The following is knowledge that has been shared from Rhona van Taak on previous Tax Directives queries

TAX DIRECTIVES

Lump sum codes: validations

The PAYE BRS for the 2023 Tax Year states the following:
Directive number (code 3230):
o Directive number (code 3230) If code 3608/3658, 3614/3664, 3707/3757, 3718/3768, 3901/3951, 3902/3952, 3903/3953, 3904/3954, 3905/3955, 3909, 3915, 3920, 3921, 3922, 3923 and/or 3924 are completed with values, then Directive Number is mandatory and MUST NOT BE zeros;
o If YoA is greater or equal to 2021 and codes 3907/3957, 3908 are completed, then Directive Number is mandatory and MUST NOT BE zeros;
o If year of assessment is 2018 and codes 3719/3769 and/or 3720/3770, 3721/3771 and/or 3723/3773 are completed with a value, then Directive number is mandatory and MAY BE zeros;
o From 2019 year of assessment, if codes 3719/3769 and/or 3720/3770, 3721/3771 and/or 3723/3773 are completed with a value, then Directive number is mandatory and MUST NOT be zeros;
All the above codes listed year, is repeated in code 3232 validation (except for 3902-3905 which is not applicable since 2008/2010).

Directive income source code (code 3232):
o If Directive Type Indicator = “L”, then Directive Income Source Code is mandatory;
o If Directive Type Indicator = “F”, then Directive Income Source Code must not be completed;
• The Directive Income Source code can only be one of the following source codes:
o 3608/3658, 3614/3664,
o 3707/3757, 3718/3768, 3719/3769, 3720/3770, 3721/3771, 3723/3773
o 3901/3951, 3902/3952, 3903/3953, 3904/3954, 3905/3955, 3907/3957, 3908, 3909, 3915, 3920, 3921, 3922, 3923, 3924

Therefore, the directive type indicator can only be L with the following codes:
3608: Arbitration award
3614: Other retirement lump sums
3707: Share options exercised
3718: Vesting of equity instruments
3719: Dividends not exempt ito par(dd) – s10(1)(k)(i)
3720: Dividends not exempt ito par(ii) – s10(1)(k)(i)
3721: Dividends not exempt ito par(jj) – s10(1)(k)(i)
3723: Dividends not exempt ito par(kk) – s10(1)(k)(i)
3901: Gratuities/severance benefits
3902: not applicable from 2010
3903: not applicable from 2008
3904: not applicable from 2010
3905: not applicable from 2008
3907: Other lump sum payments
3908: Exempt policy proceeds
3909: Unclaimed benefits
3915: Retirement/termination of employment lump sum benefits
3920: Lump sum withdrawal benefits
3921: Living annuity and surplus apportionments
3922: Death during employment compensation
3923: Transfer of unclaimed benefits
3924:Transfer on retirement

Simplifying the validation rules
The directive codes are as follow:
• 3230 Directive number
• 3234 Directive type
• 3231 Directive date
• 3232 Directive source code
• 3233 Directive amount

The rules relating to all the above codes are:
• If code 3230 is completed
o Then code 3234, must be completed
• If code 3234 = L
o Then code 3231, 3232 and 3233 must be completed
• If code 3234 = F
o The code 3231, 3232 and 3233 must NOT be completed

Other rules that must be build before the above 3 rules for directives are-
o If code 3608, 3614, 3707, 3718, 3719, 3720, 3721, 3723, 3901, 3902, 3903, 3904, 3905, 3907, 3908, 3909, 3915, 3920, 3921, 3922, 3923, 3924; and
o If code 3658, 3664, 3757, 3768, 3769, 3770, 3771, 3773, 3951, 3952, 3953, 3954, 3955, 3957, is completed,
o Then code 3230 MUST be completed
o and the code 3234 must be L
o and the code forcing this rule must be completed under code 3232
o and code 3231 must be completed
o and code 3233 must be completed

If the code 3230 is completed with code 3234 as a value = F, then no other directive source codes must be completed for that specific transaction relating to the directive completed in code 3230.
It must be noted that an employee may have a F directive as well as a L directive – in this case, there will be 2 code 3230 transactions and the rules will be applied as follows:
o Code 3230 completed with directive number relating to F directive
o Code 3234 completed with value F
o Code 3230 completed with directive number relating to lump sum source code
o Code 3234 completed with value L
o Code 3231 completed with the date of the lump sum directive
o Code 3232 completed with the source code of the lump sum directive
o Code 3233 completed with the amount of the lump sum directive

Severance benefits
In terms of paragraph 9(3) of the Fourth Schedule to the Income Tax Act, the employer has an obligation to ascertain the amount of tax to be deducted against a lump sum due to retirement/retrenchment/death, etc.

Where an employer has not applied for a directive from SARS on this severance amount, in order to correct the situation, the employer should now apply for a directive.

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”.

The amount should then be paid by the employer to SARS to cover the PAYE indicated on the directive.

A severance benefit is defined in section 1 of the Income Tax Act as any amount (other than a lump sum benefit or an amount contemplated in paragraph (d)(ii) or (iii) of the definition of ‘gross income’) received by or accrued to a person by way of a lump sum from or by arrangement with the person’s employer in respect of the relinquishment, termination, loss, repudiation, cancellation or variation of the person’s office or employment or of the person’s appointment to any office or employment, if such person has attained the age of 55 years.
If the retirement package complies with the severance benefit definition above, the employer should apply for a tax directive at SARS to ensure that the retirement lump sum package is correctly taxed.
Due to the fact that the employee will not comply with the no-value provisions of paragraph 12A(5) of the Seventh Schedule, the contribution that the employer pay towards to the retirement fund will be fully taxable in terms of the provisions in paragraph 12A of the said Schedule and need to be recorded on the IRP5 under the relevant code for this taxable benefit.
12A (5) No value shall be placed in terms of this paragraph on the taxable benefit derived from an employer by—
(a) a person who by reason of superannuation, ill-health or other infirmity retired from the employ of such employer

In terms of the definition of “normal retirement age” in section 1 of the Income Tax Act, “normal retirement age” means –
(a) in the case of a member of a pension fund or provident fund, the date on which the member becomes entitled to retire from employment for reasons other than sickness, accident, injury or incapacity through infirmity of mind or body;
(b) in the case of a member of a retirement annuity fund, a pension preservation fund or a provident preservation fund, the date on which the member attains 55 years of age; or
(c) in the case of a member of any fund contemplated in this definition, the date on which that member becomes permanently incapable of carrying on his or her occupation due to sickness, accident, injury or incapacity through infirmity of mind or body

Fixed percentage directive
SARS is issuing a fixed percentage tax directive indicating that the directive percentage must be applied on the “Gross remuneration/commission/income” amount paid to the employee.

This wording is specifically indicated in order to prevent employers from applying the percentage on the “balance of remuneration” (after the deduction of allowance deductions, such as, pension fund contributions, RAF, etc.).

The reasoning behind this wording is the calculation method applied in the SARS Tax directive system to determine the applicable percentage.

On the second page of the IRP3b tax directive application form, the employee should completed the following information:
• Gross Income (according to definition in section 1 of the IT Act)
• Estimated admissible expenditure (all deduction that will be allowed when the income tax assessment is processed/finalised)
• Estimated taxable income
• Tax payable (on the estimated taxable income)
• Tax payable as a percentage of gross income (sect 1 definition)

In order to make a connection between Gross income and Remuneration (called gross remuneration in the wording of the directive), the following example is illustrated:

When deduction the percentage (indicated on the tax directive) on the “balance of remuneration”, the employer will deduct far too less tax to cover the annual tax liability for the year of assessment. Remember the medical tax credit must still be deducted from this amount as well as in calculation indicated in the paragraph below.

However, when deducting the percentage on the gross income (remuneration before deductions), the tax will more or less equal the annual tax liability. IT IS FOR THIS REASON THAT SARS TAX DIRECTIVE INDICATES THE WORDING “GROSS REMUNERATION”. The wording cannot indicate “gross income” as the employer would not know about any other income the employee might receive from another party (e.g. interest, rental, etc.).

The following is knowledge that has been shared from Rhona van Taak on previous SDL queries

SDL (SKILLS DEVELOPMENT LEVY)

SETA code changes
1. SDL PURPOSES – Refer to the SETA/SIC code annexure in the SARS Guide in respect of Skills Development Levies.
• The SETA/SIC codes are established (published in Goverment Gazette) by the Minister of Higher Education and Training. Certain SIC codes are classified under specific SETA’s and are chosen by the employer when registering with SARS as an employer for PAYE/SDL/UIF or SDL/UIF purposes.
• SARS accepts the codes chosen by the employer and will only change the SIC code if a SIC code belonging to a different SETA is chosen. The SETA/Sic codes under which an employer is registered, used to be printed on the –
o confirmation of registration (I trust that this is still happening),
o monthly EMP201 (I trust that this is still happening), and
o EMPSA (statement of account).
• Where an incorrect SETA/SIC code was chosen, there is an IST01 form which the employer must complete which can be sourced from the SETA or the Department of Higher Education and Training (DHET) and submit it to the current ‘incorrect’ SETA for approval. Once approved, the ‘incorrect’ SETA will send the approved IST01 to the DHET for verification. The DHET will direct a request to SARS to change the SETA/SIC classification.
• I suggest that the same process is followed to correct the SIC code where the SETA code is correct but the SIC code is incorrect. Although the IST01 might not make provision for the SIC code change, I suggest that the employer complete the relevant SETA/SIC codes on this form as SARS do need some confirmation to confirm the correct SIC classification and who better than the SETA to do this.
http://www.sars.gov.za/AllDocs/OpsDocs/Guides/SDL-GEN-01-G01%20-%20Guide%20for%20Employers%20in%20respect%20of%20Skills%20Development%20Levy%20-%20External%20Guide.pdf

2. ETI PURPOSES – See SARS¬_PAYE_BRS – PAYE RECONCILIATION: codes 2083 Employer SIC7 Code & 3263 Employee SIC7 code.
• 2082 – Employer SIC7 Code – The Employer Standard Industry Classification Code
o Use the 5-digit sub-class
• 3263 – Employee SIC7 Code – The Standard Industry Classification Code in which the employees mainly work.
o Use the 5-digit sub-class
• These SIC codes are chosen by employers when creating the IRP5/IT3(a) cert’s and where incorrect codes were used, the cert’s should amended to correct these codes. As far as I know, these codes are only used for IRP/IT3(a) purposes to validate the ETI values/limitations on the cert’s and are not part of the employer record on the relevant SARS systems.
http://www.sars.gov.za/TaxTypes/PAYE/ETI/Pages/SIC-Codes.aspx

The following is knowledge that has been shared from Rhona van Taak on previous Labour Law queries

LABOUR LAW

Digital employment related documents
The BCEA (Basic Conditions of Employment Act) only specifies that records must be kept for a specified time period. It does not specify that it must be kept in hard copy. If the documents can be stored securely digitally, it should not be an issue when looking at labour law. However, it must just be kept secure in compliance with the POPI (Protection of Personal Information) Act.

Garnishing orders:
SARS IT88 and Court orders: You only comply with garnishees whilst the employee is in your employ, as the order pertains to an amount deducted from a salary. Once there is no salary to deduct from anymore, the employer’s obligation ends and such employer should just inform the person responsible for managing the garnishee order that the employee is no longer employed by him.

End date for monthly garnishing orders:
The employer need to do exactly as instructed per the Court Order. Therefore, if there is an end date, the employer only pays until that date. I f there is no end date, the employer continues paying until he is instructed otherwise by a court. It is up to the employee to ensure that he follows up on garnishees if he wishes to challenge the order.

Payslip information
The following information must be present on the payslip in terms of section 33 of the Basic Conditions of Employment Act:
33 Information about remuneration
(1) An employer must give an employee the following information in writing on each day the employee is paid:
(a) The employer’s name and address;
(b) the employee’s name and occupation;
(c) the period for which the payment is made;
(d) the employee’s remuneration in money;
(e) the amount and purpose of any deduction made from the remuneration;
(f) the actual amount paid to the employee; and
(g) if relevant to the calculation of that employee’s remuneration-
(i) the employee’s rate of remuneration and overtime rate;
(ii) the number of ordinary and overtime hours worked by the employee during the period for which the payment is made;
(iii) the number of hours worked by the employee on a Sunday or public holiday during that period; and
(iv) if an agreement to average working time has been concluded in terms of section 12, the total number of ordinary and overtime hours worked by the employee in the period of averaging.
(2) The written information required in terms of subsection (1) must be given to each employee-
(a) at the workplace or at a place agreed to by the employee; and
(b) during the employee’s ordinary working hours or within 15 minutes of the commencement or conclusion of those hours.
The above is the only information prescribed by the Act.
However, there is no reason why additional information (such as: Bank account details, ID number, etc.) may not be present on the payslip as the payslip is only available to the specific individual whos details are present on the payslip. The payslip is not presented to other persons without the relevant individual’s permission.

Rounding of net pay
The Labour legislation applicable in South Africa do not prescribed anything with regards to whether or not salary/wage payments are allowed to be rounded off.
However, should an employer use a method of rounding when paying salary/wages, it is suggested that it should be round-up and NOT down to prevent short payment disputes.

