Chapter 6. Tax Certificates
6.1 Introduction to Tax Certificate Submissions and Reconciliations
The SARS PAYE Business Requirements Specification
The SARS PAYE BRS (Business Requirements Specification) is a lengthy technical document (about 135 pages and growing year by year) and is not recommended bedtime reading …
It is the result of an ongoing collaboration between SARS and the PAGSA (Payroll Authors Group of South Africa) that started in 1998 when SARS scrapped the continuous 3-part paper tax certificates of the eighties and early nineties (who remembers those nightmares days of printing tax certificates on 3-part continuous paper in a dot-matrix printer …?), and replaced them with the code-driven tax certificate reporting system that we are still using.
The SARS PAYE BRS is an essential document for the PAGSA payroll systems and the SARS systems.
It is a technical specification of the tax certificate requirements that is jointly used by both payroll suppliers and SARS so that the ‘hand shaking’ works smoothly between the download of the tax certificate file out of the payroll systems of PAGSA members and the upload of that file using one of the available submission channels (see below).
The PAYE BRS specifies the technical details of, and the validation rules for, each and every employer and employee data field that must be reported on tax certificates.
To be compliant, payrolls must obey these rules when creating the tax certificate file from the employee data held in the payroll’s database.
SARS would like to issue only one major release of the PAYE BRS at the start of each new tax year in the hope that it will remain valid for the whole of that tax year with only minor releases in between.
However, there are generally two major releases each year, indicated by an increase to the first two digits of the BRS version number.
The tax certificate reporting codes and the validation rules are changed, added to, and sometimes frozen from year-to-year to align the tax certificate reporting requirements to the latest legislation changes.
Submission channels
At this point in time, tax certificates and the EMP501 reconciliation can be submitted using any one of the following channels:
• Employers with up to 50 tax certificates can use either SARS eFiling or SARS e@syFile.
• Employers with more than 50 tax certificates must use SARS e@syFile.
• Employers with a maximum of 5 x tax certificates can still go to a SARS branch where an agent will help them capture the tax certificates and the EMP501.
• Employers with many thousands of employees can use the ‘Connect Direct’ submission channel that caters for high volumes (at a price).
Tax Certificate Testing – PAGSA Members and SARS
Every year, SARS makes a testing platform available to the PAGSA payroll supplier members that develop, install, and support computerised payroll systems in South Africa to test the ’handshaking’ between the tax certificate files that payroll systems create, and the validation checks implemented in the SARS systems.
The ‘ham in the sandwich’ between the systems of payroll suppliers and the SARS systems is the SARS PAYE BRS that species the rules for every data item that can be reported on tax certificates.
The testing platform remains open until SARS (and payrolls) are satisfied that their systems are functioning correctly.
Employers Filing Season
The Interim (or mid-year) tax certificate filing season for employers is September and October, following directly after the closing of the first 6-month tax certificate cycle on 31 August of each year.
The Final (or tax year-end) tax certificate filing season for employers is April and May, giving employers a one-month gap between the closing of the second 6-month tax certificate cycle on 28 February and the opening of the filing season on 1 April to allow them time to make tax year-end corrections and adjustments.
[Rob: This administration nightmare has largely fallen away since the introduction of section 7B (Variable Remuneration) to the Income Tax Act effective from 1 March 2013]
It sometimes happens that SARS delays the opening date of the filing season by a week or two due to ongoing testing between the systems of the payroll supplier members of the PAGSA and SARS, and then issues a notice to that effect.
The closing date filing season for employers is always 31 Oct for the first 6-month tax certificate cycle, and 31 May for the second 6-month cycle.
Submissions received after the closing date will be subject to penalties and interest.
Tax certificate Submissions before the Opening Date
Some employers, perhaps not aware of the opening date, would like to submit their tax certificates before the start of the employers filing season. This is definitely not a recommended practice.
The version of SARS e@syFile and SARS eFiling systems that will be in operation before the opening date will be a version that will probably not include the changes specified in the latest SARS PAYE BRS. It is also possible that the latest software is not yet available from your payroll supplier when an early submission is made.
I belong to the cautious school as far as computerised systems are concerned, and if possible, I prefer to wait long enough for any teething problems to be sorted out (about 5 weeks into the employer filing season) and then submit.
