SARS is hosting a virtual webinar on the Employer Interim Reconciliation Declaration Filing Season, and all employers are invited to attend. The webinar will cover topics such as submission channels, general rules for import file structure, validation rules updates, and the EMP501 reconciliation process. Employers are required to deduct the correct amount of tax from employees’ remuneration, pay this amount to SARS every month, and ensure that SARS receives the Monthly Employer Declaration (EMP201) regularly on time as required. The deductions and payments are then reconciled through the completion of the Employer Reconciliation Declaration (EMP501). Employers must also issue final tax certificates (IRP5/IT3(a)’s) to employees within the prescribed time frames and requirements applicable to different employees and employers. The webinar will be held on Thursday, 20 October 2022, from 17:00 – 19:00, and will be available on Zoom and YouTube. Register in advance for the webinar at https://sars-gov-za.zoom.us/webinar/register/WN_9yXBhdFIQdyPIBdRj9ECIg. After registering, attendees will receive an email confirmation with the logon information for the webinar and how to have their questions answered during the event. The webinar will also be recorded and posted on the SARSTV YouTube channel after the event. For questions about Employer Interim Reconciliation Declarations, please send an email to [email protected]. For more information, visit https://www.pagsa.org.za/2023/06/10/nf-2022-46-sars-emp501-reconciliation-webinar/.

The State President announced in the State of the Nation Address on February 11, 2022, that the requirements of the Employment Tax Incentive Act will be reviewed. This will have a direct impact on payroll suppliers. The Employment Tax Incentive Act has been successful in addressing the high levels of unemployment in the country, particularly for young people aged 18 to 29 years. However, the take-up of the ETI project could have been better if the requirements were simpler and the risk to employers was lower. PAGSA has requested a re-think of the troublesome aspects of the ETI Act since 2015, and proposed changes that will significantly simplify the requirements. The 2022 State of the Nation Address stated that the value and criteria for participation in the Employment Tax Incentive will be increased to encourage hiring by smaller businesses. The Budget proposals on February 23, 2022, will provide more detail. Once put into effect, this proposal will result in changes to payroll systems and ETI administration processes, but it is welcome news for both payroll suppliers and employers in the ETI project. For more information, visit https://www.pagsa.org.za/2023/06/10/nf-2022-05-sona-eti-review/.

On February 22, 2023, the Minister of Finance presented the 2023 Budget Review in Parliament. SARS has made the following documents available on their website: 2024 tax tables, medical fees tax credit, budget tax guide, and budget documents. The statutory rates of tax for the 2024 year of assessment are also available. The tax rates, rebates, and thresholds proposed by the Minister of Finance will take effect on March 1, 2023. The medical scheme contribution tax credit will also be effective from March 1, 2023. The rate per kilometer has been increased from R4.18 to R4.64 per km. The daily amounts for overnight allowance and daily business trip reimbursements are also available. The Budget 2023 proposals to change employment-related tax legislation will be issued in a PAGSA Newsflash shortly.

For more information, please visit https://www.pagsa.org.za/2023/06/10/nf-2023-08-budget-2023-highlights-and-useful-links-for-payrolls/.

PAGSA Newsflashes are confidential to members and statutory bodies. The purpose is to communicate changes in payroll-related legislation, regulations, and interpretations/opinions by statutory bodies. PAGSA Newsflash 2022-15 proposed changes to the Employment Tax Incentive Act (ETI) to curb abuse. Due to the complexity of the changes, PAGSA has relaxed the confidentiality requirement for this newsflash only. Members may issue it to clients but must acknowledge PAGSA as the author and request clients not to distribute the information beyond their business. Clients should contact members first for queries and not PAGSA directly. Unexpected problems may arise, and PAGSA will communicate through Newsflash. Find more information at https://www.pagsa.org.za/2023/06/10/nf-2022-16-curbing-eti-abuses-confidentiality/.

DISCLAIMER: All information provided by PAGSA is subject to our disclaimer.

SARS has issued a message regarding the issuing of tax certificates for deceased employees. Employers must issue tax certificates within 14 days of the date of death, as the tax period for a deceased employee ends on their date of death. This allows the executor of the estate to finalize the estate, including completing the deceased’s tax returns. See SARS’ message below:

Regards,
Rhona van Taak
Admin Manager Payroll Authors Group of South Africa

For more information, please visit https://www.pagsa.org.za/2023/06/10/nf-2022-28-sars-message-tax-certificate-issue-date-deceased-employees/.

SARS is conducting audits on Employment Tax Incentive (ETI) claims made by employers. They have issued a letter to employers requesting the submission of ETI records for verification of returns for the 201908 tax period. Employers are advised to review their EMP201 returns and relevant material for any errors and to correct them by submitting a revised EMP501 reconciliation via eFiling or e@syFile. If no errors are detected, employers are required to submit relevant material such as a payroll or summary report for the period, a schedule of the ETI calculations per employee, proof of bargaining council and industry regulations and agreements, and proof of sector determination or bargaining council agreement that prescribed a lesser minimum salary than R2000 for employees earning below that amount.

