Chapter 7. Miscellaneous Matters of Interest
7.1 Intention to Extend the Covid-19 R350 Social Grant
This proposed change does not impact on payroll systems nor on employers but is of importance to all South African citizens and to the economy, so it is included in this workbook for your information.
In Government Gazette Number 48056 (14 February 2023), the Minister of Social Development has called for comments on the intention of the Government to extend the period of the Covid-19 Social Relief grant of R350 pm for another 12 months.
The current grant will come to an end on 31 March 2023 if it is not extended.
If it is extended, the grant will continue until 31 March 2024.
Note that there is no intention to increase the value of the grant – it remains set as R350 pm.
7.2 UIF E-Compliance Certificate System
Still reeling from the Covid-19 lockdown hardship period and the TERS benefit application difficulties, the UIF authorities decided to replace their manual Compliance Certificate system by launching their new E-Compliance Certificate system (E-CC) at the end of January 2021.
There was no discussion with employment bodies such as the PAGSA, nor was the system tested externally before it was released.
It didn’t take long to discover that the E-CC system had problems such as:
• If any gaps in the submission of monthly declarations going back to 2002 were identified, the Certificate was refused, and the employer was asked to recreate the declaration data …
• Employees appointed in month 1 were added to the payroll in that month, but their remuneration details were too late for the payroll run, and were added to month 2’s remuneration, resulting in the system identifying month 1 as a ‘gap’ month because a UIF contribution was not made in that month.
• Changes in ownership of the company, or section 197 transfers, also appear to result in a ‘declaration gap’ being identified.
It appears that the E-CC system traces an employee’s history of employment movement from one employer to the next by using the employee’s ID number, and if there is a ‘declaration gap’ at a previous employer because that employer did not submit a declaration, then the current employer is penalised by the system refusing to issue a Compliance Certificate.
Many, many emails were sent to the Fund by the PAGSA and other organisations complaining about these and other problems, as well as the negative impact on the economy and increased unemployment because some organisations could no longer tender for new business, but to no avail.
The UIF authorities politely refused to arrange meetings with external employment and business organisations.
Finally in April 2022, a meeting was arranged that included the PAGSA and other employment organisations, and these organisations presented detailed reports of the problems as well as suggestions for solutions.
Halfway through the presentation of the PAGSA’s report, the Fund announced that the E-CC system would be temporarily shut down and that a notice would be issued to the effect that a UIF Compliance Certificate was no longer required for tenders and other requirements.
After prompting by the same group of organisations, this was followed by a “What Now?” meeting in August 2022, during which we again agreed to present a consolidated report of the problems and our proposals for a solution.
7.3 Modernisation of UIF Declarations
When creating the file that employers must email every month to the Fund to declare the employee data for that month, payrolls must obey a specification document known as the ‘E03’ Declaration Specification (‘E03’ because this specification was first drawn up in 2003).
During 2016 and 2017 the PAGSA and the UIF authorities met regularly to bring the E03 specification up to date, but after considerable progress was made, the project was halted before it could be finalised and implemented.
After the meetings in April and August 2022, the Fund agreed in December 2022 to resume the regular meetings with the PAGSA that had been the hallmark of our excellent relationship for nearly 25 years.
This laid the foundation for regular meetings between the Fund and the PAGSA that started in January 2023, and at the time of writing (late February 2023) there have been 3 productive meetings.
The purpose of these meetings is to revise and modernise the E03 specification document so that payrolls can provide the additional employee data that the Fund needs to be able to issue E-Compliance Certificates correctly in certain scenarios that under current circumstances are difficult for the Fund.
Hopefully payrolls will also be able to provide additional data that will assist the Fund to approve benefit claims more accurately and cost efficiently.
These meetings are ongoing and hopefully will result in a much-improved E03 specification document that will benefit all three parties (payrolls, employers, and the Fund).
PAGSA Working Groups
Two PAGSA working groups have been set up to investigate the main two areas of problems being remuneration issues, as well as to investigate possible changes to uFiling that could result in significant benefits to all parties in a number of areas.
The leaders of the two PAGSA teams presented their investigation and suggestions to the Fund for their consideration in a long but productive meeting on 21 February 2023.
7.4 SARS Opinion: Application of Section 7B to UIF Contributions
In order to understand the SARS opinion on the application of section 7B to the calculation of UIF contributions, read the detailed discussion of Section 7B in section 4.2 of this workbook, summarised below for your convenience.