The following content was published in Newsflash 2023/23 – SARS Notice: Trade testing Directive system:

SARS NOTICE: TRADE TESTING OF THE TAX DIRECTIVE ENHANCEMENTS
SARS has enhanced its tax directive systems and issued a notice for employers and tax practitioners to assist with the testing of the changes. As you can see from the notice below, the trade testing is scheduled to start on 16 August 2023.

SARS NOTICE:

Dear Stakeholder
TRADE TESTING DATES AND SOFTWARE IMPLEMENTATION: TAX DIRECTIVES
SARS will introduce enhancements to the Tax Directives process as indicated in the IBIR-006 Tax Directives Interface Specification Version 6.503. Trade testing is planned to start on Wednesday, 16 August 2023 to prepare for the implementation of the software during the second quarter of this financial year. If the dates need to change, SARS will communicate accordingly.
The Tax Directives Interface Specification is available on the SARS website www.sars.gov.za and you are encouraged to review it prior to testing.
Please follow these steps to submit test files:
Step 1: Before testing can commence, you will need to email 10 taxpayer reference numbers to [email protected] to ensure the numbers are active. In the email subject line, use “Tax reference numbers for Trade Testing”. A maximum of 10 taxpayer reference numbers will be allowed.
Step 2: You will be notified via the same email address to confirm when testing may commence.
For trade testing queries please email [email protected]
Sincerely THE SOUTH AFRICAN REVENUE SERVICE
July 2023

The following is knowledge that has been shared from Rhona van Taak on previous Allowance and Benefits Tax Law queries

TAX LAW: ALLOWANCES AND BENEFITS

Adjusting taxable benefit value

In terms of paragraph 3(3) of the Seventh Schedule the employee may refer the matter to SARS if it appears that the determination of the taxable benefit should be adjusted. Paragraph 3(3) of the Seventh Schedule follows:
(3) If the employee concerned is dissatisfied with any determination or proposed determination by his employer of the cash equivalent of the value of any taxable benefit included in the remuneration of the employee for employees tax purposes, the employee or the employer may refer the matter to the Commissioner and the Commissioner may, if it appears to him that the determination or proposed determination should be adjusted, issue a directive to the employer as to the manner in which such determination should be made and the employer shall be obliged to act upon such directive: Provided that nothing in this subparagraph contained shall be construed as preventing the Commissioner from making a re-determination of such cash equivalent under the provisions of subparagraph (2)

In terms of paragraph 3(2) of the Seventh Schedule SARS may make a correction on the determination of the taxable benefit on assessment if such determination made by the employer is incorrect. Paragraph 3(2) of the Seventh Schedule follows:
(2) The Commissioner may, if no determination is made, or if such determination appears to him or her to be incorrect, re-determine such cash equivalent—
(a) and issue the employer with a notice of the assessment in terms of section 96 of the Tax Administration Act for the unpaid amount of employees’ tax that is required to be deducted or withheld from such cash equivalent; or
(b) upon the assessment of the liability for normal tax of the employee to whom such taxable benefit has been granted.

In order to do this, the individual should make an appointment with SARS to discuss this and provide the relevant supporting documents. It is suggested that this appointment be made with a SARS auditor.

Bursaries / Scholarships

The provisions of section 10(1)(q) of the Income Tax Act, which relates to bursaries/scholarships, refer to a bursary granted by an employer to an employee, and does not place any limitation on an employee who is a relative of the employer.

The “no value” provision of the bursary benefit will be applicable until the tax year in which the conditions for the granting of the bursary are not met.
These conditions are normally, repayment if the study was not successfully completed, and/or repayment if the employee has not completed employment for a certain number of years (has to work for employer for a fixed period of time), etc.

The year when the conditions are not met, this bursary will become a taxable fringe benefit which must be added to the remuneration of the employee.
The year when the conditions are met, this bursary transaction will be finalised and no value will be taxable in the hands of the employee.

Furthermore, the “no value” will ONLY apply if –
• The remuneration proxy of the employee DOES NOT exceed R600 000; AND
• The bursary for the year DOES NOT exceed R20 000 in respect of grade R to grade 12 as contemplated in the definition of “school” in Section 1 of the South African Schools Act.

The preamble to section 10(1)(q) provides that the institution must be a recognised educational institution. If it is not one, the bursary exemptions do not apply.

In Rhona van Taak’s opinion, the services provided for children not yet in grade R would not qualify for the bursary exemption.

In principle, if the bursary exemption does apply, this could be structured into the parent’s package with two main provisos:
1. That remuneration that has accrued is not reduced
2. That the reduction to remuneration is applied consistently, and will then potentially impact on contributions to retirement funds, etc.

According to SARS interpretation note, a salary sacrifice is not allowed and the following is clear:
• That remuneration that has accrued is not reduced if it is structured into the employee’s package.

Company cars

The employer must tax the use of a company vehicle according to the provisions prescribed in the Seventh Schedule to the Income Tax Act. To do this the determined value of the vehicle is used and either 3.25% or 3.5% of this value is a monthly taxable benefit. However, if the vehicle relates to an operating lease, then the cost for the employer is the monthly taxable benefit.

In terms of the provisions of paragraph 7 of the Seventh schedule to the Income Tax Act, the employer needs to determine the “determined value of the vehicle”.

The determined value of a vehicle is normally the cost price of the vehicle (refer to paragraph 4.3.3 of SARS Interpretation Note 72.

Depreciation of 15% on the reducing balance is allowed only if the vehicles in allocated from one employee to another employee where the 1st employee has used the vehicle for 12 months or more. This depreciation is also only applicable to 12-month periods, which means that if the 1st employee only used the vehicle for 15 months, only 12-month depreciation will be allowed at 15% for the 12 months. The balance will then be the determined value of the vehicle for the 2nd employee.

When the monthly benefit value is determined, then this amount is subject to the deduction of PAYE at either 20% or 80% depending the business use of the vehicle.

When the individual needs to do his income tax annual return, he must use his logbook to claim against the taxable benefit. This claim uses the total kilometers travelled during the year and the business kilometers travelled during the year as well as the value of the vehicle.

Where the employer has deducted PAYE at a 80% rate of the taxable benefit and the business kilometers compared to the total kilometers results in more than 80% of the total kilometers, this individual will get a tax refund from SARS with the submission of his income tax return.

Where the employer has deducted PAYE at a 20% rate of the taxable benefit and the business kilometers compared to the total kilometers results in less than 20% of the total kilometers, this individual will get have a debit due to SARS with the submission of his income tax return.

In terms of the provisions of paragraph 7 of the Seventh Schedule to the Income Act, where an employee has the use of a motor vehicle for a part of a month, the taxable benefit must be determined in the same ration as the number of days the employee had the use of the vehicle to the total number of days in the month.

In other words, if the employee had the use of 4 vehicles during the year at different periods in the year, and any of the period in the month of use for any of the vehicles is not for a full month, a pro-rata calculation must be done.

The value as calculated should be reported either against code 3802 or 3816 (operating lease).

Code 3701 is only used where a travel allowance is paid to an employee for the use of his private vehicle.

The PAYE BRS and the Guide for Employers in respect of Fringe benefits clearly indicate that the use of a company vehicle must be reported under the relevant codes 3802 or 3816.

Please refer to SARS interpretation note 72 explaining the taxability of the use of a motor vehicle and the individuals assessment claim.

Loans to employees

In terms of paragraph 2(f) of the Seventh Schedule to the Income Tax Act, a fringe benefit occurs if an employer grants a loan to an employee at an interest rate at less than the official rate of interest.

The difference between the interest rate paid by the employee and the official rate of interest, will constitute the value of the fringe benefit which must be included in the remuneration of the employee.

There are certain loans which does not have a value and is deemed to be “no value” fringe benefits, such as:
• Short-term debts not exceeding R3000
• Loans granted to acquire immovable property Which does not exceed R450000, provided that it complies with the conditions.

The official rate of interest can be found on the SARS website: https://www.sars.gov.za/AllDocs/LegalDoclib/Rates/LAPD-Pub-IRT-2012-03%20-%20Interest%20Rate%20Table%203.pdf

The code that must be used to report this fringe benefit on the tax certificate is code 3801.

Long services awards
The PAYE BRS is silent as to whether the long service award (code 3835) is regular or periodic in nature just as it is silent on other cash payments such as commission and arbitration awards.
To determine whether to tax it as an annual payment or not one must look at how it was actually paid in practice.
Before an award can be reduced by up to R5,000 for tax calculations, the conditions of long service that specify a minimum of 15 years continuous service for the first award, followed by 10-year continuous periods of service for the following awards, must be met.
My understanding is that the long service award can be paid at any stage, or stages, in the tax year in which the long service conditions are met.
No requirement prescribes that a single award must be made (which would be an annual payment and taxed accordingly). If the employer wants to, the award can be made split into two awards, or quarterly, or even every month for 12 months.
You would tax it according to how it was actually paid.
Lastly, if the long service conditions are met, then the lesser of the value of the awards and R5,000 reduces the award value for tax calculation purposes.
The value reported under code 3835 is the total i.e. combined value of the awards.
The payroll reduces the total value by up to R5,000 as described above, and SARS will reduce it by R5,000 for the income tax calculation.

Remuneration proxy

It is easier and quicker to explain if you copy the definition of the ‘remuneration proxy’:
“remuneration proxy”, in relation to a year of assessment, means the remuneration, as defined in paragraph 1 of the Fourth Schedule, derived by an employee from an employer during the year of assessment immediately preceding that year of assessment, other than the cash equivalent of the value of a taxable benefit derived from the occupation of residential accommodation as contemplated in subparagraph (3) of paragraph 9 of the Seventh Schedule in the application of that subparagraph: Provided that—
(a) where during a portion of such preceding year the employee was not in the employment of the employer or of any associated institution in relation to the employer, the remuneration proxy as respects that employee must be deemed to be an amount which bears to the amount of the employee’s remuneration for the portion of such preceding year during which the employee was in such employment the same ratio as the period of 365 days bears to the number of days in such last-mentioned portion;
(b) where during the whole of such preceding year, the employee was not in the employment of the employer or of any associated institution in relation to the employer, the remuneration proxy as respects that employee must be deemed to be an amount which bears to the employee’s remuneration during the first month during which the employee was in the employment of the employer the same ratio as 365 days bears to the number of days during which the employee was in such employment;

I have highlighted the areas of the definition that relate to your questions.
So you must:
1. Exclude the value of the residential accommodation from the remuneration proxy value.
2. Where not employed by you in the previous tax, then use the rem proxy value for the first month of employment in the current tax year, and annualise that amount for the formula calculation
3. Apply the formula specified in Seventh Schedule paragraph 9(3).

Seventh Schedule Paragraph 9(3)

(3) Subject to the provisions of subparagraph (3C) and (4), the rental value to be placed on such accommodation for any year of assessment shall be an amount determined in accordance with the formula
(A — B) x C / 100 x D /12
in which formula—
(i) “A” represents the remuneration proxy as determined in relation to the year of assessment;
(ii) “B” represents an abatement equal to an amount of R83 100: Provided that in any case where—
(aa) the employer is a private company and the employee or his spouse controls the company or is one of the persons controlling the company, whether control is exercised directly as a shareholder in the company or as a shareholder in any other company; or
(bb) the employee, his spouse or minor child has a right of option or pre-emption granted by the employer or by any other person by arrangement with the employer or any associated institution in relation to the employer whereby the employee, his spouse or minor child may become the owner of the accommodation, whether directly or indirectly by virtue of a controlling interest in a company or otherwise,
the said abatement shall be reduced to zero;

(iii) “C” represents a quantity of 17: Provided that where the accommodation consists of a house, flat or apartment consisting of at least four rooms—
(aa) “C” represents a quantity of 18 if—
(A) such accommodation is unfurnished and power or fuel is supplied by the employer; or
(B) such accommodation is furnished but power or fuel is not supplied; or
(bb) “C” represents a quantity of 19 if such accommodation is furnished and power or fuel is supplied by the employer; and
(iv) “D” represents the number of months in relation to a year of assessment during which the employee was entitled to occupation of such accommodation.

Therefore, in terms of the definition of remuneration proxy no deductions can be made, it is therefore “remuneration” as defined in the Fourth Schedule.

Furthermore, it depends on the employment date of the employee:
• If employee was not employed in the previous year, it is this year’s remuneration grossing up in relation to the pay periods in tax year and pay periods worked.
• If the employee was employed for the full previous tax year, it is the remuneration received for that year.
• If the employee was employed for a portion of the previous tax year, it is the remuneration received during that portion which must be gross-up in relation to the full year.

The original response explain the above, see below:

Paraphrasing the definition in section 1 of the Income Tax Act for easier understanding, “remuneration proxy” in relation to the current year of assessment is remuneration as defined by the Fourth Schedule, and must be applied as follows –
1. If the employee was employed by the same employer for the whole of the year of assessment immediately preceding the current year of assessment, it is the employee’s remuneration that was paid in respect of the preceding year of assessment
2. If the employee was employed by the same employer for a portion of the year of assessment immediately preceding the current year of assessment, it is the employee’s remuneration that was paid in respect of the portion of the preceding year of assessment, ‘grossed-up’ to represent the full year’s remuneration
3. If the employee was not employed by the same employer during the year of assessment immediately preceding the current year of assessment, it is the employee’s remuneration that was paid for the first month of employment in the current year of assessment, ‘grossed-up’ to represent the full year’s remuneration.