Employers are advised to submit the tax certificate information as available on the payroll file, specifically the codes for surname, names, ID number, asylum seeker permit number, date of birth, ETI employment date, ETI month, ETI qualifying month cycle, ETI SEZ code, ETI hours, ETI remuneration, minimum wage applicable, wage paid, and calculated ETI. The “age” can be determined using the “Date of Birth”.

For more information, please visit https://www.pagsa.org.za/2023/06/10/nf-2023-19-sars-eti-verification-audits/.

Disclaimer: All information provided by PAGSA is subject to our DISCLAIMER.

PAGSA Newsflash 2022-03 provides an overview of the general changes to tax-related legislation that came into effect on 1 March 2022. The final Amendment Acts include the Taxation Laws Amendment Act, the Tax Administration Laws Amendment Act, and the Rates and Monetary Amounts and Amendment of Revenue Laws Act. These Acts confirm the tax tables, rebates, and threshold changes proposed in the 2021 Budget.

One of the changes to the Employment Tax Incentive Act involves the definition of “monthly remuneration,” while the other change relates to the reduction of the value of the “long services award.” PAGSA is currently in discussions with SARS to resolve the issues surrounding these changes.

The Newsflash also discusses two general employment-related tax amendments. The first amendment clarifies the fringe benefit for employer contributions to a retirement fund, addressing an anomaly that arose when a retirement fund provided both defined contribution component retirement benefits and self-insured risk benefits. The second amendment extends the sunset date of the learnership tax incentive to 1 April 2022 and aims to improve the targeting of the incentive.

Employers should be aware of these changes and ensure that their payroll systems are set up correctly. For more information, visit https://www.pagsa.org.za/2023/06/10/nf-2022-03-final-tax-law-changes-general/.

SARS has issued a notice regarding the employer filing season for the interim period ending August 2022. Employers and stakeholders are advised that prepopulated liabilities on the Reconciliation Declaration (EMP501) may not be complete during the period of 14 to 16 September 2022, due to the processing of Revised Declarations (EMP201). Only employers affected by this are advised to submit their Reconciliation Declaration (EMP501) from Monday, 19 September 2022. For more information, visit https://www.pagsa.org.za/2023/06/10/nf-2022-39-sars-notice-employer-filing-season/.

The Employment Tax Incentive (ETI) calculation formulae have been changed to increase the value of the incentive by up to 50%, effective from 1 March 2022. This change was announced in the 2022 Budget Review, following the State President’s announcement in his State of the Nation Address in February 2022. The changes to the ETI Act are legal for a period of 12 months from the proposed effective date, if the proposed changes are promulgated within that 12-month period.

The incorrect ETI calculation formulae were specified in the Rates Bill issued on 23 February 2022, but were corrected in the new Rates Bill issued on 25 February 2022. The old formulae were in operation up to 28 February 2022, while the new formulae are effective from 1 March 2022. The incorrect formulae would have resulted in more ETI being calculated than what the policymakers envisaged with the changes, so correcting this error has saved the fiscus a considerable amount of money.

The changes to the ETI formulae and the definition of “monthly remuneration” in the ETI Act were released in a rushed manner, leaving payroll suppliers with very little time to change, test, and issue payroll to clients before the first ETI calculation runs for March. If the rollout of the new ETI formula to clients is delayed, this might cause problems with mid-year and/or final tax year submissions later in the year.

Two issues resulting from the changes made by the final Taxation Laws Amendment Act still need to be resolved by SARS. These issues concern the exclusion of fringe benefits from ETI monthly remuneration and the application of BCEA section 34(1)(b) deductions to ETI monthly remuneration. SARS has indicated that “an amount other than a cash amount” refers to all fringe benefits in the 38xx range of tax certificate codes.

For more information, visit https://www.pagsa.org.za/2023/06/10/nf-2022-11-increase-to-the-eti-value/.

