Chapter 6. Tax Certificates
6.1 Principles of Tax Certificate Submissions
The SARS PAYE BRS (Business Requirements Specification) is a lengthy document (about 135 pages and growing year by year) and is not recommended for 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 decided to scrap 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 an Epson dot-matrix printer …?), and to replace them with the electronic code-driven tax certificate reporting system that we are still using at present.
The SARS PAYE BRS is an essential document for both the PAGSA and SARS because it provides a specification of 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 from the payroll systems of PAGSA members and the upload of that file into the SARS systems (SARS eFiling, SARS e@syFile, and the SARS Branch system).
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.
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 ’hand-shaking’ 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 the 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.
The Final (or tax year-end) tax certificate filing season for employers is April and May, providing 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 employers time to make tax year-end corrections and adjustments.
[Rob: I have always wondered about this ‘gap’ month but presumably its purpose is to assist employers to comply with the accrual rules that allocate amounts back into the tax year that has just ended]
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 is always 31 Oct for the first 6-month tax certificate cycle, or 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, submit their tax certificates early. This is definitely not recommended practice.
The version of SARS e@syFile and SARS eFiling systems that will be in operation at an earlier 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 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
But don’t leave it until too late – submissions received after the closing date will be subject to penalties and interest. And offering loadshedding problems as an excuse for late submission definitely won’t cut it … 
6.2 Tax Certificate Requirements (February 2023 Final Reconciliation)
After discussions between SARS and the PAGSA in the first quarter of 2022 to incorporate the legislation changes that came into effect from 1 March 2022, SARS issued PAYE BRS version 21.2 on 27 April 2022.
PAYE BRS version 21.2 was intended for tax certificate submissions for the 2022/23 tax year:
1. The Interim (or Mid-year) tax certificate submissions at the end of the first 6-month tax certificate cycle on 31 August 2022, as well as for
2. The Final (or Tax year-end) tax certificate filing season for employers at the end second 6-month tax certificate cycle on 28 February 2023 (unless updated later during the 2022/23 tax year).
Ignoring minor changes to the BRS, the following are the changes that you should be aware of.
Code 3100 – Income Tax Reference number
The validation rules have been changed to describe the scenarios under with it is mandatory or conditional to report the employee’s Income tax number.
There are now 7 validation rules that must be satisfied – payroll suppliers are advised to check these rules carefully before incorporating them in their payroll systems.
Code 3220 – Fixed Rate Taxation Indicator
This field is now used to indicate the rate that was used by the payroll to calculate PAYE was:
1. A paragraph 2(2B) fixed tax rate, or
2. The non-standard employment rate of 25%.
Note that PAYE BRS version 21.2 states that if an employee’s tax calculation is changed from a fixed rate (either 25% or the para 2(2B) rate) to the tables or vice versa, a separate tax certificate must be submitted for each tax calculation period within the tax year.
This requirement has been discussed with SARS since the release of version 21.2 and it has been agreed that this requirement will be removed from code 3220 at a later stage (see code 3220 in the ‘August 2023 Tax Certificates Requirements’ section below).
Codes 3230, 3231, 3232, and 3233 – Directive Reporting Codes
Structural changes were made in the PAYE BRS for the 2021/22 tax year that must be obeyed when reporting directives on tax certificates.
Further changes have been made to the directive codes for the 2022/23 tax tear.
Code 3601 – Income
Long service awards paid in cash must now be reported under new code 3835.
Code 3801 – General Fringe Benefits
Long service awards granted as an ‘Acquisition of an Asset’ benefit must now be reported under new code 3835.
Long service awards granted as a ‘Use of an Asset’ benefit must now be reported under new code 3835.
Code 3806 – Free or Cheap Services
Long service awards granted as a ‘Free/Cheap Services’ benefit must now be reported under new code 3835.
Code 3835 – Free or Cheap Services
The total of the cash plus the three fringe benefit long service awards (before the deduction of the R5 000 reduction) long service awards must now be reported under new code 3835.
Long Service Award Archive
For your convenience, in the Archive Chapter 13 of this workbook I have included a full write-up of the changes to Long Service Awards that were made effective from 1 March 2022 and caused a lot of confusion.
Section 13.5 of this workbook has been included below to provide more detail regarding the long service award tax certificate codes.
Tax Certificate Codes for Long Service Awards
The latest PAYE BRS (SARS PAYE Business Requirements Specification) version 21.0.1 for the 2023 tax year includes the new codes and rules for long service award reporting on tax certificates that provide for the amended long service award requirements from 1 March 2022.
Long Service Award Codes
Note the following:
1. In all cases, the long service amounts reported under the codes indicated below must be the ‘gross’ amount before the ‘up to’ R5 000 reduction. SARS will apply the reduction in the assessment income tax calculation by reducing the total of code 3622 and code 3835 by the lesser of this total and R5 000.