Remuneration proxy increase with retirement benefits

When the retirement reform amendments were introduced on 1 March 2016, as you know the employer-paid contribution to a retirement fund resulted in a fringe benefit equal to the value of the employer-paid contribution.
The bigger the value of the employer contribution, the bigger the value of this taxable fringe benefit, therefore potentially more PAYE.
I remember that at the time there certain categories of employers (municipalities come to mind) came to light that prior to 1 March 2016, were contributing exorbitantly large amounts to the retirement fund in an attempt to give their employees some sort of a tax advantage under the old tax rules.
The new tax rules leveled the playing field and resulted in the balance of remuneration being increased considerably in these cases.
At the same, the rules for the deduction available to the employee were also changed, in some cases resulting in a larger deduction and therefore potentially less PAYE.
The result of this was that more PAYE was withheld for some employees of certain employers, and this was described as an unavoidable consequence of the retirement reforms, but the bottom line was that the employee was being taxed correctly on the benefit to the employee.
I also remember reading or being told at the time that an analysis of the balance of remuneration (looking at retirement fund contributions in isolation from other income and deductions) showed that by far the majority of employees were either tax neutral, or better off, in Mar 2016 compared to Feb 2016.
There is certainly no intention to change the legislation.

Retirement fund contributions paid by employer

In terms of paragraph 2(l) of the Seventh Schedule to the Income Tax Act, 1962, a taxable benefit incurs when an employer had contributed towards a retirement fund on behalf of an employee.

In terms of paragraph 12D(2) of the said Schedule prescribed that the value of the taxable benefit where it consist SOLELY of defined contribution components, is the value of the amount contributed by the employer.

Paragraph 12D(3) prescribed that where it consist of components OTHER THAN ONLY defined contribution components, the cash equivalent of the benefit is determined in accordance with the formula: X = (A x B) – C.
As this formula takes the fund member category factor as well as the retirement funding income into consideration, it means that the result (taxable benefit) may be less than the amount actually paid by the employer to the fund.

The following IRP5 certificate codes will be applicable when an employer contribute towards a pension fund on behalf of an employee:
• Code 4774 = actual contribution paid by the employer
• Code 3825 = taxable benefit determined in terms of paragraph 12D(2) or (3) whichever is applicable
• Code 4003 = value of code 3817 plus the contributions made by the employee
The taxable benefit is deemed to be paid by the employee and should therefore be included in code 4003.

If it consists of components OTHER than defined contribution components, then you must use the prescribed formula to determine the taxable benefit portion which will change the value of code 3825 and 4003.

Severance benefits
References in this response to sections are to sections of the Income Tax Act, 1962 (the Act).
A “severance benefit” as defined in section 1(1) arises, once the general definition thereof has been met, in one of three instances:
• The person is at least 55 years old;
• The relinquishment, termination, loss, repudiation, cancellation or variation of employment has resulted from the person being permanently incapable of continuing with his or her employment due to, amongst others, sickness or incapacity; or
• The termination or loss of employment is due to the person’s employer having ceased or intending to cease carrying on a trade for which the person was employed, or due to the person having been made redundant by the employer, unless, where the person’s employer is a company, that person holds more than 5% of the shares or members’ interest in that company.
Note that the exclusion in reference to a person who holds more than 5% of the shares or members’ interest in that company, will only apply in respect of the provisions of paragraph (c) above. In other words, in the case of a person who is made redundant or whose termination or loss of employment was due to his or her employer ceasing trade, the lump sum received by or accrued to that person will not be regarded as a severance benefit as defined if the person (whether a director or any other employee) holds more than 5% of the shares or members’ interest in that employer company. The exclusion will, however, not apply in respect of the provisions of paragraphs (a) and (b) above, regardless of that person’s shareholding or members’ interest in the employer company.
In cases where the exclusion in paragraph (c) applies, the lump sum received by or accrued to the person in respect of the termination or loss of office or employment will not be a severance benefit as defined. However, the amount will still fall to be included in the person’s “gross income” under paragraph (d)(i) of that definition in section 1(1). Accordingly, this amount is “remuneration” as defined in paragraph 1 of the Fourth Schedule to the Act (the Fourth Schedule) and will be subject to normal rates of tax applicable to natural persons. Paragraph 9(3)(a) of the Fourth Schedule further requires an employer to obtain a directive from SARS with respect to this lump sum in order to determine the employees’ tax to be deducted or withheld therefrom.
A severance benefit, although payable as a lump sum, is not a “lump sum benefit” as defined in section 1(1), since it is not paid by the person’s retirement fund under the Second Schedule to the Act. As such, the “Guide on the calculation of the tax payable on lump sum benefits” will not apply to the lump sum paid to the employee. Kindly refer to paragraphs 11 and 12.5 of the “Guide for Employers in respect of Employees’ Tax (2021 Tax Year)” for additional guidance in this regard.

A severance benefit is defined in section 1 of the Income Tax Act as any amount (other than a lump sum benefit or an amount contemplated in paragraph (d)(ii) or (iii) of the definition of ‘gross income’) received by or accrued to a person by way of a lump sum from or by arrangement with the person’s employer in respect of the relinquishment, termination, loss, repudiation, cancellation or variation of the person’s office or employment or of the person’s appointment to any office or employment, if such person has attained the age of 55 years.
If the retirement package complies with the severance benefit definition above, the employer should apply for a tax directive at SARS to ensure that the retirement lump sum package is correctly taxed.
Due to the fact that the employee will not comply with the no-value provisions of paragraph 12A(5) of the Seventh Schedule, the contribution that the employer pay towards to the retirement fund will be fully taxable in terms of the provisions in paragraph 12A of the said Schedule and need to be recorded on the IRP5 under the relevant code for this taxable benefit.
12A (5) No value shall be placed in terms of this paragraph on the taxable benefit derived from an employer by—
(a) a person who by reason of superannuation, ill-health or other infirmity retired from the employ of such employer

In terms of the definition of “normal retirement age” in section 1 of the Income Tax Act, “normal retirement age” means –
(a) in the case of a member of a pension fund or provident fund, the date on which the member becomes entitled to retire from employment for reasons other than sickness, accident, injury or incapacity through infirmity of mind or body;
(b) in the case of a member of a retirement annuity fund, a pension preservation fund or a provident preservation fund, the date on which the member attains 55 years of age; or
(c) in the case of a member of any fund contemplated in this definition, the date on which that member becomes permanently incapable of carrying on his or her occupation due to sickness, accident, injury or incapacity through infirmity of mind or body

Subsistence allowance

In terms of section 8(1)(c) of the Income Tax Act, a subsistence allowance which does not exceed the Daily rates as published by SARS in respect of meals and incidental costs relating to outside the RSA will be deemed to be expended and will not be included in his taxable income.

However, if the recipient received an allowance for accommodation, the allowance will be included in his taxable income and the actual expenses needs to be claim for assessment purposes.

No limitation on the number of days is placed on a subsistence allowance.

In order to qualify for a subsistence allowance under section 8(1)(a)(i)(bb) of the Income Tax Act, the employee must be away from his usual place of residence in the Republic for at least one full period from sunset to sunrise of the next day.

A few years ago, the SARS guide to employers in respect of employees’ tax had a limitation of 60 days, however, since then this limitation has been removed by SARS.

Please refer to SARS Interpretation Note 14 for more details.

Transfer costs

The expenses borne by the employer in respect of purchasing a bed, dining room table, crockery and cutlery for the employee do not qualify as “settling-in” costs for purposes of paragraph (ii) of the exemption in section 10(1)(nB) of the Income Tax Act, 1962 (the Act).

The following expenditure, incurred by the employee and reimbursed by the employer, is envisaged as qualifying costs for purposes of section 10(1)(nB)(ii) of the Act:
• Bond registration and legal fees paid in respect of a new residence that has been purchased;
• Transfer duty paid in respect of the new residence;
• Cancellation fees paid for bond cancellation on previous residence;
• Agent’s commission paid on sale of previous residence;
• New school uniforms;
• Replacement of curtains;
• Motor vehicle registration fees; and
• Telephone, water and electricity connections.

The expenditure borne by the employer in respect of purchasing a bed, dining room table, crockery and cutlery for the employee will give rise to a taxable benefit that will not qualify for exemption under section 10(1)(nB) of the Act. The nature of the taxable benefit will further depend on the specific facts and circumstances of each case.

Travel allowance: Portion of package

There is no official percentage of the package prescribed as acceptable for a travel allowance.

However, in general where the total percentage exceeds 25%, SARS would normally conduct an audit and the employee must have proof available in order to satisfy that he travels extensively for business purposes.

Furthermore, the travel allowance must at least be of such a value that it covers the business travel costs. This means that if you give the employee a R10000 travel allowance but the total business costs (total business costs ÷ total km travelled x business km travelled) is less than the travel allowance, such employee might find that he has a debit when his final tax assessment is processed.

Travel allowance: with fuel paid by employer or petrol card paid by employer

The combination of a travel allowance with a petrol card (where the company pays the petrol card) is treated as a travel allowance (code 3701) in the payroll.

Employees who receive a travel allowance and additional to this allowance is provided with a petrol or garage card (account paid by the employer) by their employer, have to be treated as follows for payroll purposes:
• The amount expended on these cards is included in the employee’s travel allowance (code 3701 on the IRP5) and the appropriate portion thereof (80% or 20%) is subject to the deduction of PAYE, SDL, and UIF.
• The amount expended on these cards is a company expenses. Care must be taken that this expenses in not duplicated on the financial records of the company, for example, as part of the total salary expenses and as part of the fuel expenses of the company.

The reason why these expenses relating to the use of the cards are included in the travel allowance of the employee is due to the fact that the employee’s travel includes a private travel portion and in order to ensure that the correct business claim is made and that the employee is correctly taxed on any private portion.

For more information regarding this please refer to the SARS Interpretation Note 14 as well as the BGR 23.

Travel reimbursement

SARS has issued an Interpretation note (no. 14 – issue 3) which provides clarity on the tax treatment of allowances, advances and reimbursements. Paragraph 5.2 specifically indicated that reimbursements and advances must be excluded from taxable income with the exception of “travel reimbursements” where an employer reimburses an employee for the actual business kilometers travelled at an employer-agreed rate per kilometer.

If the rate at which the employer reimburses the employee for travel expenses does not exceed the rate as published in the Gazette, there is not PAYE deductible from such reimbursement and the reimbursement will be deemed to be expended on assessment in terms of section 8.

The rate at which the employer reimbursed an employee for travel expenses should be determined in terms of the employer’s policy.

The rate published by the Minister in the Gazette is the rate that should be used to compare the actual reimbursement rate for purposes of determining whether the reimbursement is subject to the deduction of PAYE.

The published rate is not a rate which force the employer to pay an reimbursement by using this published rate. The accrual reimbursement rate is determined in terms of company policy.

Paragraph 5.4 of the interpretation note specifically deals with deductions from travel allowances and advances and it is stated that in the context of travel, an allowance or advance includes both a travel allowance and a travel reimbursement.

A recipient who receives a travel allowance and a travel reimbursement must add the amount of the travel reimbursement to the amount of the allowance and calculate the allowable deduction for the number of business kilometers travelled.

A recipient who only receives a travel reimbursement must still go through the process of determining the allowable deduction because, depending on the facts, the rate at which the recipient was actually reimbursed may exceed the allowable deduction. The allowable deduction is determined by applying the actual cost, deemed rate per kilometre method or the specified rate per kilometre (see 5.4.3 and 5.4.4).

The amount of the allowable deduction which may be deducted from the travel allowance, advance or reimbursement has two components, namely, the business kilometres travelled (see 5.4.2) and the expenditure per kilometre.

Expenditure per kilometre may be determined using actual costs (see 5.4.3) or according to the deemed rate per kilometre as determined by the Minister of Finance by notice in the Gazette (see 5.4.4).

With effect from 1 March 2010 the deemed kilometre method was deleted from the Act. Taxpayers wishing to claim the cost of business travel must base their claim on the actual business kilometres travelled and are required to prove the business kilometres travelled to the satisfaction of the Commissioner.

Should the employee not maintain a logbook and/or declare the business kilometres travelled for the year in his income tax return, a tax debit will be due by the employee to SARS with the processing of his income tax return as this amount will become fully taxable and no claim is allowed against this amount.

