4. PAYE vs Income Tax Comparison
• Remuneration is a form of income paid during the tax year giving total income at the end of the tax year.
• Employees’ tax (PAYE) is an advance payment towards the income tax calculated at tax year-end.
The paths of remuneration and income meet one another in the Fourth Schedule definition of remuneration, in which the preamble to that definition states: “remuneration” means any amount of income which is paid or is payable to any person by way of any salary, leave pay, wage, overtime pay, bonus, gratuity, commission, fee, emolument, pension, superannuation allowance, retiring allowance or stipend, whether in cash or otherwise and whether or not in respect of services rendered, including— (a) … Etc.
‘Remuneration’ is therefore, by definition, directly linked to ‘income’.
From that meeting point onwards, both the PAYE and the income tax calculations follow the same basic steps. Their calculation methods are aligned in principle and the tax results should be the same or very similar, depending on whether there are additional streams of income or deductions that are claimed on assessment.
The PAYE and Income Tax calculation steps are summarised and compared in the following ‘Tax 101’ Comparison table that lacks a lot of detail, but hopefully gets the principles across.
‘Tax 101’ Comparison: Remuneration vs Income, and PAYE vs Income tax
• REMUNERATION AND PAYE:
• Step 1 – Nothing for REMUNERATION AND PAYE
• Step 2 – Nothing for REMUNERATION AND PAYE
• Determine REMUNERATION (Fourth Schedule definition)
• Step 3 – Plus: Defined inclusions of travel compensation
• Step 4 – Less: Paragraph 2(4) deductions
• Equals: BALANCE OF REMUNERATION.
• Step 5 – Calculate ‘Gross’ PAYE.
• Calculate: ‘NET’ PAYE
• Step 6 – Less: Section 6 ‘age’ rebates
• Step 7 – Less: Section 6A Medical Tax Credit (MTC)
• Step 8 – Less: Section 6B Additional MTC (AMTC)
• Step 9 – FINAL PAYE
• INCOME AND INCOME TAX:
• Step 1 – GROSS INCOME (ITA Section 1 definition) Plus: Section 1 special inclusions
• Step 2 – Less: Section 10(1) Exemptions
• Determine INCOME
• Step 3 – Plus: Unexpended section 8 allowances
• Step 4 – Less: Sections 11 and 23 deductions
• Equals: TAXABLE INCOME.
• Step 5 – Calculate ‘Gross’ Income Tax.
• Calculate: ‘NET’ INCOME TAX
• Step 6 – Less: Section 6 ‘age’ rebates
• Step 7 – Less: Section 6A Medical Tax Credit (MTC)
• Step 8 – Less: Section 6B Additional MTC (AMTC)
• Step 9 – FINAL INCOME TAX

The sequence of the nine calculation steps of PAYE and Income tax in the Comparison table is very important:
• The exemption of certain amounts (such as the uniform allowance and some of the relocation allowance amounts) from gross income in section 10(1), means that these amounts are automatically excluded from remuneration (that is linked to ‘income’ from which these amounts have already been exempted).
• The business travel expense portions of the three travel compensation amounts are allowed to reduce remuneration and income as follows:
o Remuneration: An estimate of the private travel portion of the travel compensation that must be included in remuneration for PAYE purposes must be made using the ‘80%/20%’ inclusion rates specified in the Fourth Schedule definition of remuneration (more on this in a section beneath).
Note that the calculation of the UIF contribution, the SDL levy, ETI, and at some stage in the future, the Compensation Fund remuneration, include this estimate of the private travel value.
This means that the remaining ‘20%/80%’ balance of the travel compensation is estimated to be business travel expenses and is not included in remuneration, therefore not subject to PAYE.
o Income: Only the ‘unexpended’ portion of the travel compensation (the portion of the compensation that is paid or granted in respect of private travel) is included when calculating taxable income.
This means that the ‘expended’ portion (the business travel portion of the travel compensation) reduces the value of taxable income and is achieved during the assessment process by applying the employee’s logbook that details the business travel.