2. Only qualifying long service award amounts that meet the long service conditions must be reported according to the long service codes discussed below. If the amount doesn’t qualify as a long service award, it must be reported against its normal tax certificate code.
Code 3601 – Income
Long service awards paid in cash are excluded from code 3601 and must be reported under code 3622.
Code 3622 – Long Service Cash Award
Long service awards paid in cash must be reported under code 3622.
Code 3801 – General Fringe Benefits
Long service awards granted as an ‘Acquisition of an Asset’ benefit or as a ‘Use of an Asset’ benefit must be reported under new code 3835. An ‘Acquisition of an asset’ or a ‘Right of use of an asset’ fringe benefit must only be reported under code 3801 if it is not a long service award.
It follows, for example, that it is possible for two benefits to be granted as an ‘Acquisition of an asset’, one in respect of a long service award (therefore reported under code 3835), and the other one is not a long service award (therefore reported under code 3801).
Code 3806 – Free or Cheap Services
Long service awards granted as a ‘Free/Cheap Services’ benefit must be reported under new code 3835.
Code 3835 – Long Service Fringe Benefit Awards
The total of the fringe benefit long service awards must be reported under code 3835.
Pending Changes to PAYE BRS version 21.2
The definition of ETI Monthly Remuneration has been amended from 1 March 2022 to exclude fringe benefits and to only include remuneration paid in cash.
To determine the value of ETI Monthly Remuneration amount all amounts reported under tax certificate codes 36xx and 37xx are regarded as being cash amounts and can be taken into account.
Still under discussion with SARS are the non-cash portions of dividends and travel allowances (the company car petrol card).
These changes will hopefully be finalised and added to the PAYE BRS for the 2023/24 tax year.
6.3 Tax Certificate Requirements (August 2023 Interim Reconciliation)
SARS PAYE BRS version 22.0 was issued on 24 February 2023 and at the time of writing (end of February 2023) is the latest version available.
Note that because the versions of the PAYE BRS are backwards compatible, version 22.0 includes the version 21.2 changes that are discussed in the section above for February 2023 tax certificate submissions.
Only the changes for the August 2023 Interim (or mid-year) tax certificates are discussed here.
Demographic Information Codes
Code 2025 – Employer Contact Person First Name
The length of this field has been increased from 30 to 50 characters
Code 2036 – Employer Contact Person Surname
The length of this field has been increased from 30 to 50 characters
Code 3040 – Employee First Two Names
The type of field has been changed from FT (Free Text) to A (alpha) characters.
PAYE Calculation
Code 3220 – Fixed Rate Taxation Indicator
This field is now used to indicate the rate that was used by the payroll to calculate PAYE was:
1. A paragraph 2(2B) fixed tax rate
2. The non-standard employment rate of 25%.
Note
PAYE BRS version 21.2 states that if an employee’s tax calculation is changed from a fixed rate (either 25% or the para 2(2B) rate) to the statutory tables and vice versa, a separate tax certificate must be submitted for each tax calculation period within the tax year.
This requirement was discussed with SARS since the release of version 21.2 and this ‘multiple tax certificate’ requirement has been removed from PAYE BRS version 22.0 for August 2023 submissions.
This is a complex issue. Code 3220 is closely linked with:
1. The SARS ETV checks (see section 7.4 below)
2. The new paragraph 2(2B) requirements for pensioners in receipt of annuity income (see Chapter 12)
3. The Modernisation of PAYE project and monthly tax certificate submissions (see section 8.5).
We will face these complexities when we get there, but a very interesting road lies ahead.
But sometimes it is good to revisit old practices and rules, and start from scratch again with a new, more modern and flexible approach.
Directive Codes
Code 3231 – Directive Issued Date
The validation rules have been tightened to ensure that this date is reported when it should be.
Code 3232 – Directive Income Source Code
The validation rules have been tightened to ensure that the directive is applied to only specified income codes.
Code 3233 – Directive Income Amount
The validation rules have been tightened to ensure that there must be a positive directive amount if specified income codes are reported on the tax certificate.
Code 3234 – Directive Type Indicator
This field has been removed. SARS are no doubt comfortable that the remaining directive fields are enough to indicate that the tax certificate contains directive information.
IRP3 Reason Code
Code 4150 – Reason Code for IT3(a)
This code can only have a value of ‘2’ (or ‘02’) to indicate that the employee earns less than the tax threshold if code 3699 (Gross Employment Income) is less than the tax threshold.
6.4 Employment Taxes Validation (ETV)
After the employers filing season for the tax year end (April and May), SARS use the underlying demographic and financial data on the tax certificates to recalculate PAYE and SDL and check their calculated amounts against the PAYE and SDL totals that are calculated by payrolls and reported on the tax certificate.
The total UIF contribution is not checked because payrolls calculate the contribution on monthly UIF-defined remuneration up to the monthly contribution limit (R 17 712 from 1 June 2021), and monthly totals are not yet available to SARS on the year-to-date tax certificates.
After excluding certain categories of 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.