The following is knowledge that has been shared from Rhona van Taak on previous General Tax Law queries

TAX LAW: GENERAL

Differences between the terms “Accrual” or “paid”
In simple terms, ‘accrual’ is when there is an unconditional right to an amount. There are also tax court cases that indicate that the amount must also be quantifiable.
Again, to simplifying matters, if an amount that is taxable and that has accrued is turned into an amount that is not taxable, SARS will regard this as an illegal salary sacrifice and will expect to be paid the tax on the amount.
In a scenario of an end-of-year increase that would have been taxable but that is turned into a non-taxable (exempt) bursary, the issue is accrual. Has the amount accrued? In Rhona van Taak’s opinion, if the principle of converting the increase into a bursary is done at an early stage when the increase is not unconditional (which would also be before it is quantified), then there should not be a problem.
Remuneration is defined as “any amount of income which is paid or payable…”

In order to determine when PAYE should be deducted from remuneration, you must determine the earliest date between paid or payable. In other words, whichever comes first. This is the date use for the deduction of PAYE.

Remuneration will only be “paid” if the person received it (whether it is already due to him or not).
Remuneration will be “payable” when the person is entitled to it (refer to the case WH Lategan v CIR) and when that person’s right to the remuneration is unconditional (refer to the case Lategan v CIR 1926).

Furthermore, the definition of “gross income” in Section 1 of the Income Tax Act, includes this remuneration in the person’s gross income in the year in which it is received by him or the year in which it accrues to him, whichever comes first (refer to the case (SIR v Silverglen Investments (Pty) Ltd 1969).

Where salaries have not yet been paid to the employee, but the employee was unconditionally entitled to such salary, the salaries must be included in the Tax certificate of the employee as it already accrued to him.

PAYE is deductible from remuneration that has accrued on such accrual date.
Paragraph 2(1) of the Fourth Schedule states:
“…who pays or becomes liable to pay any amount by way of remuneration to any employee shall, …, deduct or withhold from that amount, …, by way of employees’ tax …an amount which shall be determined as provided in paragraph 9, 10 or 11 or section 95 of the Tax Administration Act, whichever is applicable, …, pay the amount so deducted or withheld to the Commissioner within seven days after the end of the month during which the amount was deducted or withheld…”

The only exception is when the remuneration falls within the prescription of “variable remuneration” as contemplated in Section 7B of the Income Tax Act.

This section addresses the situation where there is a timing difference between the accrual and the actual payment of the amount. For example, where an employee has an unconditional right to receive the variable remuneration, but it is only paid at a later date.

It is important to note that only certain types of remuneration are defined as “variable remuneration”, therefore only these types will be taxed when it is actually paid and not on the accrual date.

According to Section 7B, “variable remuneration” are-
• Overtime pay, bonus or commission contemplated in the definition of ‘remuneration’ in para 1 of the Fourth Schedule
• An allowance or advance paid in respect of transport expenses as contemplated in section 8(1)(b)(ii) or (iii)
• Any amount which an employer has during any year of assessment become liable to pay to an employee in consequence of the employee having during such year become entitled to any period of leave which had not been taken by the employee during that year
• Any night shift allowance
• Any standby allowance
• Any amount paid or granted in reimbursement of any expenditure as contemplated in section 8(1)(a)(ii)

Calculating PAYE

Where an employee earns fluctuating income during a tax year, the best option to determine the PAYE is to work on year-to-date earnings.
The year-to-date earnings needs to be annualised (annual equivalent) by using the formula:
Year to date yearnings ÷ pay periods worked in tax year x total pay periods in tax year.
Pay periods worked in tax year = all periods the employee was working in the tax year (eg. months) irrespective of whether or not he has been paid any remuneration during any of the periods.
You may not refund any PAYE deducted to date due to the fact that the provisions of the Fourth Schedule do not make provision for an employer to refund PAYE.

Directors

In terms of the definition of employee and employer in the Fourth Schedule to the Income Tax Act, if any director (executive or non-executive) provides services to an employer as an employee, they must be taxed in exactly the same way as any other employee.
However, in their capacity as the holder of an office, one has to determine whether or not the individuals are offering these services as an independent contractor.
Executive directors are employees by the nature of being an executive, therefore generally all amounts paid to them by the company are remuneration, and subject to PAYE, SDL, UIF etc.
Non-executive directors are seen to be independent contractors and their fees are not remuneration. In this regard, refer to the SARS Binding General rulings (BGR) numbers 40 and 41 for non-executive directors.
Both of these BGR’s deal with non-executive directors (NED’s), number 40 for PIT, and number 41 for VAT.
While it is an enlightening exercise to read these two BGR’s, they are not directly relevant to executive directors.
An executive director provides services to the company and is an employee of the company if he or she is paid remuneration as defined by the Fourth Schedule of the Income Tax Act in return for those services.
Besides amounts paid such as salary, wage, bonus, overtime, commissions etc, ‘fees’ are defined to be remuneration and are therefore administered in the same way as, for example, salary as far as PAYE, SDL, UIF etc is concerned.
The starting point is therefore that the director is an employee, and in terms of the tax result, there is no difference between a ‘salary’ and a ‘fee’.
However, if it is determined by the two statutory tests provided in the definition of remuneration that the director is paid fees in respect of services rendered as an ‘independent trade’, then the director is no longer an employee.
A discussion of the two statutory tests is very lengthy and I am afraid is outside of the scope of this – independent contractors are a very difficult area.
Consult the SARS Interpretation Note 17 (EMPLOYEES’ TAX: INDEPENDENT CONTRACTORS), in particular section 3.1. for more information.

Employer cease trading/stop trading/close business

In terms of paragraph 13(2)(c) of the Fourth Schedule to the Income Tax Act, an employer who ceased to be an employer, must submit the EMP501 reconciliation together with all associated IRP5 tax certificates to SARS within 14 days of the date on which the employer has so ceased.
This means that the employer may submit the reconciliation documents immediately and do not need to wait for the filing season to open. It must also be noted that all certificates must be marked as final certificates, in other words the period in the certificate number must be 202102 and the indicator in easyfile must be set as final certificate.

Independent contractor

In order to determine if a worker/service provider will be an independent contractor, etc, you need to classify such person.
• Is the contract for services for a company/trust or an individual.
If it is for a company/trust, then the possibility exist that the company/trust might be a personal services provider (provided that it complies with the provisions of the Fourth Schedule, namely:
A personal service provider (PSP) is a company or trust, where the services rendered to a client is rendered personally by a person who is a CONNECTED person to such company or trust, and
• Such person would be regarded as an employee of the client if the services were rendered directly to the client; or
• The duties are mainly performed at the premises of the client and is subject to the control and supervision of the client as to the manner in which the duties are preformed; or
• More than 80% of the income of the company/trust from services rendered consists of amounts received from one client.
However, there is an exception to the above, namely, where the company/trust employs 3 or more employees who are full-time engaged in the business of the company/trust of rendering services (other than a connected person). If the company/trust complies with the exception, then it is not a PSP.
If the contract for services is with the individual, then the employer must determine whether or not the individual is an independent contractor.
The statutory tests as prescribed in Interpretation Note 17 must be performed in order to determine if the person is an independent contractor.
These statutory tests are the following:
• Are the services performed mainly (more than 50% of the time on average) at the premises of the client, and
• Control and supervision of manner in which duties are performed or as to the hours of work
If any one or both of the two statutory tests are satisfied, then the person providing the services is independent.
Please note that IN 17 also provides a flow chart on the scenarios to be tested in order to determine the status.
Tools are provided by SARS to guide employers to classify the employee correctly (please refer to Interpretation Note 17 for details).

Zero tax agreement between employer and employee

Any employer that is liable to pay remuneration to an employee, is liable to withhold and pay over the relevant employee taxes to the South African Revenue Service (SARS) on a monthly basis. This is governed by the Income Tax Act No 58 of 1962.
The term “Remuneration” is defined in paragraph 1 of the Fourth Schedule of the Income Tax Act. An extract of this definition is shown below:
“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….”
Paragraph 7 of the Fourth Schedule states the following:
“Any agreement between an employer and an employee whereby the employer undertakes not to deduct or withhold employees’ tax shall be void.”
It is our opinion, on review of the legislation and the facts at hand, that no grounds exist to not withhold employee’s tax. We further would like to caution the employer, that should employee’s tax not be levied on the amount, and SARS should take the opinion that the amount is considered “Remuneration” as defined, the employees will be liable for the outstanding tax on this amount when the employee’s submit their personal income tax returns, and in turn could hold the employer responsible.
An alternative consideration to resolve the issue at hand, would be for the employer to apply for individual tax directives for each affected employee. The Income Tax Act does allow for consideration by the Commissioner on special circumstances and thereby rule on a reduced or exclusion of PAYE on a specified amount.
Finally, consideration could be given to the option of the employer to cover the tax liability of the employee on this amount. A transaction such as this will in itself needs to be taxed as a benefit (Payment of Employee Debt). The principle would be that the employer adds an allowance to the employee’s income that would cover that tax due on the amount. This transaction will invariably increase the cost to the employer. There is a calculation in tax law that caters for this. In this instance the employee would get the full benefit of the tax liability paid on his/her behalf by the employer and SARS would get the full tax due on the amount paid. The effect of doing the transaction would be an increase in employer expenses.

PAYE under-deducted

In terms of the Fourth Schedule to the Income Tax Act 58 of 1962 (“the Act”), there is an obligation on employers to withhold employees’ tax from remuneration paid to employees. This mechanism of collection of employees’ tax provides the South African Revenue Service (“SARS”) with an efficient way in which to obtain the employees’ tax due to the fiscus. Instead of having to deal with each employee separately, SARS only has to concentrate on the relevant employer’s withholding obligation.
The provisions of the Fourth Schedule do not absolve the employer from its obligation in terms of the Act where the employer has not issued payslips and/or account for the salary related taxes to SARS. Although in terms of Labour Law payslips should be available for salaries paid to employees.
In addition, the Seventh Schedule to the Act places a responsibility on an employer to calculate the cash equivalent of fringe benefits granted to employees and include this amount in the determination of the employees’ remuneration from which the employees’ tax is calculated.
If an employer fails to deduct or withhold the full amount of employees’ tax due, paragraph 5(1) of the Fourth Schedule to the Act stipulates that such employer shall be personally liable for payment to the Commissioner of the amount of employees’ tax which he fails to deduct or withhold. In addition, the employer will be liable to a penalty of 10% of such amount in terms of paragraph 6(1) of the Fourth Schedule to the Act, as well as interest in terms of section 89bis(2) of the Act.
Furthermore, if an employer fails to pay an amount of employees’ tax with the intent to evade his obligations under the Act, paragraph 6(2A) of the Fourth Schedule to the Act imposes a penalty of up to 200% of the outstanding employees’ tax.
Therefore, there is a heavy burden on employers to ensure that they withhold the correct amount of employees’ tax due to SARS, or else they could make a costly error.

Recovery of PAYE from employee:

The Fourth Schedule provisions allows the employer to recover PAYE under-deducted from the employee. However, where an employer is unable to deduct PAYE under-deducted from an employee due to the fact that the employee is no longer in the employment of the employer, such under-deducted PAYE must be paid by the employer to SARS and will be deemed to be a penalty in terms of paragraph 5(5) of the Fourth Schedule to the Income Tax Act.
Due to the fact that the employer cannot recover this amount from the employee in question, such PAYE cannot be included in a tax certificate issued to the employee. In fact, the PAYE amount must be reflected in the “Tax Paid on Behalf of Employee” on the EMP501 reconciliation in order to rectify the liability of the employer.
The liability of the employer is calculated by –
• adding all the values of code 4102 on all tax certificates PLUS any amounts declared on the “TAX PAID ON BEHALF OF EMPLOYEE” and “AUDIT RESULT NOT IN CERTIFICATES”; compared to
• all liabilities completed in the relevant months in the PAYE columns.
Due to the fact that there is no space on the EMP501 for SDL and UIF amounts as “PAID ON BEHALF OF EMPLOYEE”, the additional SDL and UIF (not recovered from the employee) needs to be completed in the “AUDIT RESULT” fields under the SDL and UIF columns.
The following is found on Page 30 of the SARS Reconciliation Guide.

When the individual’s tax assessment is done, such individual will then have to pay the shortfall on assessment as the PAYE paid on behalf of the employer will be deemed a penalty, and was not recovered from the individual. This is the main reason why the under-deducted amounts must not be included in the tax certificate if it is not recovered from the individual by the employer.

