SOURCE CODE DESCRIPTIONS IRP5 code 3607

Normal Income Codes

in the electronic file IRP5 code 3607 is used for: Overtime (PAYE). An amount paid as overtime for rendering services. The tax on such payments is calculated as on income taxable. Code 3657 MUST only be used for foreign service income. Not applicable from 2010 to 2019. Prior to the 2019 tax year (but after the 2010 tax year) the Overtime value that would have been included in IRP5 code 3607 would be included in IRP5 code 3601.

The prescribed Length of IRP5 code 3607 in the electronic file is: N15

All income and deduction components (e.g. salary, commission, allowances, benefits, medical contributions, employer information, etc.) must be reported against the applicable code as prescribed in the GUIDE FOR CODES APPLICABLE TO EMPLOYEES’ TAX CERTIFICATES PAYE-AE-06-G4.

The abbreviations used within the description of the relevant codes mean:
• PAYE: Income is subject to the deduction of Employees’ Tax and will also be taxed when the income tax assessment for the employee is processed.
• IT: Income is not subject to the deduction of Employees’ Tax but will also be taxed when the income tax assessment for the employee is processed.
• Excl: Income is not subject to the deduction of Employees’ Tax and will also not be taxed when the Income Tax assessment for the employee is processed.
• Excl/PAYE: Depending on the circumstances described in the legislation, the income is either subject to both PAYE and Income Tax, or it is excluded from both PAYE and Income Tax

2. ‘Best Practice’ For Travel Reimbursements from March 2018
The amended legislation effective from 1 March 2018 states that the portion of the travel reimbursement that is calculated at a rate/km greater than the Prescribed rate/km must be reported under code 3722 (While the portion at and below the prescribed rate must be reported under code 3702).
This encourages employers to use a rate/km that is not greater than the Prescribed rate/km (R4,64 for the 2024 tax year) for all employees, but be aware of what might happen on assessment if the Prescribed rate/km is greater than the Cost Scale rate/km for the vehicle used.

Assuming that a travel allowance is not paid in addition to the travel reimbursement (if a travel allowance is paid, the employee cannot elect to request the employer to use the Prescribed rate/km), the following principles are provided to assist you:
For travel reimbursement administration in the payroll, if the rate/km used by the employer Is not greater than the Prescribed rate/km, or even better, is linked to equal the Prescribed rate/km, then:
1. There will be no code 3722 remuneration, therefore no PAYE, SDL, UIF, ETI, etc. will be calculated.
2. Only code 3703 will be reported on the tax certificate reflecting the reimbursed amount calculated up to the Prescribed ratekm which is neither remuneration nor income.
3. The code 3703 amount will not be used in the income tax calculation.
4. A logbook is not required by SARS.
5. The employer benefits by:
• Having no SDL and UIF contribution costs calculated
• If the company’s rate/km is linked to the Prescribed rate/km, increases from year-to-year are easy.
6. The employee benefits from:
• No PAYE withholding to reduce take-home pay
• No UIF contribution on the travel reimbursement
• No logbook or ITR12 obligation for travel declaration.
Alternatively, If the employer’s rate/km is greater than the Prescribed rate/km:
1. There will be a portion that is remuneration subject to PAYE, SDL, UIF, ETI etc.
2. The tax certificate will contain the following codes:
a. Code 3702: The income portion (amount up to the Prescribed ratekm)
b. Code 3722: The remuneration and income portion (amount above the Prescribed ratekm)
3. The total travel reimbursement (code 3702 plus code 3722) will be assessed for income tax
4. The employee must keep a logbook and submit the details on his ITR12
5. The difference in the value calculated at the employer’s rate/km and the Cost Scale rate/km used by SARS will result in either an assessment or a refund of income tax.
If the employer’s rate/km is greater than the Prescribed rate/km, and if the cost scale rate/km of the employee’s vehicle is less than the employer’s rate/km, it would be best to reduce the employer’s rate/km to the Cost Scale rate/km of the employee’s vehicle to prevent the employee from being assessed for income tax on the excess value resulting from the employer’s rate/m being above the Cost Scale rate/km.