Employment Tax Incentive Act Amendments – Curbing ETI Abuse
Before discussing the details of the amendments to the ETI Act (Employment Tax Incentive Act) to curb ETI abuse that are effective from 1 March 2022, I would like to thank National Treasury for their help from a policy perspective, and to thank SARS for putting up with my many emails, for their support during the past weeks, and for their clarification of the new ETI requirements.
Included in the appendix to this Newsflash is the result of our discussions with SARS in the form of an NBPO (Non-Binding Private Opinion) that was issued by SARS dated 7 March 2022.
The issuing of the NBPO was followed by an investigation by the PAGSA Exco into the practical application of the NBPO, resulting in an example of the calculation of ETI ‘monthly remuneration’ that is included, after approval by SARS, in a later section of this newsflash as guidance for the payroll supplier members of the PAGSA.
The correct calculation of ETI ‘monthly remuneration’ is of huge importance to all parties.
If ‘monthly remuneration’ is incorrectly calculated, the ETI amount will be calculated incorrectly, resulting in an incorrect reduction of the employer’s PAYE liability on the EMP201.
Apologies to our payroll supplier members that it has taken some time to reach the point where we are now with this Newsflash. It has been a difficult time for payroll suppliers – how can you change a payroll system when you don’t know what the changes are?
The challenges that payroll suppliers face with the timeous implementation of the new ETI requirements has been formally communicated to SARS by the PAGSA.
The final changes to the ETI Act were made in October/November 2021 by the Standing Committee on Finance and were published in the TLAA (Taxation Laws Amendment Act) that was issued on 19 January 2022, accompanied by a final Explanatory Memorandum that was issued a week later on 25 January 2022.
The limited amount of time available between the publication of the TLAA on 19 January 2022 and the effective date of 1 March 2022, coupled to the fact that ETI is calculated monthly, has put a lot of pressure on everybody.
Purpose of the ETI Act
The purpose of the ETI Act is to encourage employers to hire young people between the ages of 18 and 29 by subsidising their wage cost.
The ETI is therefore an employment incentive, not a training incentive.
As an aside, Government subsidises the cost of training employees in two ways that I am aware of:
1.Learnership Incentive (Allowance)
If the studies are in the form of a SETA-provided learnership in terms of the Skills Development Act, the Learnership Incentive (as it is now called) has been available from 2001 to assist employers with these costs.
2.Bursaries and Scholarships
Bursary schemes reduce the taxable value of the fringe benefit that results from the payment by the employer on behalf of the employee to a recognised training institution for the training of either the employee, or the relatives of the employee.
The bursary training expenses paid by the employer on behalf of the employee are allowed as a deduction in the hands of the employer.
Background to ‘ETI Schemes’
Several years ago SARS became aware of what is now referred to as ‘ETI Schemes’, and after investigation, the action that Treasury and SARS decided to take first appeared in the public domain in the 2021 Budget Review, as follows:
“Some taxpayers have devised certain schemes using training institutions to claim the ETI for students. To counter this abuse, it is proposed that the definition of an “employee” be changed in the Employment Tax Incentive Act (2013) to specify that work must be performed in terms of an employment contract that adheres to record‐keeping provisions in accordance with the Basic Conditions of Employment Act (1997).
The Problem with ‘ETI Schemes’
According to the final Explanatory Memorandum issued by National Treasury and SARS on 25 January 2022, these schemes while varying in nature, are broadly along the following lines.
“Eligible participants are recruited by a recruitment agency and employed by a participating employer for a fixed term period of 12 to 24 months.
Participating employers engage with the recruitment agency to recruit eligible participants. Contracts signed by the eligible participants indicate the receipt of remuneration while ‘employed’ by the participating employer.
Once ‘employed’, participants are trained by a training institution (over the 12 to 24 month period) and, in some cases, enrolled in Sector Education and Training Authority (SETA) accredited courses.
The training institution is contracted by the participating employer at a cost equal to the remuneration stated in the eligible participant’s contract. The remuneration stipulated in the contract is paid to the training institution as opposed to being paid to the eligible participant.
In some cases, the eligible participants are exposed to work-based exercises and activities by an independent company.
The independent company is able to utilise the eligible participants for a fixed monthly fee, which similar to the remuneration, is not paid to the eligible participant.
Once the training programme is completed, the eligible participant may work for the participating employer for the remainder of the 12 to 24 month period.
In accordance with said scheme, the participating employer is then able to claim the ETI for the 12 to 24 month period that the eligible participant is supposedly ‘employed’ by the employer.”
Intention of the Amendments to the ETI Act
Quoting further from the Explanatory Memorandum of 25 January 2022.
In order to address the above-mentioned contraventions, it is proposed that changes be made in the ETI Act to clarify that substance over legal form will be considered when assessing an employer’s ability to claim the ETI.
As such, ‘work’ must actually be performed in terms of an employment contract and the employee must be documented in the employer’s records as envisaged in the record keeping provisions contained in section 31 of the Basic Conditions of Employment Act, 1997 (Act No. 75 of 1997).
Further to the above, the employee must, in lieu of services rendered, receive cash remuneration from the employer.
The last (underlined) sentence of the final Explanatory Memorandum of 25 January 2022 was not in the Explanatory Memorandum issued on 28 July 2021 for public comment.
It was added to the final Explanatory Memorandum to explain the new proviso to the definition of ETI monthly remuneration in the ETI Act (discussed below) that was added by the Standing Committee on Finance just before the final TLAB (Taxation Laws Amendment Bill) was tabled in the National Assembly for approval towards the end of 2021.
The Solution to ‘ETI Schemes’
The TLAA issued on 19 January 2022 made changes