PAYE refunds by employers

In terms of paragraph 2 of the Fourth Schedule to the Income Tax Act, the employer has an obligation to deduct PAYE from the remuneration paid to the employee as and when the remuneration is paid and pay such amount deducted over to SARS via the monthly EMP201 return.
Due to fluctuating of remuneration or unpaid pay period, it might happen that the final calculation of PAYE done at the end of the employee’s tax period, indicate that there is an over-deduction of PAYE. This calculation is normally done when the total remuneration paid until the end of the employees’ tax period is annualized and the annual tax rates are used to determine the total PAYE on the total remuneration paid during the tax period.
The Fourth Schedule do not make provision for the employer to refund any over-deduction of PAYE to the employee. The employee is supposed to complete his income tax return in order to claim this over-deduction.
PAYE can never go into a credit in any month.
Paragraph 11B was repealed by s. 11 (1) of Act No. 16 of 2016 with effect from 1 March, 2017 and applicable in respect of years of assessment commencing on or after that date. In this paragraph the provisions to allow an employer to refund SITE only employees when the final tax determination is made could be found. This is no longer applicable as the SITE is no longer applicable.
Prior to the deletion of the SITE provisions in the Fourth Schedule, the employer had the authority in terms of the said Schedule to refund any over-deduction in the case of a SITE ONLY employee. Due to the deletion of the SITE provisions and that fact that SITE is no longer applicable, these provisions have ceased to exist.
SARS may indicate a tax certificate as an over-deduction of PAYE during their “Tax validation” and the report provided by SARS may indicate that the PAYE on the tax certificate is excessive to the total remuneration for the complete tax period. However, this is only a warning message to employers in order for employers to ensure that their determination of PAYE is correctly done.
As mentioned above, employers may not refund PAYE to employees. Should the employer find that the PAYE was deducted correctly during each pay period (eg. Month, etc.), this warning message should be ignored and the tax certificate should be deemed as final.
Furthermore, should a recalculation proof that an over-deduction of PAYE is in fact applicable, the warning message should also be ignored as the employer do not have the authority in terms of tax law to refund this to the employee.
Only in cases of under-deduction, should the employer correct the situation and the tax certificate as it is clear in terms of paragraph 5 of the Fourth Schedule that the employer is ultimately responsible for any under-deductions.

Refund by employee to employer for access remuneration paid. (Also applicable to Rention Bonusses)

SARS has published an Interpretation Note (IN no. 88) with regards to amounts to be refunded to employers.
A deduction of this amount so refunded to the employer by the employee must be treated as a Section 11(nA) deduction in the tax year when the amount is refunded to the employer and not in the year when it was paid by the employer to the employee (e.g. when the expense incur).
In order to claim the refunded amount, the employer must provide the employee with a letter on its letterhead stating the amount so refunded to the employer and when the amount was paid and the reasons for the obligation to refund to the employer (e.g. non-compliance to a certain criteria, etc.).
The amount should then be completed on the individual’s income tax return (other deductions). Please refer to the IT12 Comprehensive Guide, for details on where the amount should be completed.

Register employees for tax

In terms of the Tax Administration Act, any person receiving remuneration is required to register for income tax, irrespective if such an employee has a PAYE liability.
Due to this, the SARS easyFile software has a function to register new employees for tax purposes (see bottom of VIEW/EDIT EMPLOYEE: (ITREG)
Furthermore, SARS has issued the following notification on their website during August 2019:
The following notice from SARS is important in that it outlines the channels that SARS have put into place in order to smooth the process of registering an individual for income tax once that person has been appointed as an employee.

NOTICE STARTS
Dear Employer,

It has come to our attention that job seekers are being asked for their Income Tax Reference Numbers in order to be considered for job interviews.

While we will readily assist persons who approach our offices to register, such processes are putting unnecessary strain on both the prospective employees and on our SARS branches.
It is important to note that SARS does not require a person to have a tax number when they are employed for the first time.

We provide a variety of easy processes to register your employees for Income Tax, which do not require them to visit a SARS branch. The available processes to register your employees are:
• SARS e@syFile™ Employer (“Individual ITREG”) using Employee Registration; or
• Bundled registration (“Bundled ITREG”) available on e@syFile™ Employer allowing you to register up to 100 employees at a time but limited to 1 000 employees per month.
• When registered as an organisation, employers can register individual employees on eFiling. When registered as a tax practitioner a file upload option is available in Excel or CSV file format on eFiling.

We encourage you to utilise these options to streamline the process of obtaining Income Tax numbers for employees.
For more information please consult the “SARS e@syFile™ Employer User Guide” available on the SARS website www.sars.gov.za.

Resident

The SARS guide with regards to taxation in RSA explain this specifically in paragraph 2.3 or the non-resident paragraph.
The RSA tax system is based on the fact that residents are taxed on their world-wide income (subject to certain exclusions), irrespective of where their income was earned.
However, a non-resident is taxed in RSA on the income earned in RSA, depending on the provisions of the Double Taxation Agreement (DTA) with the relevant country of which the individual is a resident.
Salary income earned in South Africa by a non-resident will be subject to normal tax in South Africa, unless DTA entered into between South Africa and the foreign country in which he or she resides, stipulates otherwise.
The starting point for a non-resident who renders services in South Africa is that the employment income is subject to normal tax in South Africa. If however a DTA is in existence and all three of the following requirements are met the income will not be subject to normal tax in South Africa:
• He or she is present in South Africa for a period or periods in aggregate not exceeding 183 days in any 12-month period (not necessarily a year of assessment).
• His or her remuneration is paid by, or on behalf of an employer who is not a resident of South Africa.
• His or her remuneration is not borne by a “permanent establishment” that the foreign employer has in South Africa. A “permanent establishment” is a complex concept, especially determining the establishment of one but in essence means a fixed place of business through which the business of the employer is wholly or partly conducted.
The foreign codes prescribed in the PAYE BRS is only used for residents to whom the section 10(1)(o) exemption may be applicable.
If a non-resident is not taxed in RSA due to the Double taxation agreement provisions, the IRP5 must be issued with a code 3602 and not 3652 (3652 is only used for residents relating to 10(1)(o).
SARS has issued an Interpretation Note (IN) No. 16 for explanation on the Exemption from Foreign Employment Income in terms of section 10(1)(o) which is effective from 1 March 2020.
The Interpretation Note states that once the employer is satisfied that the exemption applies, the total amount of each remuneration type must be split into exempt – no PAYE) and non-exempt (with PAYE) portions, for example:
• 3601 salary earned in RSA, subject to normal tax
• 3651 salary earned outside of RSA that is less than R1,25 million and exempt with no PAYE
• 3651 salary earned outside of RSA that exceeds R1,25 million with PAYE
In order to qualify for the exemption, the individual must be outside RSA for at least 183 full days during any 12 month period. These fill days do not have to be continuous. Calendar days must be taken into consideration for this determination and not working days. A 60 days period must be continuous.
The 183-days test does not work on tax year but on any 12-month period. On page 6 of this IN it is clearly stated that the period of 12 months is not necessarily a year of assessment, a financial year or a calendar year. It is ANY period of 12 consecutive months.
Therefore, if the employer uses the period for example as, May 2019 to April 2020, in order to test the 183 and 60 day periods, it might result in the exemption to be applied for March and April 2020.

Tax prescription period

Tax debt is defined in the Tax Administration Act, 2011. Before this Act came into effect, section 11(a)(iii) of the Prescription Act, 1969 applied to tax debt which indicate that tax debt prescribed after 30 years.
However, since the Tax Administration Act came into effect, section 171 of this Act indicate that SARS may not proceed with the recovery of tax debt after the expiration of 15 years from certain events, namely:
• Date the assessment becomes final; or
• Decision relating to objection and appeal becomes final.

Variable remuneration – Commission

The Commission that will be paid in the year after the employee resigned, will be treated as “variable remuneration” as provided in section 7B of the Income Tax Act.
In terms of this provisions, it is deemed to accrued to the employee on the date on which it is paid to the employee.
Due to the fact that the employee does not work for the employer on this payment date, the amount so paid will be taxed at the 25% flat rate which is applicable to non-standard employment.
An IRP5 for the year relating to the payment date (2021) should be issued to this employee for this payment made in 2021.

Voluntary tax deduction / Additional tax

The provisions of the Fourth Schedule of the Income Tax Act, allows for the “voluntary PAYE deduction” provided that the employee request this in writing from the employer.
In order to ensure that the tax certificate passes the tax validation process, the employer must set the indicator on the certificate as Y (Voluntary over deduction indicator).
If the reconciliation was already submitted to SARS, correct the applicable certificate by adding the indicator as Y, and re-submit the reconciliation with the certificates.

PAGSA COMMENTS ON DRAFT MONTHLY PAYE BRS V0.4 (2 of 2) – 26th June 2023

The following are comments from the PAGSA on the Draft Monthly PAYE BRS V0.4 from the 26th of June 2023

Comments from Ania (Payspace) – Start
Section 1.2, page 6: Definition of “Transaction Period”.: Throughout the BRS, reference is made to “transaction month” and not “period”. Consider changing the definition to “Transaction Month” to align with the rest of the BRS.
Section 5.2, page 13: File Create Date: The data type for this field refers to FT (free text), however the format must be CCYYMMDDhhmmss, therefore only numeric values will be used.
Section 5.3.1, page 20: Employer Physical Address: Postal Code: The data type for this field refers to AN (free text), however only numeric characters are allowed. It states that the min and max can be 1:10 but in the data validations is state that only 4 numeric characters are allowed. This applies to all postal code fields in the BRS.
Section 5.3.2, page 25: Declaration Status: The min and max length is 3:3, however the status can be OR or RFC, consider changing to 2:3. In the description it refers to “new record, an original or request for correction”. Is new and original not the same since only OR or RFC is allowed.
Section 5.3.2, page 25: Transaction Month: In section 1.2 (definitions), the definition is “transaction period” and not month. Considering changing the definition to ‘transaction month’ to align with the rest of the BRS (aligns with bullet above).
Section 5.3.2, page 26 onwards, all numeric fields containing a decimal.: The data type refers to “N”, however, the field contains a full stop (“.”). Should this not be changed to AN to include the full stop in the data type.
Section 5.3.2, page 26: PAYE Liability: It should be the sum of 4102 and 4115.
Section 5.3.2, page 26: ETI Calculated: From what I understood is that ETI corrections should be done the same way it is currently done. In other words, if the employer underclaimed ETI in a previous period within the same 6-month reconciliation period, the ETI should be added to the current month’s ETI calculated. However, the 7004 value will refer to a previous month, therefore the ETI calculated will not balance with the underlying data of 7004 for the transaction month. Is my understanding correct?
Section 5.3.2, page 28: SDL Liability and UIF Liability: Will this be the only validation in which SDL will be allowed to be zero, exemption flagged on employer level? What if there are circumstances in which the employer submits file with just one employee containing a value which is exempt from SDL (e.g. severance pay), in this case, SDL will be zero but the employer may not be exempt from SDL? The same applies to UIF.
Section 5.3.2, page 28: SDL Liability: If an employer only becomes liable to pay SDL in the middle of the tax year, how will SARS apply the SDL validations at the end of the tax year on YTD data, will it simply use Gross SDL remuneration to validate the SDL amount?
Section 5.3.2, page 29: UIF Exempt Indicator and UIF Termination Date: In which case will an employer be exempt from UIF, can only apply to an employee considering section 4 of the Unemployment Insurance Contributions Act? This will affect the termination date.
Section 5.4.1, page 36: Employee SIC7 Code: All valid values are only numeric values (as per Appendix C), but the data type refers to AN.
Section 5.4.1, page 30: Should the below not refer to Street Name/Name of Farm to clarify across the entire BRS: Employee Physical Work Address Details: Street/Name of Farm
Section 5.4.1, page 50: Employee bank account number: The data type is AN but only numeric characters are allowed.
Section 5.4.2.1, page 52, General Rules: Should employees who are on for example maternity leave and receives 0.00 income (but are still employed) be excluded from the monthly file entirely based on the below rule? “At least one income code with a value greater than zero must be completed for every certificate reported in the month, except if medical scheme contribution in respect of retired/former employees (source code 4493) is completed and the employee has no other income to be reported;”
Section 5.4.2.1 page 52: General rules: Should the rule below not also apply to retirement fund contributions contributed on behalf of a retired employee, reported against IRP5 codes 4585 and 4586? “At least one income code with a value greater than zero must be completed for every certificate reported in the month, except if medical scheme contribution in respect of retired/former employees (source code 4493) is completed and the employee has no other income to be reported;”
IRP5 codes: Suggestion- is it possible to create a new IRP5 code for a fuel card/petrol card, especially since non-cash remuneration values are excluded from ETI remuneration and currently a travel allowance and fuel card are reported against IRP5 code 3701. [Rob: Agreed. The same principle applies to dividends (in specie dividends are not cash)]
Section 5.4.2.3.7, page 83, provision for annual payments: Clarity should be provided whether the provision for annual payments should report the actual portion of the annual payment included as provision in the month, or the provisional tax value calculated on the annual payment for the month.
Section 5.4.2.3.7, page 83, fixed rate taxation indicator: I assume this is only for non-standard employees taxed at 25% and par2(2B) fix rate taxation. If yes, please consider clarifying. The same will apply for the YTD certificate.
Section 5.4.2.3.7, page 85, ETI SEZ Code: All the SEZ codes are only numeric, but the data type refers to AN.
Section 5.4.3.1, page 87, general rules: I am still concerned about this, since variable remuneration items, directive lump sums etc. can be paid after the last month of employment, meaning that the YTD certificate will change after the last month of employment. In this case, should the employer submit another YTD certificate in February? Will it override the original one submitted in the termination month? If the employee is terminated in the transaction month, should the file ONLY contain a YTD certificate and not a monthly certificate for this employee?
Section 5.4.3.1, page 87, general rules: If a YTD certificate is cancelled in February (i.e., the certificate should not have existed for the entire year) should it include all previous 12 months with a cancelled certificate based on this rule.
Section 5.4.3.2, page 92: pay periods in the year of assessment and pay periods worked: Pay periods in the year of assessment and pay periods worked min and max should be 1.4:3.4. Consider changing the name to ‘pay periods employed’. Pay periods worked still refers to source code 3200 which no longer exists.
General:
• From what I understand, the ‘month of accrual’ will be indicated by the ‘unique monthly financial record’ since the ‘period of assessment’ field is removed for amended and cancelled certificates. In other words, if the employer submits an amended certificate for a previous month, the ‘unique monthly financial record’ number should be the same as the previous month.
• Clarity must be provided on how demographic data should be amended if necessary. The employee’s demographic data is not linked to a transaction period or period of assessment. How will demographic detail be amended for a previous period?
• According to me the pay periods worked is required to apply a PAYE validation (based on annualised balance of remuneration) each period, how will the PAYE validations be applied each period based on the monthly data? [Rob: It was agreed during the PAGSA/SARS discussions in 2021 that the only practical way for SARS to apply ETV to validate PAYE on a monthly basis was for payrolls to report the ‘Annualised Balance of Remuneration’ that was used by the payroll for that month on the monthly tax certificate.]
• Examples of corrections, cancellations etc. for the following would be appreciated and based on the examples, additional comments and/or questions may follow.
o variable remuneration
o non-variable remuneration,
o static data,
o incorrect lump sums (directives) etc.
Comments from Ania (Payspace) – End