5. Tax Calculation Principles
In general, amounts that are paid to an employee in the form of what I call a legally compliant reimbursement, are neither remuneration nor income, are not processed in the payroll, and are not reported on a tax certificate. They are the employer’s expense and are accounted for in the company’s financial reporting.
The following are the requirements for a legally compliant reimbursement.
The reimbursement must “further the trade of the employer”, and there must be:
1. Instruction from the employer to incur the expense
2. Proof of the value of the expense (vouchers, invoices, etc.) must be provided to the employer
3. If an asset was purchased and reimbursed, then the asset must be owned by the employer.
Points 1 and 2 apply to travel reimbursements.
Reimbursements do not have to be reported on tax certificates except for:
1. Travel reimbursements (the reporting rules will be discussed below)
2. Subsistence allowances (which SARS deem to be a reimbursement if paid below the daily expense limits).
Travel Reimbursement Calculation – Rules from 1 March 2018
The Fourth Schedule definition of remuneration was amended by the addition of sub paragraph (cC) that provides the tax calculation rules for travel reimbursements from 1 March 2018.
Sub paragraph (cC) specifies that the remuneration portion of a travel reimbursement must be calculated as 100% of the portion of the travel reimbursement amount that exceeds an amount calculated by multiplying the business kilometers travelled by the ‘Prescribed’ rate/km (section 4 of the ‘Fixing of Rate’ regulation).
This remuneration portion of the travel reimbursement amount is subject to PAYE etc. in the payroll, as well as income tax on assessment, and must be reported under code 3722 (a ‘PAYE’ code).
The remaining portion of the travel reimbursement amount is not remuneration (therefore no PAYE) but it is income subject to income tax on assessment, and must be reported under code 3702 (an ‘IT’ code).
The introduction of sub paragraph (cC) to the Fourth Schedule resulted in changes to the tax certificate reporting rules for codes 3702 and 3703, and the introduction of a new code 3722 for the taxable portion of the travel reimbursement.
Travel Reimbursement – Tax Certificate codes from 1 March 2018
Code 3702 must be used to report a travel reimbursement if:
1. A code 3701 travel allowance is paid in addition to the travel reimbursement, or
2. The rate/km used to calculate the travel reimbursement exceeds the Prescribed rate/km
Note:
• Code 3702 value = Business km x the portion of the rate/km that does not exceeds the Prescribed rate/km
• Code 3702 is not remuneration (no PAYE), but it is income (income tax will be calculated).
Code 3703 must be used to report a travel reimbursement if:
1. Codes 3701, 3702, and 3722 are not reported (their value is R0,00), and
2. The rate/km used to calculate the travel reimbursement does not exceed the Prescribed rate/km.
Note:
• Code 3703 value = Business km x a rate/km that does not exceed the Prescribed rate/km
• Code 3703 is not remuneration and is not income, therefore no PAYE and no Income tax.
Code 3722 must be used to report a portion of a travel reimbursement if:
1. The rate/km used to calculate the travel reimbursement exceeds the Prescribed rate/km
Note:
• Code 3722 value = Business km x (the rate/km used to reimburse less the Prescribed rate/km)
• Code 3722 is remuneration and income, therefore PAYE and income tax will be calculated.
Code 4582 – The remuneration portion of the following allowances and benefits
For the purposes of section 11F (that limits the deduction in respect of contributions to retirement funds to 27,5% of remuneration), SARS requires the remuneration value of certain codes where the remuneration value differs from the income value stated on the tax certificate, to be accumulated and reported against code 4582.
Effective from 1 March 2018, code 4582 must reflect the total of the remuneration value of:
1. Code 3701 (80% or 20% of the travel allowance)
2. Code 3802 (80% or 20% of the company car fringe benefit if the vehicle is purchased)
3. Code 3816 (80% or 20% of the company car fringe benefit if the vehicle is rented).

Employee Information

Validation Rules for IRP5 code 3264 in the electronic file are:
• Optional
• If the certificate type is ITREG or (Year of Assessment is equal or greater than 2020), then this field must not be completed.
Note: An approved list of SEZ codes is attached in Appendix E

Employee Information

Validation Rules for IRP5 code 3246 in the electronic file are:
• Mandatory if the value for code 3240 is not “0” or “7”
• The Code and the value must not be completed if code 3240 is “0” or “7”
• The values for this field must only be:
1. Own
2. Joint
3. Third Party.

Employee Information

Validation Rules for IRP5 code 3245 in the electronic file are:
• Mandatory if the value for code 3240 is not “0” or “7”
• The Code and the value must not be completed if code 3240 is “0” or “7”.

Employee Information

Validation Rules for IRP5 code 3244 in the electronic file are:
• Optional
• The Code and the value must not be completed if code 3240 is “0” or “7”.

Employee Information

Validation Rules for IRP5 code 3243 in the electronic file are:
• Optional
• The Code and the value must not be completed if code 3240 is “0” or “7”.

Employee Information

Validation Rules for IRP5 code 3233 in the electronic file are:
• For Lump Sum Directives issued for source codes as defined in the validation rule all the directive information fields MUST be completed in line with the validations noted per field
• For fixed PAYE rate/amount directives, ONLY the directive number MUST be completed. The directive type indicator is optional
• Where more than one directive number is used on one certificate for a transaction year prior to 2022,the code must be repeate d for every directive number, e.g.: code,directive no,code,directive no,code,directive no
• Where more than one directive number is used on one certificate for a transaction year from 202 2 going forward, the directive related codes must be repeated as a group for every directive number as follows:
o For lump sum directives – 3230,directive no,3231,directive issued date,3232,directive income source code,3233,directive income amount, 3230,directive no, 3231,directive issued date,3232,directive income source code,3233,directive income amount
o For fixed PAYE rate/amount directives (if the directive number is provided) – 3230,directive no, 3230,directive no
• Conditional
o If Directive Issued Date (code 3231) or Directive Income Source code (code 3232) has been completed, then Directive Income Amount is mandatory
o Else, Directive Income Amount must not be completed
• Only applicable from Transaction Year >= 2022

Employee Information

Validation Rules for IRP5 code 3242 in the electronic file are:
• Mandatory if the value for code 3240 is not “0” or “7”
• The Code and the value must not be completed if code 3240 is “0” or “7”.
• All 6 characters of this field must be completed