Excess Employment Tax Incentive (ETI) amounts that cannot be utilized in a specific month are carried forward to future months. These excess ETI amounts can be offset against the employer’s monthly PAYE liability in subsequent months, subject to the limitations and restrictions set out in the ETI legislation.
The ETI legislation allows for the carry-forward of excess ETI amounts for up to six consecutive months from the start of the tax year (August and February). This means that if an employer has more ETI credits than their PAYE liability in a particular month, the excess amount can be carried forward and used to reduce the PAYE liability in the following months, up to August and Febraury whereafter it will be forfeited. Up to the end of the current reconciliation period
It’s important to note that excess ETI amounts cannot be refunded or claimed as a cash payment. They can only be offset against the employer’s PAYE liability. Sars refund this after the processing of the reconciliation
SARS typically refunds excess ETI amounts after the processing of the reconciliation at the end of the tax year or at the end of the mid-year reconcilliation. If there are excess ETI amounts that cannot be utilized to offset the employer’s PAYE liability in the following months, these amounts will be taken into account during the annual or bi-annual reconciliation process. The reconciliation process usually takes place after the end of the tax year or in August, and any refund due will be processed accordingly.
An employer will not be allowed to claim the Employment Tax Incentive (ETI) for a specific month under the following circumstances:
1. **Employer Not Registered for PAYE:** If the employer is not registered for Pay-As-You-Earn (PAYE) withholding tax with the South African Revenue Service (SARS), they will not be eligible to claim the ETI.
2. **Non-Compliance with ETI Legislation:** If the employer does not comply with the requirements and conditions set out in the ETI legislation, such as employing individuals who do not meet the age criteria or are excluded from the incentive, they will not be allowed to claim the ETI.
3. **Exceeding the Monthly ETI Limit:** If the employer exceeds the monthly ETI limit allowed for each qualifying employee, they will not be able to claim the excess amount in that specific month. The ETI limits are set by SARS and must be adhered to by the employer.
4. **Connected Persons:** If the employee is a connected person to the employer, as defined in the ETI legislation, the employer will not be allowed to claim the ETI for that individual.
5. **Not Meeting Documentation Requirements:** If the necessary documentation, such as valid identification documents, is not provided for the qualifying employees, the employer may not be allowed to claim the ETI for that month.
It is essential for employers to understand and comply with the ETI legislation to ensure that they meet all the requirements for claiming the incentive in eligible months. Failure to meet these criteria may result in the employer not being allowed to claim the ETI for specific months.
An employer can’t claim the ETI (i.e. reduce their PAYE (Employees’ Tax) liability) if on the last day of the month, the employer-
• Has failed to submit any return/declaration
• Has any tax debt outstanding, excluding a tax debt –
o Where an agreement has been made for a deferral payment
o That has been suspended pending an objection or appeal or
o Where the tax debt is less than R100.
• Has paid the employee a wage exceeding R6 000 in a specific month.
Section 4 of the ETI Act refers to the “higher of” a wage regulating measure or the NMW. Therefore, if an employee is subject to a wage regulating measure that is lower than the NMW, the NMW must be used as the qualifying criteria.