Comments from Yolandi (Sage) – Start
ER declaration (5.3.2): Direct channels
1. In the meeting it was confirmed that the employer declaration must not be included for the direct channels as these fields will be pre-populated.
• I suggest that it is clarified in the BRS that the employer declaration must not be completed for either the direct or indirect channels as this will create the impression with payroll providers that they should cater for different layouts.
2. Should these values be declared again when submitting an ‘Amended’ or ‘Cancelled’ certificate for a previous period. For example, it is June, and an amended certificate is submitted for March – which affects the carry forward value of ETI for April until May. Should the employer submit an amended declaration for April and May as the ETI brought forward (and carry forward) value might have changed? It is not clear from the BRS.

ER declaration (5.3.2): ETI brought forward, ETI utilised, ETI carried forward, PAYE Payable
1. When submitting on eFiling or e@syFile, the employer declaration is not included in the file, and therefore the ETI brought forward, utilised, carried forward and PAYE Payable will not reported. If the direct channels are used for submission, will the ‘stand alone service’ allow for consolidations and declaration of these values.
2. Will SARS be populating these values in the ‘stand alone service’? Please clarify this in the BRS.
ER Declaration (5.3.2): UIF Termination Date
This is on employer level.
In which case will the employer not be required to pay UIF contributions from a specific date? For example, if all the employees in a particular month works less than 24 hours – do you expect a termination date in that month, and if in the next month the employees work more hours and contributes, there shouldn’t be a date?
The only other reason why an employer will be exempt is when it is a government employer, which is unlikely to change from a private sector employer to a government employer from a specific date.
ER declaration (5.3.2): UIF Exempt indicator
There is no UIF Exempt Indicator for the employee, but only an indicator for the employer? Is this the intention? If the employer is not exempt, it is possible that the employee might still be. Maybe add the ‘UIF Exempt Indicator’ on employee level too.
[Rob: My understanding is that if the employer is excluded from UIF contributions by the Application of the Act in section 4 of the UI Contributions Act (eg, a government employer) then all its employees will be automatically excluded.]
EE demographics (5.4.1): Record Status
• Is it possible to provide definitions for ’new’, ‘cancelled’ and ‘amended’ certificates in order to make it clear?
• Should a certificate be cancelled if I have declared an employee, but it should never have been declared? For example, the declaration was submitted but the employer only realises in the next month that the employee was terminated and shouldn’t have been included in the previous submission file.
• Should an amended certificate be submitted if demographics are amended?
• Should an amended certificate be submitted if the liabilities have not changed? For example, an incorrect non-taxable bursary code was used – 3815 instead of 3821?
EE demographics (5.4.1): Email contact field lengths
Align the contact length of the email addresses in the file header, employer demographics and employee demographics.
EE Monthly Certificate (5.4.2): General rule
1. Is there a specific reason why a negative value is allowed for an ‘amended’ monthly certificate?
2. Is PAYE (4102) allowed to be negative in a month? An example would be where the employee made provision for tax on annual bonus but resigns before the bonus is paid.
3. In practice, if an employer reported a non-taxable bursary amount against the incorrect non-taxable bursary code (3815 instead of 3821) for example, then the employer will simply enter a negative amount against the incorrect IRP5 code and a positive against the correct one. By doing this, there will be no tax implication but the codes on the year to date certificate will be correct. Is it expected that employers amend previous monthly certificates to correct this? If not, negatives must be allowed.
EE Monthly Certificate (5.4.2): Gross remuneration codes (3695)
Is it possible to specify which source codes may be classified as ‘gross annual income’. For example, may fringe benefits be seen as ‘annual payments? What about code 3622 (cash long service awards), shares (3707, 3717, 3718), dividends (3719, 3720, 3721, 3723), bursaries etc.
EE Monthly Certificate (5.4.2): Unique Monthly Financial Record Identifier
1. It is not clear from the BRS, what the purpose and difference is between the ‘unique employee identifier’, ‘unique monthly financial record identifier’ and the ‘unique YTD financial record identifier’..
2. May the ‘monthly unique identifier’ be the same as the ‘YTD unique identifier’?
3. Should the monthly and YTD identifier be different from the ‘unique employee identifier’?
4. Should there not a differentiator between employees with multiple certificates in the same period, for example where employee is re-employed in the same period?
EE Monthly Certificate (5.4.2): Certificate Number
Add a validation to include the transaction year before the calendar month.
EE YTD Certificate Information: General Rules (5.4.3.1)
Clarify that the Year-to-Date certificate must include the values of the current period e.g. the Year to Date certificate must not exclude the current transaction period values.
EE YTD Certificate information (5.4.3): Pay periods in year of assessment (3210)
Please clarify the acceptable values e.g days/weeks/bi-weeks/months.
General – Source codes
I’m assuming source codes will still be allocated to the fields without source codes?
Some source codes were removed from version 4 of the monthly BRS. Was this intentional?
General – Corrections
Is it possible to provide examples of the submission file when a ‘correction’ is made, in the following instances:
1. Under payment of variable remuneration in a prior month (section 7B).
2. Over payment of variable remuneration in a prior month (section 7B).
3. Under payment of non-variable remuneration in a prior month (non-section 7B).
4. Over payment of non-variable remuneration in a prior month (non-section 7B).
Comments from Yolandi (Sage) – End

Comments from Tom (PAL Solutions) – Start
Removal of source code identifiers
I want to comment on the removal of source codes from the record layout in several of the record types.
I understand that the administration for the allocation of new source codes is a painful process and involves extra work and resources. However, the benefits of a system with the volume of data that this system has makes it critical to have a source code driven file layout.
The current tax certificate file layout was designed in 1998 and has stood the test of time with major data item additions and deletions during the last 25 years.
With the complexity of different record types in the file the debugging of systems is going to be a nightmare.
Where a simple file layout with limited columns is used it is simple to include a header line defining each column and then importing that file into Excel to be able to check that the detail is recorded in the correct column.
With the proposed record layouts this will be a hair-raising task to identify where a problem is.
The initial release will have problems to get everything working, but the real drama is going to come when extra fields are added, or old fields removed from the file. The fact that the header record provides for the file version number will assist to know what the file layout should look like but with so many different systems being involved I can see that changes down the line are going to be an issue.
When the original file structure was introduced, I spent many hours with the SARS developers debugging the systems and if it wasn’t for the source codes that process would have been almost impossible to get resolved.
Another point to take into consideration is that it is less confusing to refer to a unique field code when referring to a data item than a description. SARS always refers to Section xx or Schedule yy or paragraph a(b)iii(2) in the Income Tax Act and then there is certainty to what is being referred to.
As that is a standard way of doing those references it makes logical sense to keep the source codes in the BRS.
Another point on this issue is that when data is sent between systems it is accepted practice to do so in an XML, JSON or some other format that identifies each data item with a tag. These tags are usually long descriptions. Therefore using a 4-digit source code is a much more efficient method of identifying the data items.
The current BRS specification will only require an additional first column in the tables for the recording of the Source Code and therefore the rest of the document is still effective.
References to other fields in the BRS can have the source code included for clarity.
Record Structure
Section 4 on page 9 defines the record structure as:
2 The record structure of the file for employee monthly data is as follows:
o File Header Record
o Employer Demographic Record
o Employer Declaration Record
o Employee Demographic Record
o Employee Monthly Certificate
o Employee Year to Date Certificate
o File Trailer Record
Section 5.4
Checking the record layout detail of the ‘Employee’ records in section 5.4.2 there is a section 5.4.2.2 – Header which is a ‘Fixed’ record layout with 12 fields defined in this section.
This is followed by section 5.4.2.3 – Monthly Financial Information
This is a source code record layout.
The major problem here is that this record has no ‘key’ information present. The data on this record is only financial detail.
Where it is required to submit details for more than one period there will always be a header and financial record present on the file so that the financial data can be allocated to the correct period.
From a processing point of view having a financial record without any ‘key’ details is not good.
It would make much more sense to only have one record with the header and financial data together. This would then conform to the detail specified on page 9.
The same situation applies to the year to date record.
Telephone and Cell phone numbers
The length specification in the ‘File Header’ and ‘Employer Demographics’ records for these numbers is 0:0 or 1:15, but the validation rules require a number to be at least 10 characters long where the field is present.
Section 5.4.1
Identity Number (Page 33)
Length is specified as 1:13 but the Validations require this to be a South African Id number which is 13 characters.
Passport number (page 34)
Length is specified as 1:18 but Validations require a minimum of 6 characters.
Date of Birth (page 35)
Format is fixed and validation specifies format as CCYYMMDD but length is 1:8, should be 8:8.
Page 44 onwards – Postal Address
As there are different formats of Postal address depending on the ‘Postal Address Structure Indicator’ it would be safer to have this as the last section of the record.
If it is accepted that the Source codes are to be retained in the records, then the positioning of the Postal address data fields in the record is not a concern.
Section 5.4.2.1 Page 52
Bullet 4
Why is it not allowed to have a negative value for a ‘New’ transaction BUT when it is an ‘Amended’ transaction a negative is allowed? I thought that with amendments the full transaction must be supplied and not the delta. Therefore with an amend a negative can be loaded but not when a new record is supplied.
Section 5.4.3.1 Page 87
Under the General Rules bullet 2 it is stated that the year-to-date certificate must be included ‘in the last month of employment for employees who are no longer employed’.
This is not practical as payrolls are processed in advance of pay day and therefore there are generally additional payments in the next month or even two months later.
Many of these payments are for variable payments for example overtime. The payroll system then keeps these employees in a state of termination in suspense so that any late payments can be processed. The user determines how long they want to keep the employee in this suspense state to allow for these late payments to be processed. The employee is then only terminated after the user defined suspense end date is reached. The termination date recorded for the employee is the actual termination date which can therefore be a few months back.
Under these circumstances if this rule is to be applied there will be a year-to-date record for each month that the employee is in this suspense state. The transaction month will be the month in which the employee was paid for the variable payment BUT the termination date will be before the transaction month.
This is what happens in the payroll world. Will the monthly processing of data cater for this condition?
Comments from Tom (PAL Solutions) – End

PAGSA COMMENTS ON DRAFT MONTHLY PAYE BRS V0.4 (1 of 2) – 26th June 2023

The following are comments from the PAGSA on the Draft Monthly PAYE BRS V0.4 from the 26th of June 2023

