If an employer failed to apply for a tax directive on severance benefits, they should rectify the situation as soon as possible. The employer can still apply for a tax directive retrospectively by submitting the necessary documentation to the South African Revenue Service (SARS). They should include a letter explaining the reason for the delay and provide any supporting documents required by SARS. It is important to note that there may be penalties or interest imposed for the late application, so it’s best to rectify the situation promptly.

The amount indicated on the directive as PAYE deductible from the severance amount, should then be recovered from the employee, before an IRP5 may be issued to the employee which reflect this amount of PAYE. Should the amount not be recoverable from the employee, it will be deemed to be a penalty in terms of paragraph 5(5) of the Fourth Schedule and should not be included on the IRP5, but should be included in the EMP501 under the field “deemed penalty”.