Section 7B Summary
The general taxation rule is that income, including remuneration as defined by the Fourth Schedule of the Income Tax Act, must be taxed on the earlier of the date of accrual (when there is an unconditional entitlement to the money), and the date of payment.
For many years before 2013, the PAGSA drew the attention of the tax authorities to the administration difficulties experienced by payroll suppliers and employers when certain types of remuneration accrue in the last month (or months) before the end of a tax year but can only be paid in the first month (or months) after the start of the new tax year when the amounts are available and/or can be quantified.
From this can be seen that retrospective adjustments place a significant administration burden on payrolls, payroll offices, and in some cases also on SARS (adjustments to EMP201’s, tax certificates, and EMP501 reconciliations).
After many requests from the PAGSA, section 7B of the Income Tax Act was added and introduced the concept of ‘variable remuneration’ from 1 March 2013 as the solution. Variable remuneration is deemed to accrue when it is paid to the employee, and it is therefore taxed when it is paid.
In other words, all remuneration types that are ‘variable remuneration’ are taxed and administered in the month in which they are paid, not the month in which they would normally have accrued.
Which Remuneration Types are Variable Remuneration?
Section 7B divides the various types of Fourth Schedule remuneration into two groups:
1. Variable Remuneration:
Section 7B specifies nine ‘variable’ remuneration types including commonly occurring remuneration types such as overtime, bonuses, commission, travel allowances and travel reimbursements, as well as night shift and standby allowances, and BCEA leave that is paid out on termination. [Recently added to variable remuneration from 1 March 2023 is an amount “that is determined based on the employee’s work performance” (see ‘Changes to the Legislation’ below).]
Variable remuneration is deemed to accrue on the date of payment and must be taxed when paid.
2. Non-variable Remuneration:
All remuneration types that are not variable remuneration, are referred to as non-variable remuneration, of which the most obvious examples are salaries and wages.
Non-variable remuneration must be taxed at the earlier of the date of accrual, or the date of payment.
Note that while section 7B was introduced to simplify payroll and tax certificate administration for employers over the period spanning the end of one tax year and the start of the next tax year, section 7B applies equally to any period during a single tax year.
Explanation of the Application of Section 7B
Fourth Schedule remuneration, divided into variable and non-variable remuneration portions, is used to calculate four payroll-related taxes – PAYE, SDL, ETI, and UIF contributions.
In its definition of remuneration, the UICA (Unemployment Insurance Contributions Act) links the remuneration that payrolls must use to calculate UIF contributions to the Fourth Schedule definition of remuneration with some exclusions (see the Appendix to this section for the UICA definition of remuneration).
Because the UICA definition of remuneration is linked to the definition of Fourth Schedule remuneration that in turn is apportioned into variable and non-variable remuneration by section 7B of the Income Tax Act, UIF remuneration is also apportioned into variable and non-variable remuneration.
In this way, the requirements of section 7B of the Income Tax Act are applied to the definition of remuneration in the Unemployment Insurance Contributions Act.
Principles of ‘Late-paid’ Remuneration
It can happen in practice that remuneration that is owing to an employee when services are terminated cannot be paid in the month of termination because the amounts are either not available (e.g., overtime schedule delays, petrol credit card statements, etc.), or they cannot be quantified at the time of termination (e.g., performance and profit share bonuses, commissions, etc.).
The remuneration owing is then paid in a month (or months) after the termination of employment when the individual is no longer employed and is referred to in this workbook as ‘late-paid’ remuneration.
‘Late-paid’ remuneration can be made up of either variable remuneration, or non-variable remuneration, or both.
PAYE, SDL and ETI
‘Late-paid’ remuneration is a payment in respect of past employment and past services rendered, consequently there is no doubt that an employees’ tax withholding obligation will arise for PAYE, SDL, and ETI.
There is no provision in the Income Tax Act or the Skills Development Levies Act that removes this obligation.
As far as ETI is concerned, at the time of writing this workbook (late February 2023) the PAGSA is still in discussions with SARS to determine the correction application of section 7B in the Employment Tax Incentive Act.