Tax certificate Submissions after the Closing Date
Don’t leave it until too late in the closing month. Submissions received after the closing date will be subject to penalties and interest (see details in a section below). And offering loadshedding or Wifi problems as an excuse for late submission definitely won’t cut it … 
6.2 2023 Interim Tax Certificate Submissions
PAYE BRS Releases
After discussions between SARS and the PAGSA in the first quarter of 2023 to incorporate the legislation changes that came into effect from 1 March 2023, SARS have issued:
1. PAYE BRS version 22.0.0 in February 2023
2. PAYE BRS version 22.1.0 in March 2023
3. PAYE BRS version 22.1.1 in May 2023, and
4. PAYE BRS version 22.1.2 on 4 August 2023.
BRS version 22.1.2 is now in effect until replaced by an updated version, and includes the changes:
1. That were necessary for the 2022/23 Tax year end tax certificate submissions in April and May 2023 in respect of the 12-month reporting period 1 March 2022 to 28 February 2023
2. That are now necessary for the 2023/24 Interim tax certificate submissions in September and October 2023 in respect of the 6-month reporting period 1 March 2023 to 31 August 2023.
SARS live in hope that the latest BRS version 22.1.2 does not have to be changed between now and the February 2024 final submissions for the 2023/24 tax year, but this hope seldom materialises – employment taxes are simply too dynamic, and the requirements can change from month to month.
Important Dates for the 2023 Interim Tax Certificate Submissions
Tax Certificate Testing – PAGSA Members and SARS
SARS provides a testing platform for the PAGSA payroll supplier members so that the tax certificate files that payrolls produce in respect of the 6-month period from 1 March 2023 to 31 August 2023 can be tested against the SARS e@syFile and eFiling systems to ensure that the live submissions in September and October are trouble free.
Testing between SARS and payroll suppliers started on 15 August 2023, and should close on 6 September 2023, depending on whether or not any unexpected problems are discovered during the testing period.
Employers Filing Season
It has been confirmed that the employer’s filing season during which tax certificates for all employees in respect of the 6-month period from 1 March 2023 until 31 August 2023 must be submitted and reconciled, will open on 18 September 2023, and close at midnight on 31 October 2023.
6.3 Tax Certificate Changes – SARS PAYE BRS version 22.1.2
There are a number of cosmetic changes to the BRS that are not important for this workbook.
The validation rules for the tax Directive fields that the payroll must comply with have been changed, but the changes are too difficult to explain here, and one must rely on the payroll supplier to make these changes correctly within their payroll system.
Changes that are relevant for the workbook have been made to the following codes.
Code 3903 – Pension / RAF (PAYE)
The code provides for lump-sum payments accruing prior to 1 October 2007 from a Pension or a Retirement annuity fund in respect of retirement or death, and the change is simply that this code is not applicable from the 2009 tax year.
This change will affect retirement funds that make these payments.
Code 3905 – Provident fund (PAYE)
The code provides for lump-sum payments accruing prior to 1 October 2007 from a Provident fund in respect of retirement or death, and the change is simply that this code is not applicable from the 2009 tax year.
This change will affect retirement funds that make these payments.
This change mirrors the Code 3903 change, except that it applies to Provident funds.
Code 4150 – Reason code for IT3(a)
The value reported under code 4150 on an IT3(a) tax certificate indicates the reason for the non-deduction of tax and can only be one of the following values depending on the rules listed against each value:
• 01 or 1 = Director’s remuneration prior to 2003 year of assessment (Invalid from 1 March 2002)
• 02 or 2 = Earn less than the tax threshold
• 03 or 3 = Independent contractor or Directors fees for RSA resident NED (valid from 1 March 2017)
• 04 or 4 = Non-taxable earnings, including –
o nil directives and
o income protection annuities from 1 March 2015 (see notes under code 3602)
• 05 or 5 = Exempt foreign employment income
• 06 or 6 = Director’s remuneration – income quantified in the following year of assessment (valid from 1 March 2002)
• 07 or 7 = Labour Broker with valid IRP 30 (valid from 1 March 2004)
• 08 or 8 = No Tax to be withheld due to Medical Scheme Fees Tax Credit allowed (valid from 1 March 2014) and/or Additional Medical Expenses Tax Credit if employee ≥65 allowed (valid from 1 March 2016)
• 09 or 9 = Par 11A(5) Fourth Schedule notification – No withholding possible (valid from 1 March 2013).
