Chapter 8. Miscellaneous Matters of Interest
8.1 Reviewing tax provisions for Travel and Working from Home
For many years the PAGSA has submitted requests to National Treasury to investigate and make changes to travel allowances (we also submitted proposals for suggested changes),
In 2020, as a result of the Covid lockdowns and the subsequent spotlight on working from home, we also submitted proposals for changes to the Home Office allowance.
Budget 2021 Proposal:
This proposal from Budget 2021 is included here to provide some history and context.
Proposed in the 2021 Budget (but not again in the 2022 Budget), is the intention to review travel and home office allowances, as follows:
In light of the large‐scale migration to working at home over the past year, the National Treasury will review current travel and home office allowances to investigate their efficacy, equity in application, simplicity of use, certainty for taxpayers and compatibility with environmental objectives.
In recognition of the potential effect on salary structuring, this will be a multi‐year project, starting with consultations during 2021/22.
This was good news at the time of the 2021 Budget.
Normally all of the budget proposals are converted into draft legislation, but as stated “this will be a multi-year project”, consequently the budget proposal to review the tax provisions for travel and working from home was not included in the 2021 amendment legislation.
This was disappointing, but my understanding at the time was that this budget proposal is not off the table but rather that it requires more time for investigation and discussion before draft legislation can be formulated.
The 2022 Budget did have this to say about home office allowances:
“A discussion document will be published in 2022 on a personal income tax regime for remote work” but was silent on travel allowances.
Budget 2023 Intention: Broadening the personal income tax base.
The intention to broaden the personal income tax base is stated in Chapter 4 of the 2023 Budget as follows.
As part of exploring the effect of remote work on the personal income tax regime, the National Treasury and SARS committed to a multi-year review of allowances.
A discussion document will be released this year to outline workplace practices and policies, changes in the current environment and how different workplaces are affected by home office and travel allowance policies.
PAGSA Comments
The intention stated in Budget 2023 to investigate home office allowances, and in particular travel allowances, with a view to changing their requirements is a welcome and positive step forward.
For many years the PAGSA has requested National Treasury and SARS to investigate and make changes to travel allowances (we have also submitted suggested changes), and in 2020, because of the Covid lockdowns and the subsequent spotlight on ‘working from home’, we also requested changes to home office allowances.
Our requests surfaced for the first time in the 2021 Budget that spoke to a “multi-year” intention to review travel and home office allowances, but as far as can be determined, that investigation was not started.
The fact that the 2021 Budget proposal has been included again in the Budget 2023 proposals signals intention.
The travel allowance is the most frequently used of all of the allowances and is an important and difficult area of employment law to tackle.
Travel allowance non-compliance, whether deliberate or inadvertent, is high.
The “multi‐year review” wording of the 2023 budget indicates that it will take more than a year to investigate these two allowances and to draft proposed changes to the legislation.
Unrelated, but perhaps of significance, keep in mind that in recent times there have been indications from the policy makers of a general move to replace allowances with reimbursements.
There are three ‘special’ allowances (as I refer to them because the law gives them ‘special’ attention in section 8 of the Income Tax Act):
1. Travel allowances including travel reimbursements (reimbursive travel allowances)
2. Subsistence allowances
3. Public Office allowances.
Until changes are made to the travel allowance requirements as proposed in Budget 2023, the taxation rules for travel allowances will remain unchanged.
However, if you pay ‘non-special’ (or ‘general’) allowances, you might want to investigate their role in your company and consider replacing them with reimbursements.
Remember that ‘general’ allowances are remuneration, and once remuneration is paid, PAYE, SDL. UIF must be calculated, withheld, and paid to SARS, as well as ETI if you are part of the ETI process.
Reimbursements that are correctly implemented are not remuneration – there is no PAYE, SDL, UIF or ETI.
8.2 Update on the 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.
8.3 Update on the 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.