UIF
As far as UIF contributions are concerned, the ‘Application of the Act’ in section 4(1)(a) of the UICA states that the Act applies to all employers and employees other than “… an employee and his or her employer, where such employee is employed by that employer for less than 24 hours a month”. [my emphasis]
This means that if an employee is employed for less than 24 hours in a month, the UICA does not apply to that employee for that month. Therefore, a contribution for that month must not be calculated and paid, and similarly in terms of the UIA (the Unemployment Insurance Act), a declaration must not be submitted to the Fund.
The question that remains is how to apply section 4(1)(a) of the UICA to the concept of ’late-paid’ remuneration read with section 7B of the Income Tax Act.
Application of Section 7B to UIF Contributions
If the ‘late-paid’ remuneration that is paid to an ex-employee a month (or more) after termination, is:
Variable remuneration:
‘Late-paid’ variable remuneration is deemed to accrue in the month in which it is paid, being a month (or months) after employment has ended. The individual is not employed in the deemed accrual month and is therefore excluded from the ambit of the UICA by the “… where such employee is employed …” requirement of section 4(1)(a) as discussed above.
Accordingly, a UIF contribution must not be calculated on ‘late-paid’ variable remuneration and a declaration reflection the variable remuneration must not be submitted to the Fund.
Equally, there is no UIF liability for the SARS EMP201 for that month.
Note that any additional PAYE and SDL calculated on the ‘late-paid’ remuneration in respect of that month must be included in the SARS EMP201 for the month in which the ‘late-paid’ variable remuneration is paid.
As stated above, we are waiting for the conclusion of discussions with SARS as far as ETI is concerned.
Non-variable remuneration:
‘Late-paid’ non-variable remuneration must be taxed on the earlier of the date of accrual (i.e., when there is an unconditional entitlement to the money), or the date of payment.
The earlier of these two dates will be the last month of employment i.e., the month of termination, unless the remuneration accrued in a month prior to the month of termination in which case it would be that month.
To simplify the wording in this workbook, when the term ‘month of accrual’ is used in the context of non-variable remuneration paid after termination, it can refer to either the month of termination or an earlier month.
The individual is not excluded from the UICA by section 4(1)(a) in the month of accrual (the employee is still employed in that month) and unless the remuneration for that month already exceeded the monthly UIF limit, the additional UIF contribution on the ‘late-paid’ variable remuneration must be calculated.
The UIF declaration that was submitted in respect of the month of accrual must be adjusted and re-submitted. The UIF liability on the SARS EMP201 must also be adjusted for the additional UIF contribution amount (as well as for any additional PAYE or SDL).
Note that in most cases, ‘late-paid’ remuneration is variable remuneration (overtime, commission, and bonuses).
It is possible (but unlikely) that ‘late-paid’ remuneration is both variable and non-variable, but if it is, the accrual rules must be applied to each portion of remuneration.
To confirm the above conclusions, the PAGSA requested a legal opinion from SARS.
SARS Legal Opinion
The SARS legal opinion went back and forth several times to clarify some matters that arose from the original opinion, and these are extracted and quoted verbatim.
References in this response to sections are to sections of the Unemployment Insurance Contributions Act, 2002 (the Contributions Act), unless otherwise specified.
The Unemployment Insurance Fund (the Fund) was established by the Unemployment Insurance Act, 2001. The duty to contribute to the Fund arises under section 5 of the Contributions Act. That section obliges all employers and employees “to whom this Act applies” to contribute to the Fund.
To determine who the Contributions Act applies to, section 4 must be looked to. In terms of section 4(1)(a), the Contributions Act applies to all employers and employees except where the employee is employed for less than 24 hours a month.
The word “is” is important, because it signifies continuing employment, not past employment.
As indicated in your e-mail, the employee’s employment was terminated in a previous month. As a result, he is not “employed” by the employer for at least 24 hours in the month the payment was received and the duty to contribute does not therefore arise.
In light of the above, the Contributions Act does not apply to this person and no UIF contribution is deductible by the employer from the bonus paid.
This does not mean that the recipient is an independent contractor. No services are being rendered at the time the payment is being made. The recipient is neither an independent contractor, nor an employee.
The reason is simply that under section 4(1)(a), the Contributions Act does not apply and no duty to contribute arises.
We do however agree that “remuneration” is being paid, as the bonus is paid in respect of past services rendered, and an employees’ tax withholding obligation will arise.
Section 7B will apply in the normal manner.