Comments from Rob (PAGSA Manco) – Start
Definitions – Transaction Period (Page 6): In response to an earlier PAGSA proposal to replace “period” by “month” (and incidentally to also replace “assessment” by “accrual”), SARS indicated that to provide for other systems (eg. provisional tax), they want to retain the word “period” instead of “month”. However in BRS V0.4 the description of ‘Transaction period’ starts with “… tax month …”. Consider removing the word “tax” – it does not appear to serve any purpose and is confusing. It is essential to retain the word ‘month’ in the description because the BRS is specifying the technical requirements for the submission of tax certificates on a monthly frequency. Further, please note that in the body of the BRS, the words ‘month’ and ‘period’ seem to be inconsistently applied.
Definitions – “Tax Year”: The term “tax year” is used in some of the other definitions and is generally understood to be a year from 1 March to the end of February in the employment world. As a suggestion, consider defining the term to make it clear what is meant.
Section 4 – Rules for Import File Structure (Page 9 Point 3) : The name of the Registration Information Record is incorrect:
– Employer Registration Information Record [Must be “ee”].
Application of ‘Record Status’ – Employee Monthly Certificate – Page 53: The options for the Record Status field for tax certificate administration are: (N)ew, (A) Amended, (C) Cancelled. SARS have decided that the ‘delta’ of the change must not be submitted and that tax certificate must be ‘replaced’. How must a tax certificate be replaced?
– By first cancelling the incorrect certificate, then submitting a new certificate (this would mean two transactions)?
– By amending the existing certificate?
Further to this, on page 54, it is stated that: “If a certificate is cancelled and replaced with a new certificate, the certificate number of the cancelled/replaced certificate MAY NOT be reused and allocated to the same or another employee in the same or prior transaction year”. Does this mean that a replacement certificate must have a new certificate number even though it completely replaces the original incorrect certificate?
Directive Number (page 57): In the ‘Data’ column it states that “this field can be repeated up to 5 times”. This instruction is not repeated for each of the directive fields that follow, but it should be, or else there must be a general instruction header for all directive fields. The same applies to the directive fields in the YTD certificate specification. See also Deon’s comments in this regard.
General Comment Regarding File and Record Structure Principles: The following comments are made from my position of no longer being ‘hands-on’ with the design and coding of computer systems for many years (decades …). Bear with me … I am trying to standardise record structures to simplify both the coding of systems as well as the debugging of data, so perhaps these comments will resonate somewhere.
My comments focus on achieving consistency by standardising the records and fields as far as possible.
1. There are 7 record types listed in section 4.2, and 9 different record types listed in section 5.1 in point 4 (7 x fixed length records) and point 5 (2 x variable length records). This is because the ‘Employee Monthly Certificate’ consists of 2 records: a ‘Header’ record, followed by a ‘Financial Information’ record, as does the ‘Employee Year-to-Date Certificate. I assume that the intention is that the ‘Header’ record (fixed length) must be followed directly by the ‘Financial Information’ record (variable length) in the file, in which case these two record types must be physically connected into one record when creating the tax certificate. Is this correct?
2. The third field in the Employee Demographic and Employee Header record types is ‘Record Status’ with values (N(ew), A(mend), and C(ancel)). [As an aside, many systems use A(dd), (C)hange, and D(elete) that are then in alphabetical sequence].
a. The Employer Demographic record does not have such a field – [Consider adding this field?]
b. The Employer Declaration record has the ‘Declaration Status’ –

[While this field has a similar purpose, it understandably has different values (OR and RFC) that relate to the current EMP201 administration and presumably cannot be aligned to N, A, and C].
3. There is a “Unique Employee Identifier’ field, a ‘Unique Monthly Financial Record Identifier’ field, and a ‘Unique YTD Financial Record Identifier’ field. Presumably these fields link the various records for an employee together. The structure of the three ‘Unique … Identifier’ fields is not specified. Consider specifying the first portion of the number as a standard format and then allow the payroll to add to that to ensure that the number is unique as is the case with the tax certificate number. Why are there three different names? Consider a standard name such as ‘Unique Employee Identifier’.
4. Seven of the nine record types are now specified to be fixed length and source codes have been removed from them. The other two record types (the employee ’Monthly Financial Information’ and ‘YTD Financial Information’ records are variable length, code driven, and pipe delimited (the same as the current bi-annual BRS). Within the fixed length records, there are variable length fields. Assuming that the intention is that each field must start on a fixed position in the record followed by a fixed length, this makes no sense to me.
For example: The Employer Demographic record (fixed) has an optional field ‘Employer Physical Address: Complex’ that has a length of ‘0:0 if not completed, or 1:26 if completed’. Therefore the length of the data in this field in the record can vary from 0 to 26 characters, yet it is included in a fixed length record. If the record contains variable length fields, then it effectively becomes a variable length record, irrespective of whether the fields are still pipe delimited and despite the apparent intention to place the fields in a fixed position within the record. Deon picked this up at an early stage of BRS V0.4 and I haven’t yet seen an explanation of how this must work.
5. I am assuming that the reason for changing the 7 x record types to fixed length and the removal of the source codes is because there are no more available source codes. If not, then my comments that follow can be ignored. It is not possible for me to substantiate the following comment, but it appears that by removing the codes and imposing fixed length records for 7 of the current record types, the volume of data to be transmitted will be increased rather than reduced, particularly if one takes into account the submission of corrections to earlier accrued amounts that will increase the number of fixed length records that are submitted. In his comments, Tom motivates the advantages of using source codes that have stood the test of time (25 years) coupled to pipe delimited variable length records, and I agree with him. Is it possible to consider finding an alternative solution such as increasing the length of the source code from 4 to 6 digits, or changing the source code format from a numeric 4-digit field to an alphanumeric 4-character field? Without knowledge of the current application of these codes internally within SARS or the SARS plans for systems in the future, it occurred to me that this is an opportune time to change the format of these codes to allow their use to be expanded to other administration and system areas such as provisional tax, and to third-party data from retirement funds, medical schemes, banking institutions, perhaps Government data, VAT, etc. If a change to the code structure will facilitate a wider application and more flexible systems in the future, then the time to make the change is now.
6. In the Employee Demographic record, the mandatory field “Employee Residential Address: Street/ Name of Farm” is specified to have a min/max length of ‘4:26’. Why is there a minimum length of 4 characters for this field and not one?
There are some other fields that have min/max lengths that on the face of it, don’t make sense.
Comments from Rob (PAGSA Manco) – End

Comments from Niel (PAGSA Manco) – Start
Section 1.2 – LIST OF DEFINITIONS: “Type of Certificate” – Page 5: Move “Type of Certificate” to the correct alphabetical position in the list of definitions.
Section 1.2 – LIST OF DEFINITIONS: “Period of Assessment” – Page 6: This term was deleted in version 0 4 of the BRS. Although the term is not necessary, if the term is re-instated, it will make employers realise that there is a difference between –
1. “Transaction Month”: (Refer to the definition of ‘transaction month’, also understood to be the payroll processing month), and
2. “Accrual Month”: (The month in respect of which payroll taxes are payable – consider changing ‘period’ to ‘month’ to align the term to “transaction month”). If “Accrual Month” is re-instated, consider amending the description to read: “The month during which the remuneration became payable or was paid, whichever occurred first, i.e. the month during which the remuneration accrued to the employee.”
Detailed explanations of:
1. “back-dated accrual rules”, when backdated salaries or pensions are considered
2. “ante-dated salaries or pensions” as contemplated in section 7A of the IT Act,
3. how employers should deal with “antedated salaries or pensions” for PAYE purposes (i.e. directive application, PAYE calc, declaration, etc),
4. the deemed accrual rules applicable to “variable remuneration” as contemplated in section 7B of the IT Act,
should be added to the Guide to Employers in respect of Employees’ Tax, SDL and UIF contributions purposes, especially if the term “Period of Assessment” or “Assessment Month” is not re-introduced!
Section 1.2 – LIST OF DEFINITIONS: “Transaction Year” – Page 6: Consider adding the following words into the 2nd sentence of the 1st paragraph: “This could include employees’ tax, unemployment insurance fund contributions and skills development levies on remuneration which accrued during a previous tax year.”
Section 5.3.2 – EMPLOYER DECLARATION: Total Monthly Liability – Page 29: This field is described as “The total tax liability payable to SARS”. Should the name of the field not be the “Total Monthly Liability Payable”, i.e. total monthly liability payable after ETI utilised?
Section 5.4.1 – EMPLOYEE DEMOGRAPHICS: Income Tax Reference Number – Page 35: Amend the “Transaction Period” in the Conditional Rule column to read “Transaction Month”.
Section 5.4.2.2 – EMPLOYEE MONTHLY CERTIFICATE – Header: Certificate Number – Page 54: To confirm: The same ‘CCYY02’ certificate no can therefore be used for the 12 monthly submissions during the year and will only be unique if read with the Transaction Month?
Section 5.4.3.5 – EMPLOYEE MONTHLY CERTIFICATE – Monthly Financial Information – Deductions, Contributions and Information Codes: Current S 11(nA) remuneration overpayment recoupment – Page 74: To confirm: “Current …… recoupments” refers to recoupments during current year of assessment?
Section 5.4.3.6 – EMPLOYEE MONTHLY CERTIFICATE – Monthly Financial Information – Employee’s tax deductions: 4150 Reason code for IT3(a) – Page 79: The first sentence in the Logic column reads “Value can only be 2 or 02 if the Gross Employment Income (taxable) [source code 3699] is less than the Income Tax Threshold for the employees.” Theoretically 3699 may be greater than the tax threshold, but the balance of rem (i.e. after taking par. 2(4) deductions into account) may not exceed tax threshold! The logic validation will however still work!
Section 5.4.3.7 – EMPLOYEE MONTHLY CERTIFICATE – Monthly Financial Information – Gross Remuneration Codes: Gross SDL Remuneration – Page 82: Does the term ‘Gross SDL Remuneration’ refer to remuneration before or after taking par. 2(4) deductions into account? Keep in mind that SDL is payable on the ‘leviable amount’ which is equal to the balance of remuneration as calculated for PAYE purposes, i.e. after taking the par 2(4) deductions into account. The ‘leviable amount’ may therefore be less than Gross Remuneration!
Section 5.4.3.7 – EMPLOYEE MONTHLY CERTIFICATE – Monthly Financial Information – Gross Remuneration Codes: Tax Provision Indicator – Page 83: What is the difference between this field (Tax Provision Indicator) and the Provision for annual payments?
Comments from Niel (PAGSA Manco) – End

Comments from Deon (Intercode) – Start
Definitions – Transaction Period (Page 6): If a ‘transaction period’ always refers to a specific month, consider renaming to “Transaction Month” instead. [Rob: Agreed, but see the SARS explanation in my section of the comments]
Section 4.6 – File Name Structure Requirements (Page 9): This section contains bullet points listing the fields that make up the file name, including the “source code” associated with each field. Consider removing these bullet points and source codes, as those fields are now in a fixed layout and no longer have any source codes.
Section 5.1 – General Rules point 4 (Page 12): This section specifies that “The following record types must be created in a fixed format with the start and end position of each field as determined by the minimum and maximum field length indicated for each field”. From the above it is unclear whether these records should be created in a fixed layout or as pipe delimited values. When this was queried with SARS, we received a reply indicating that the relevant records must be created in pipe delimited format with no fixed start and end position for each field, but the fields would have to be in a specific order.
Consider rewording section 5.4 to clarify what is required.: [Rob: See also comments from other members in this regard]
Conditional and Optional Fields in Fixed-Format Delimited Records
For all record types that are specified in a fixed delimited layout, conditional and optional fields must still be included in the file (indicated by two consecutive pipes), even if their values are zero. Failure to do so will cause all subsequent fields to have incorrect field (or column) indexes.
File Header – Data Type Being Supplied (Page 15): Data Type is “AN”, but value can only be “MPD” (Alpha).
File Header – Channel Identifier (Page 15): Data Type is “AN”, but all possible values are Alpha only.
File Header – Technical Contact Email (Page 18): The minimum field length is specified as “3”. Considering that email addresses must have an “@” sign and a domain (indicated by a “.”), it would stand to reason that the minimum length of an email address should be at least “5” (e.g.: [email protected]). The same would apply to all email address throughout the BRS.
Employer Physical Address – Street Name of Farm (Page 19): Both the field name and description contain a spelling mistake in “Street Name of Farm” (should be or Farm). Search and replace other instances as well (total 10 instances).
Telephone and Cell Phone Numbers: In various instances throughout the BRS telephone and cell phone number fields are defined as “AN”, though the validation rules state that “Only numeric values are allowed”. Consider changing the Data Type of all telephone/cell phone fields to “N” instead.
SDL Reference Number (Page 23): The field “Length” is defined as “1:10” (Should be 10:10).
UIF Reference Number (Page 23): The field “Length” is defined as “1:10” (Should be 10:10).
Employer SIC7 Code (Page 24): Data type is defined as “AN” but “Only numeric values are allowed”.
Transaction Month (Page 25): Description states “The period during which…” If the “period” can only be a month, consider rewording to “The month during which…”
Employer Declaration (Pages 26 to 29): Not all the fields highlighted in yellow have both a minimum and maximum length defined.
Employee Demographics – Unique Employee Identifier (Page 31): The description states that “The value of this field must be unique and must not be re-used in any other monthly payroll file”. It is our understanding that this field is only used to link records related to the same employee within the current declaration file. As such, there is no reason why the same identifier could not be re-used to identify all records related to the same employee in a different declaration file together within the context of that file. On the contrary, there is a high likelihood that the same unique identifier will always be used to link the records of a particular employee in different declaration files. Also consider updating the Name, Description and Logic columns for this field to use the same naming convention as is used for the same identifier in the Employee Monthly Certificate and Employee Year-To-Date Certificate records, to make it clear the values should match in all these records. [Rob: and use the same for this field in all the record types]
Employee Demographics – First Two Names (Page 32): The minimum length for this field is defined as “3”. An employee might have only one first name, which might be “Al” or “Li”. Taking Asian countries into account, it is also conceivable that an employee’s first name might consist of one letter only.
Employee Demographics – ETI Indicator (Page 37): The “Logic” column of this field includes references to codes 3020, 3025, 3190, and 2030, all of which no longer exist (because of the “fixed” record layout). Check the BRS throughout for references to “field codes” that no longer exist.
Employee Monthly Certificate – General Rules (Page 52): The first bullet point states that “…, those who do not have a value must not be reported”. It should be clarified that this now only applies to financial codes. For fixed layout records, fields that do not have a value will still have to be reported to maintain the integrity of the field (or column) indexes.
Employee Monthly Certificate – Transaction Month (Page 53): Description states “The tax period during which…”. In a payroll context a “tax period” usually refers to a period in respect of which a tax certificate was issued, which usually spans multiple months. Consider rewording as “The month during which…” or “The payroll month during which…”.
Employee Monthly and YTD Certificates – Directive Number (Pages 57 and 94): The validation rules state that “This field can be repeated up to 5 times”. Considering that:
• The Employee Monthly Financial Information Header record now uses a fixed layout, and;
• The Employee Monthly Financial Information does not, and;
• The Employee Monthly Financial Information Header and the Employee Monthly Financial Information are in fact one record (i.e.: included in the file on a single line);
all directive number fields will therefore always have to be repeated 5 times (even if they are empty) to maintain the integrity of the field indexes. If all directive number fields are not included 5 times by means of consecutive pipes, E-Filing and/or Easy-File wouldn’t know which column in the file is the first “financial information column”.
Employee Monthly Certificate – Directive Numbers in General: Does it really make sense to include “Fixed Rate” directives in the monthly financial information at all? If an employee has a fixed rate directive it would apply to multiple months, or possibly the entire tax year (i.e.: to a “tax period”). If it was specified on a month-to-month basis, there would have to be requirement that the directive number or rate would have to remain the same for all the months in a tax period. If the fixed rate was introduced (or changed) in the middle of a tax year the employer would have to issue a separate certificate anyway. If that is the case, would it not make more sense to include fixed rate directives only in the YTD record instead, as the YTD record would include all the information for the entire tax period to which the fixed rate directive applies, and then include only lump sum directives in the monthly information?
Employee Year-To-Date Certificate – Periods in Year and Periods Worked (Page 92): For both the Pay Periods in Year of Assessment and Pay Periods Worked, the “1.000” in the Logic column should be “1.0000” (i.e.: 3.4).
Comments from Deon (Intercode) – End