Since the start of the year, the validation rules for code 4150 have been changed several times across the various releases of versions of the PAYE BRS and have culminated in the following final changes listed in BRS version 22.1.2.
• Value 2 or 02: The validation rule has been removed i.e., this value is not validated
• Value 4 or 04 is valid if transaction year is < 2024 This means that value 4 or 04 is allowed for tax years up to 2023 but is not allowed for tax years from 2023/24 and future years unless the condition set out in the following bullet is met. • Value 4 or 04 is only valid from transaction years >= 2024 if directive information has been completed or if (the value of source code 3696 is greater than zero and the value of 3699 is zero)
o Source code 3696 (Non-taxable Income) is the sum total of all income amounts that are non-taxable.
o Source code 3699 (Gross Employment Income – taxable) is the sum total of all amounts for all income source codes that are NOT included in code 3696.
6.4 Tax Certificates – General Matters of Interest
Third Party Submission of Individual data
Employers have been submitting the financial information of their employees to SARS in tax certificates in various ways for decades.
In recent years, retirement funds, medical schemes, and banks have been required to submit relevant financial details of individuals. This project has been very successful, and SARS continue to make changes to improve the quantity and quality of the financial information that they receive from external third-party organisations.
From this year, Public Benefit Organisations (PBOs) must submit IT3(d) files for the first time (see Government Gazette 48867 issued on 30 June 2023).
Receiving financial data from third-party organisations puts SARS in a position to be able to cross-check and validate the financial data submitted from different sources for the same taxpayer.
Employment Taxes Validation (ETV)
During the employers filing season for the tax year end (April and May), SARS uses the relevant demographic and financial data on the tax certificates to calculate PAYE and SDL and to then check their calculated amounts against the PAYE and SDL totals that are calculated by payrolls using the same data and reported on the tax certificate.
The total UIF contribution is not checked because payrolls calculate the contribution per month on UIF-defined remuneration up to the monthly contribution limit (R 17 712 pm from 1 June 2021), and monthly remuneration totals are not available to SARS on the current year-to-date tax certificates.
After excluding certain categories of employee tax certificates from the validations, and allowing for a small margin of error, any differences are then reported to the employer by SARS using the same submission channel that the employer used to submit the tax certificates to SARS.
The employment taxes are not checked by SARS during the Interim employers filing season (September to October) because there is not enough information on the tax certificate to allow SARS to ‘annualise’ remuneration for the PAYE calculation in the same way as what payrolls do.
SARS new USSD service for Individuals
SARS has announced that they have developed new USSD technology to assist individual taxpayers to become, and to remain, tax compliant.
The options available for individual taxpayers using this technology are—
• Check their income tax reference numbers
• Obtain their SARS account balances
• Check whether or not a tax return must be submitted
• Make an e-Booking to visit a SARS branch.
At this early stage, it also appears that an employee will be able to use this new technology to apply for an income tax reference number which will assist employers to be compliant by reporting income tax reference numbers for all of their employees on tax certificates.
The reason for introducing this channel is that there are many taxpayers who do not have access to eFiling, the SARS MobiApp, or own a smart phone.
The USSD service is free for taxpayers to use, and it doesn’t need access to any data.
In case you are wondering (as I did) what USSD is, it stands for Unstructured Supplementary Service Data. It works similarly to a text message and establishes real-time communication between a cell phone and a server.
A user with a phone that has limited storage will be able to use this service.
Penalties for Tax Certificate and EMP501 Non-compliance
Lastly, the ‘big stick’ …
If an employer submits the EMP501 late, administrative penalties will be charged that will be equal to 1% of the year’s PAYE liability.
The percentage will increase each month by 1% up to 10% of the year’s PAYE liability.
Furthermore, an employer who wilfully or negligently fails to submit an EMP201 or EMP501 return to SARS is guilty of an offence and is liable, upon conviction, to a fine or imprisonment for a period of up to two years.
What constitutes a criminal offence?
Employers are guilty of an offence and will be subjected to a fine or imprisonment for a period of up to two years where they amongst other offences, fail to:
• Deduct employees’ tax from remuneration or pay tax to SARS within the prescribed period.
• Deliver IRP5 and/or IT3(a) to employees or former employees within the prescribed periods.
• Use employees’ tax deducted or withhold for purposes other than the payment of such amount to SARS.
• Apply for registration as an employer.
Employers are advised to always check the status of their tax certificate submissions to ensure that their EMP501 was correctly filed at SARS.