Clarification of the Application of Section 7B
I confirm that this is indeed SARS’s view on the correct interpretation of the UI Contributions Act. I will just add the following clarification:
• The types of remuneration mentioned in your other mail, such as a bonus or commission, now have specific accrual dates, under section 7B, which is the date of payment. So the ordinary rules relating to accrual don’t apply. They will accrue after employment is terminated, and so are not subject to UIF.
• However, amounts that accrue during the time that the employee is employed, but are simply paid late, will remain subject to UIF.
Clarification of the Employment Status of the Individual
Your email below has reference.
We would like to point out that the parts of our response … to which you refer, namely, “The recipient is neither an independent contractor, nor an employee” and “No services are being rendered at the time the payment is being made”, are specific within the context of UIF.
The only reason why the employee is not considered an employee for UIF purposes is because the person was employed for less than 24 hours a month according to the exclusion in section 4(1)(a) of the Contributions Act.
Clarification of PAYE and SDL Obligations
For purposes of employees’ tax (PAYE) we confirmed in our response that there would be an employees’ tax withholding obligation on the basis that the person received “remuneration” as defined in paragraph 1 of the Fourth Schedule to the Income Tax Act, 1962.
In the subsequent response … it was also confirmed that SDL will be payable.
Accordingly, the exclusion from the definition of “employee” is only for UIF purposes and should not be interpreted similarly for SDL and PAYE purposes.
SARS Legal Opinion Ends
Impact of ‘Late-paid’ Remuneration on Unemployment Benefit Claims
If the ex-employee (contributor) claims an unemployment benefit from the Fund soon after the month of termination, then it is possible that when the ‘late’ remuneration is paid in a later month (or months), the benefit application will be in the process of being approved by the Fund, or if already approved, benefit amounts might have already been paid to the claimant.
Variable Remuneration
If the ‘late-paid’ remuneration consists of only variable remuneration (as it usually is), then there is no obligation on the employer to contribute and there is also no requirement to declare this variable remuneration to the Fund.
Because it is not declared, the Fund will not know about a ‘late’ payment of variable remuneration and will not have to allocate administration resources to resolve these difficult benefit application problems as they did in the past.
In short, ‘late-paid’ variable remuneration will not impact negatively on either the approval of an unemployment benefit application, or the payment of an already approved unemployment benefit.
As far as ‘credit days’ are concerned, they are determined by the Fund directly after a benefit claim has been approved, and even if the Fund becomes aware of the ‘late’ payment of variable remuneration, this will not change the determination of ‘credit days’.
Non-variable Remuneration
An additional contribution amount must be calculated and paid on ‘late-paid’ non-variable remuneration unless the monthly UIF limit was already exceeded in the accrual month when the contribution for that month was first calculated.
The declaration in respect of the accrual month must be adjusted and re-submitted to reflect the additional remuneration and contribution.
The ‘late’ payment of non-variable remuneration can impact on the unemployment benefit application:
1. The ‘late-paid’ non-variable remuneration will presumably change the value of the ‘average’ remuneration calculated over the previous 6 months, and this can change the value of the previously calculated benefit.
2. When the ‘late-paid’ non-variable remuneration is declared to the Fund after the month of termination, this will give the Fund the impression that the claimant has been re-employed. The Fund will then not approve the unemployment benefit application, or if it has already been approved and partly or fully paid out, then this will presumably be reversed.
The determination of ‘credit days’ for a claimant should not be affected because the credit days that were determined by the Fund directly after the benefit claim was first approved, already included the credit days for the accrual month, and the additional contribution does not change this calculation.
Appendix: Income Tax Act Section 7B – Variable Remuneration
7B. Timing of accrual and incurral of variable remuneration.—
(1) For the purposes of this section—
“employee” means an employee as defined in paragraph 1 of the Fourth Schedule;
“employer” means an employer as defined in paragraph 1 of the Fourth Schedule;
“variable remuneration” means—
(a) overtime pay, bonus or commission contemplated in the definition of “remuneration” in paragraph 1 of the Fourth Schedule;
(b) an allowance or advance paid in respect of transport expenses as contemplated in section 8 (1) (b) (ii) or (iii);
(c) any amount which an employer has during any year of assessment become liable to pay to an employee in consequence of the employee having during such year become entitled to any period of leave which had not been taken by the employee during that year;
(d) any night shift allowance;

(e) any standby allowance;
(Pending amendment: Para (e) to be substituted by s. 2 (1) (a) of Act No. 20 of 2022 with effect from 1 March, 2023 and applicable in respect of amounts accrued or expenditure incurred on or after that date.)
