the Income Tax Act.
Employer is defined as:
Any person (including someone acting in a fiduciary capacity, a trustee in an insolvent estate and an executor or administrator of a benefit fund, pension fund, provident fund, retirement annuity fund or any other fund) who pays or is liable to pay to any person any amount by way of remuneration.
Basic principle of employees' tax
The employees' tax deducted from an employee's pay must be paid to the Receiver of Revenue within seven days after the month end. If the seventh day is on a Saturday or Sunday, the amount must reach the Receiver of Revenue the previous working day, i.e. the Friday.
Late payments will be subject to a penalty of 10% and interest at the prescribed rate will be charged on the outstanding amount. Where an employer fails to withhold employees' tax he becomes personally liable for the payment of such tax to the Commissioner.
An EMP201 form is completed and the payment submitted either by cheque with the form or electronically to the Receiver of Revenue.
At the end of the tax period the SITE (Standard Income Tax on Employees) payable is calculated by the employer and the employee's tax withheld during the year is then classified as SITE and PAYE (Pay as you earn).
Where an employee's net remuneration is R60 000 or less, only SITE is payable. If the net remuneration for the year exceeds R60 000, employee's tax will comprise both SITE and PAYE.
An employer must furnish employees from whom employees' tax was deducted, within the prescribed tax period with an IRP5 certificate.
The IRP5 certificate summarises all the income and deductions that the employee received according to specified codes as well as the SITE and PAYE that were withheld during the tax period. The prescribed period to issue the IRP5 certificate to the employee is as follows:
- Within 60 days after the end of the tax year or alternative period.
- Within 14 days after an employee has left the employer's service.
- Within 7 days after the employer has ceased to be an employer.
- Within a further period where the Commissioner in special circumstances grants approval for the extension of such period.
The employer is obliged to furnish a reconciliation statement showing details of the total amount of employees tax deducted or withheld as well as the details of IRP5 certificates used during the tax year.
The purpose of the reconciliation is to reconcile the amount of employees tax was paid over to the Receiver of Revenue on the monthly EMP201 returns with the tax reflected on the IRP5 certificates issued.
Furthermore the reconciliation also justifies all issued, cancelled, lost and destroyed IRP5 certificates. The IRP501 reconciliation statement must be submitted to the local Receiver of Revenue office within 60 days after the end of the tax year or alternative period or within 14 days after you have ceased to be an employer.
No one takes pleasure in paying money to the Receiver, but if your business is up to date with its taxes, you can take pleasure in not having to look over your shoulder.
For more information on employee tax, refer to the Guide for Employers iro Employees Tax for 2019 available through the SARS website.
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