The following is knowledge that has been shared from Rhona van Taak on previous easyfile (also referred to as e@syfile or e@sy-file) queries

EASYFILE

The following steps can be followed to correct a corrupt database on e@syfile:
You can delete the database for the specific employer out of the easyfile database and just REDO that employer that you deleted.

To delete the database of the specific employer, please follow the following steps:
1. Make sure all hidden files can be viewed on your computer.
2. Select C drive
3. Select USERS
4. Select the relevant user
5. Select APPDATA
6. Select ROAMING
7. Select the EASYFILEEMPLOYER.XXXXXXXXX (the x’s will be the NUMBERS FOLLOWING) FOLDER
8. Select LOCAL STORE

The database will then be displayed as follows with the name as the employer PAYE number and a .dbz extension.

Depending on how many companies you have on easyfile, all the companies PAYE reference numbers will be in the LOCAL STORE.
You only select the PAYE reference number which is corrupt and delete that DBZ file.

After you delete that employer, you have to redo all the transactions for that specific employer in easyfile (i.e creating the employer and importing the payroll file etc.).

Form viewer problems or missing form viewer:

If you are experiencing issues with Form viewer or the form viewer application is not available, the client must please install the Forms Viewer from the Utilities Menu – System Configuration option (last option on the list displayed) – Install button on the right side of the screen.

During the update, the downloaded Forms Viewer installation is saved to desktop. Users can double-click on this icon on the desktop to run the installation manually. Please ensure e@syFile & Forms Viewer is closed for this.

Adjustment to PDF rendering to allow OS default application (Error 1016 on easyfile):
Clients with 64 bit should be able to print PDF documents without reinstalling 32 bit (version 7.2.5). Numerous complaints were also received from clients when ‘Updating’ easyfile after submission and error 1016 was displayed on easyfile. Due to this error 1016 on easyfile, files were unfortunately not processed through easyfile. Clients who received error 1016 on easyfile should resubmit using the full resubmission functionality on the ‘Utilities’ menu with the updated e@syFile version.
PDF rendering was added. It is ticked by default but if not, employers must please ensure it is ticked to activate.

The PDF rendering option can be found under: Utilities Menu – System Configuration option (last option on the list displayed).

IT88’s (also referred to as AA88 or third party appointments)

There is no specific limitation in respect of SARS third party appointments (AA88). However, SARS do take into consideration the “affordability” of an employee in respect of AA88 deductions.

Where the employer identifies that the employee will not be able to afford the deduction, the employer can submit an “Affordability Request” outcome for the employee on e@syFile. SARS will calculate the affordability terms based on the employee’s related income information. In cases where this calculation is too onerous in the employee’s view, the employee is required to visit a SARS branch office to make the necessary arrangements and substantiate what is affordable to allow the employee to pay for his/her basic living expenses.

More information on this can be found on the SARS website by using the following link: https://www.sars.gov.za/TaxTypes/PAYE/Pages/Guidelines-for-agent-appointment.aspx

Please refer to the “Employers Guide to the AA88 Third Party Appointment process” as well as the “Third Party Appointment AA88 easyFile Employer User Guide” on the SARS website.

After the AA88s have been synced on the e@syfile application, the user can select the outcome as “Request affordability” and SUMBIT to SARS.

Resolvig PDF errors when opening EMP501 returns through e@syfile:
Some users expericed issues with opening EMP501 returns on easyfile Resolving issues with of EMP501 reports that does not open on easyfile can be done by replacing the 64-bit version of Adobe Reader with a 32-bit version.
To do this:
Uninstall Adobe Reader from the Control Panel on your computer.
Restart the PC (this is very important).
Download and install the 32-bit version from the following link: https://get.adobe.com/reader/otherversions/
On the left select your OS, Language and then the 32-bit version(top one from dropdown)
Make sure to uncheck the McAfee’s and the Chrome Extension
then click “Download Adobe Reader”, it will download an installer which when you double-click will download and install the 32-bit version.

System errors and SARS easyfile consultant:
It is suggested that you contact the SARS E@syfile Consultant on [email protected] so that the Consultant can remotely assist you. These consultants are in the best position to assist and investigate in case of a legitimate system error.

ETV directive issue date error
This error was previously reported by PAGSA to SARS.
The reason for the error might be as a result of 2 things, namely:
• The accrual date of the directive income used instead of the issue date of the directive; or
• A final certificate was issued in August for the employee, and with the February submission, the certificate number used in August was again used for a different employee.
In cases where there is no directive applicable, please try the steps indicated below:
• Open the certificate on e@syFile and open the directive detail container for this certificate – it should be empty.
• Check that it is “blank” and doesn’t contain a space and confirm that it is.
• Save the certificate and try submitting again.
In cases where the directive issue date is correctly reported on the tax certificate, it is suggested that you contact the SARS E@syfile Consultant on the attached list so that the Consultant can remotely assist you. These consultants are in the best position to assist and investigate in case of a legitimate system error.

ETV Tax validation on tax certificates – incorrect tax deducted
From the 2020 year of assessment, SARS is performing tax calculations on the IRP5/IT3(a) certificates. Where it is found that the incorrect amount of tax was deducted from the employee, a letter will be issued, accompanied by a file containing a list of the certificates that have failed the SARS calculation.
The tilde (~) delimited text file containing the reasons for the failure(s) will also be sent to the submitting channel.
• e@syfile validation calculation file: can be found on the EMP501 Status Dashboard. After clicking “Update” to see the submission status, click the “Download Employment Tax Validation” button located at the top of the screen to download the tilde (~) delimited text file.
• eFiling validation calculation file: can be found on the EMP501 work page next to the EMP501 information. Click on “View” under the View Certificate Errors heading. The file will be downloaded or an option to save will be displayed (depending on browser used).
Note: The purpose of the Payroll Tax Validation letter is to inform the employer of discrepancies on the amount of tax or levies that were deducted for employees. All the certificates submitted were accepted and processed and will be pre-populated on the employee’s income tax return (ITR12).

In terms of paragraph 2 of the Fourth Schedule to the Income Tax Act, the employer has an obligation to deduct PAYE from the remuneration paid to the employee as and when the remuneration is paid and pay such amount deducted over to SARS via the monthly EMP201 return.

Due to fluctuating of remuneration or unpaid pay period, it might happen that the final calculation of PAYE done at the end of the employee’s tax period, indicate that there is an over-deduction of PAYE, although it is not an actual over-deduction if the calculation is done at each pay period. This calculation is normally done when the total remuneration paid until the end of the employees’ tax period is annualized and the annual tax rates are used to determine the total PAYE on the total remuneration paid during the tax period. This same method is used by SARS during the Tax Validation process and an ETV report is then provided to the employer with the outcome of this calculation.

The Fourth Schedule do not make provision for the employer to refund any over-deduction of PAYE to the employee. The employee is supposed to complete his income tax return in order to claim this over-deduction.

Should the employer receive the ETV report from SARS on the tax validations and found after a recalculation of the relevant tax certificates that the PAYE amounts are actually correctly deducted at every pay period (e.g. month, etc.), the employer may ignore the SARS provided calculation and does not need to re-submit the tax certificate.

However, should it be found that the tax is under-deducted on the certificate (after the re-calculation is done), such certificate must be corrected with the correct amount of PAYE which should be recovered from the employee (if it is more than the original amount).
Please note refunds of over-deducted PAYE amounts may not be refunded by the employer to the employee due to the fact that the Fourth Schedule does not make provision for this. If an amount is over-deducted, the voluntary indicator must be set accordingly and the certificate must be re-submitted.

At this stage SARS is only issuing the Tax validation report as a guideline/warning to make employers aware of the calculation result obtained by SARS when re-calculate a tax certificate.
Where the employer re-check these figures and find that the PAYE, SDL, and UIF was correctly deducted during the pay periods, these “failed” warnings should be ignored.
As the provisions of the Income Tax Act does not allow an employer to refund PAYE to an employee, the employer cannot during the final determination of his PAYE payable, refund the employee any over-deduction of PAYE.

It should be noted that the tax certificate has NOT failed validation for pre-population into the income tax assessment process of the individual.

Gross employment income column in the ETV report: This result indicated by SARS in the report is the gross-up result of the total remuneration on the tax certificate ÷ pay periods worked x pay periods in tax year.

The following link can be used to obtain more information on the ETV SARS process.
Employment Taxes Validation (ETV) – South African Revenue Service (sars.gov.za)

The “Not Assessed” status will not result in a letter being issued. A letter will be issued when there is a tax calculation failure or if a single IT number was used for more than one person.

Where the employer is notified that the ITR12 return containing the IRP5/IT3(a) certificate has already been assessed, the employer must inform the employee to resubmit his/her ITR12 return to allow the changes made on the IRP5/IT3(a) certificate to be affected on the employee’s assessment

Validation error: PAYE more than income on tax certificate

With the introduction of paragraph 11C in the early 2000’s, SARS has amended the tax certificate rules to allow R1 income where the remuneration is only determined at a later stage. This rule amendment was specifically to accommodate director’s deemed remuneration scenarios.

However, some employers use this rule for sole proprietors, etc. to try and get around the provisional tax obligations. As the tax legislation has changed some time ago with regards to directors’ remuneration, the rule of at least R1 income with a PAYE value was withdrawn from the PAYE BRS as it is no longer applicable (no more deemed remuneration provisions in the tax law relating to director’s remuneration).

A new rule has replaced this rule, which in effect means that PAYE cannot be greater than the income on the tax certificate. As an employer cannot deduct more PAYE from income which is available for such a deduction. For example, if you are only paying the director R10000 you cannot deduct PAYE of R12000 (from what income do you deduct the additional R2000 PAYE?).

Therefore, if the income is not sufficient to cover the PAYE reflected on the IRP5, such IRP5 will not pass the validations.

In terms of tax law, a director, sole proprietors, etc. should be registered as a provisional taxpayer and provision for his tax liability should be done through the provisional tax process. There is no alternative, unless the remuneration paid to the director/sole proprietor, etc. through the company is efficient to cover the PAYE deducted on the tax certificate.

The provisions relating to the voluntary PAYE deduction in the Fourth Schedule to the Income Tax Act, only applies to the remuneration paid to an employee. Therefore, if no remuneration is paid to a director/sole proprietor, PAYE cannot be voluntary deducted or if remuneration is paid which is a lesser amount of the PAYE, the PAYE can only be voluntary deducted up to the amount of the remuneration paid.

The following is knowledge that has been shared from Rhona van Taak on previous e-filing queries

EFILING (also referred to as e-filing)

Where an e@syfile (also referred to as easyfile) user have difficulties submitting returns or syncing data the following can be done to try and rectify this:

User rights
Please log into eFiling and go to Organisation (at the top of the page), then click on Rights groups (Left side of the page), then click on Manage groups and untick and tick the company again under manage payers then click on update.
There after go to Manage groups, click open and ensure that System Default is ticked and then update.

Then navigate to User (at the top of the page), then click on User (on the left side of the page), then click on Change Details and update rights, untick and tick the correct rights and the correct group (System default if the company is under that group).
Log out and in again on eFiling

Please use the username used to log onto eFiling together with your current eFiling password. Please also make sure that the password does not have the “$”,”%” and “ampersand” character.

Lastly, go on e@syfile and try again.