(f) any amount paid or granted in reimbursement of any expenditure as contemplated in section 8 (1) (a) (ii); or
(Pending amendment: Para (f) to be substituted by s. 2 (1) (a) of Act No. 20 of 2022 with effect from 1 March, 2023 and applicable in respect of amounts accrued or expenditure incurred on or after that date.)
(g) any amount of “remuneration” as defined in paragraph 1 of the Fourth Schedule (other than a bonus) that is determined based on the employee’s work performance.
(Pending amendment: Para (g) to be added by s. 2 (1) (b) of Act No. 20 of 2022 with effect from 1 March, 2023 and applicable in respect of amounts accrued or expenditure incurred on or after that date.)
(Date of commencement: 1 March, 2023.)
(2) In determining the taxable income derived by any person during a year of assessment, any amount to which an employee becomes entitled from an employer in respect of variable remuneration is deemed to—
(a) accrue to the employee; and
(b) constitute expenditure incurred by the employer, on the date during the year of assessment on which the amount is paid to the employee by the employer.

: Provided that where the employee is deceased before the date of payment, the amount is deemed to accrue to the employee and constitutes expenditure incurred by the employer, on the day during the year of assessment prior to the date of the employee’s death.
(Pending amendment: Proviso to be added to sub-s. (2) by s. 2 (1) (c) of Act No. 20 of 2022 with effect from 1 March, 2023 and applicable in respect of amounts accrued or expenditure incurred on or after that date.)
(Date of commencement: 1 March, 2023.)
[Note that the 2022 amendments that are effective from 1 Mach 2023 are highlighted in the frames above]
Unemployment Insurance Contributions Act
Definition of an Employee
“employee” means any natural person who receives any remuneration or to whom any remuneration accrues in respect of services rendered or to be rendered by that person, but excludes an independent contractor;
Definition of Remuneration
“remuneration” means “remuneration” as defined in paragraph 1 of the Fourth Schedule to the Income Tax Act, but does not include any amount paid or payable to an employee—
(a) by way of any pension, superannuation allowance or retiring allowance;
(b) which constitutes an amount contemplated in paragraphs (a), (cA), (d), (e) or (eA) of the definition of “gross income” in section 1 of the Income Tax Act; or
(c) by way of commission;
Section 4. Application of Act.—
(1) This Act applies to all employers and employees, other than –
(a) an employee and his or her employer, where such employee is employed by that employer for less than 24 hours a month; [my emphasis]
7.5 SARS Modernisation of Personal Income Tax Act
Background
The name of this massively important project for payroll suppliers, employers, and tax practitioners, has been changed recently from ‘SARS Vision 2024 PIT’, to “SARS Modernisation of PIT” as the project name.
‘PIT’ is an abbreviation for ‘Personal Income Tax’ and is a generic term for various forms of taxes for individuals that includes PAYE, Provisional tax, and Income tax.
In this workbook I refer to the project as “PAYE Modernisation” for short.
As far as the PAGSA is concerned, this project started in February 2020 when SARS briefed the PAGSA in a private meeting. At the meeting, the Payroll Authors Group of South Africa welcomed these plans and committed to support SARS with the project, and to ensure that payroll systems are changed in line with the SARS changes.
Shortly after our meeting, SARS issued the following ‘awareness’ notice in the public domain.
SARS Notice: Revenue Service on building smart modern Revenue Authority
The South African Revenue Service (SARS) has embarked on a journey to reimagine a future revenue authority where increasingly its work will be informed by data-driven insights, self-learning computers, artificial intelligence and interconnectivity of people and devices.
SARS’ workforce will be empowered to optimally function within this exciting changed and changing world of work.
Commissioner Kieswetter emphasizes: “We cannot ignore the power of a data and technology enabled organization, and the impact it will have on the future world of work. We can however prepare for it by consciously and actively managing the interplay between human effort and artificial intelligence.
Today we take a conscious step towards building a smart modern SARS, with unquestionable integrity, that is trusted and admired.”
The SARS of the future must be able to respond to this new environment while fulfilling the organization’s Higher Purpose of enabling Government to build a capable state that will ensure the wellbeing of all South Africans.
Since joining SARS in May last year, Commissioner Edward Kieswetter has constantly emphasized the need to boost the organization’s technological capacity and deriving insights from data, for a ‘re-imagined SARS of the future’.
The Commissioner has also been on an extensive consultation campaign with staff which has redefined SARS’ strategic objectives. This has created a need for a high-level internal and external recruitment drive to attract highly talented professionals and executives to bring SARS up to speed with advances in big data and artificial intelligence in the tax and customs environment.
SARS’ strategic objectives include, amongst others, providing clarity and certainty of tax obligations, making it easier for taxpayers to comply, detecting those who do not comply and making it hard and costly for them.
The organization is also in the process of modernising its systems to provide digital and streamlined services and rebuild public trust and confidence in the tax and customs administration.
As a result, SARS has advertised strategic leadership positions to attract talented and passionate executives to fill the roles of Chief Data Scientist, Chief Technology Innovation Officer, Chief Financial Officer, Chief Procurement Officer, Director Business Segment: Large & International Taxpayers (formerly Large Business Centre), Director Individual Segment: Wealthy & Complex Taxpayers, and nine regional Directors as well as a Director: Taxpayer Engagement, to list a few.
SARS is keen to grow and develop internal staff by recruiting some of these positions from within, but the Commissioner also want to use this opportunity to enrich the current “gene pool” with future oriented skills and some fresh perspective.
“This recruitment process will reaffirm SARS’ commitment to the transformation agenda of our country and the advancement of employment equity and diversity in the workplace,” the SARS Commissioner said.
Kieswetter added that “We cannot simply talk about the Fourth Industrial Revolution. It is upon us, and we must redouble our efforts to future proof ourselves by building an intelligent organization that will provide a world-class service to compliant taxpayers, but equally detect those who are non-compliant and make it costly and hard for them”.
“Our Vision 2024 is to build a smart modern SARS, with unquestionable integrity, trusted by government, the public and our international peers,” he concluded.
This notice was followed by an announcement in the 2020 Budget Review.
2020 Budget Review – Notice of Intention
The legal framework and administration of pay-as-you-earn (PAYE) will be reviewed with a view to implementing a more modern, automated process for employers that is easy to understand, access and maintain.
The reform is intended to promote accurate and timely withholding from employees and payments to SARS.
It is expected to reduce the administrative burden for employers, payroll administrators and SARS. In addition, employees will be able to monitor their tax obligations during the course of the year, and the annual return process for employers will be simplified. Over time, this reform is likely to mean that most individual salaried taxpayers will not have to file personal tax returns.
February 2020 Overview of the main Objectives of the Project
1. Accurate and timely withholding from employees and payments to SARS
2. Will reduce administrative for employers, payroll administrators and SARS
3. Employees will be able to monitor their tax obligations during the tax year
4. The annual return process for employers will be simplified
5. Over time, most salaried taxpayers will not have to file personal tax returns.
2020 Covid-19 and 2021 Civil Unrest
Budget 2020 was followed swiftly by the announcement by the State President of the Covid-19 State of Disaster on 15 March 2020.
All possibilty of taking the modernisation project forward went out the window as the Tax and ETI Relief legislation was put into place as a matter of extreme urgency. This of course was followed a year later by a repeat process of issuing legislation to assist those affected by the July 2021 civil unrest actions.
It was only from later in 2021 that focused attention could be given to the project.
PAGSA Explanatory Documents
During the latter half of 2021, the PAGSA compiled seven lengthy documents for SARS that outlined important aspects of the processing of employment taxes in payrolls for consideration by the Modernisation team at SARS.
The purpose of these documents was to give SARS a better understanding of payroll processes and employer administration of PAYE, SDL, UIF, and ETI.
We also engaged with SARS in a number of virtual meetings to explain the practical difficulties of processing PAYE, SDL, UIF, and ETI on a weekly, fortnightly, and monthly basis as opposed to a relatively simple tax year end process to calculate income tax when all the amounts are known and final.
Meeting on 25th January 2023
The process was taken a step further in a recent meeting between SARS and the PAGSA on 25th January 2023 during which more detail was discussed.
2023 Budget Announcement
Third-party data and personal income tax administration reform
Chapter 4 of the 2023 Budget Review included the following statement of intention.
The pay-as-you-earn (PAYE) and personal income tax administration reform announced in the 2020 Budget has given pensioners the option to agree to more accurate PAYE withholding rates to take account of multiple sources of income, as well as enabling 2.9 million individual taxpayers to be automatically assessed without the need to file personal income tax returns.
The reform will continue over the medium term with a view to reducing the administrative burden for employers, payroll administrators and SARS, as well as individual salaried taxpayers.
Work has commenced, in consultation with employers and representative organisations, to provide employer and employee data on a monthly basis in a fully automated fashion.
Over time, the need for employer PAYE annual reconciliation is expected to fall away, and the reform will be extended to third-party data providers.
[Rob: Payroll suppliers, employers, employees, and tax practitioners: Take a deep breath … ]
PAGSA Comments
Following the Budget 2023 announcement, it is now in the public domain that at the heart of the project is the submission of tax certificates by payrolls and employers on a monthly basis as opposed to the bi-annual submission of tax certificates and reconciliations that we have become accustomed to.
This is a massive step in the right direction, but it will not be easy.
To mention just one important aspect of this change, payrolls ‘annualise’ (or forecast for the full tax year) remuneration paid during the year in order to be able to calculate PAYE from the annual statutory tax table, and also to ‘smooth’ the PAYE calculation during the course of the tax year.
The result of ‘annualisation’ is that despite the ‘ups-and-downs’ of variable remuneration and the ‘ins-and-outs’ of irregular remuneration payments during the year, the total PAYE withheld by payrolls at the end of the tax year is (in my opinion) very accurate and therefore fair and free of risk to all parties.
History tells us that the total PAYE stated on the tax year-end tax certificates by payrolls matches the assessment calculation of income tax very closely (unless the employee has other streams of income or deductions that the employer/payroll cannot be aware of or take into account).
Effective from 1 March 2022, paragraph 2(2B) was added to the Fourth Schedule of the Income Tax Act to allow SARS to specify a tax rate that must be used in the payrolls of retirement fund administrator and insurers for the withholding of PAYE for pensioners who have other streams of income in addition to their annuity income.
This new requirement was discussed in detail in the webinars presented in September 2022. Those of you who attended one of those webinars can reference the Chapter of the webinar workbook dealing with ‘Fixed Rate’ Tax Calculations and also the webinar slides to refresh your minds on the details and importance of Fourth Schedule paragraph 2(2B) calculations.
The September 2022 webinar workbook notes are Archived in Chapter 12 of this workbook to assist you.
The paragraph 2(2B) requirement is another aspect of monthly payroll administration that could be affected by monthly tax certificate submissions. Tax certificate code 3220 (Fixed Rate Indicator) and the possibility of payrolls having to issue a tax certificate for every period in which the PAYE tax calculation rate has changed, need to be carefully thought through (see section 7.3b for more detail on code 3220).
We will have to wait and see how the requirement to cater for the paragraph 2(2B) requirement ‘forced’ SARS Fixed Rate directives unfolds in our discussions.
Corrections of incorrect employee and remuneration data from month-to-month also comes to mind as an important aspect to provide for in a simple, user-friendly, and practical manner in the new Modernisation process.
The Next Step
This is not for us to decide, but before payrolls (and SARS) can make changes to their systems to implement the submission of tax certificates on a monthly basis, there must be a Monthly BRS document the specifies the new requirements, fields, rules, etc.
‘Heads-up’ for Payroll Suppliers
It goes without saying that the design and programming changes that will have to be made to payroll systems to cater for the new PAYE Modernisation requirements will have a huge impact on PAGSA payroll supplier members.
The same applies to SARS – the SARS systems that process tax certificate submissions will also have to be changed.
If the roll-out of the PAYE Modernisation project (that includes monthly tax certificate submissions) proceeds as planned, then payroll suppliers must prepare themselves for significant changes to their payroll systems during the 2023/24 tax year.
As stated in the opening ‘Background’ section, the PAGSA has supported SARS from the start to assist them with the difficult task of rolling out the Modernisation project and will continue to do so.
Exciting times lie ahead for all of us in the payroll world, no doubt with a few bumps in the road, but in my opinion, with a big light at the end of the tunnel to look forward to.