Annual filing season is now open for businesses, with the South African Revenue Service (SARS) giving organisations until the end of May to submit all their employees’ payroll and tax information.
According to SARS: “The data that must be submitted to SARS from employers should cover the Monthly Employer Declarations submitted, payments made and Tax Certificates (IRP5’s/IT3(a)’s) generated, covering the full tax year from 1 March to 28/29 February.” Information submitted by third parties should cover the same tax period.
Kristel Badenhorst, Head of Legislative Research at PaySpace, a leader in payroll and HR software, says this means that employers need to complete EMP501 declarations and submit to SARS along with the employees’ Tax Certificate file by 31 May 2021.
“The declaration reconciles the annual Pay-As-You-Earn (PAYE), Skills Development Levy (SDL), Unemployment Insurance Fund (UIF) and Employment Tax Incentive (ETI) withheld and/or contributed. This includes a reconciliation of the amounts declared throughout the tax year on the EMP201, amounts paid to SARS in relation to the EMP201 declarations, and the total amounts declared on the employee tax certificates,” she explains.
Badenhorst stresses that these three elements need to reconcile. “It is important to ensure that there are no differences between what has been declared on the EMP201s for the tax year and what have been paid. Where there are differences, SARS will require an explanation for the difference when submitting the EMP501 declaration. Differences may result in further action required from the employer. To the extent where there is an underpayment to SARS, this may also result in penalties and interest levied.” This is why having accurate and up to date payroll information for each employee is critical.
Payroll data submitted to SARS is used to pre-populate data on the individual’s personal income tax return. It is therefore essential to report the correct information. Any discrepancies may result in the need to amend the individual’s tax certificate and perform a resubmission of the EMP501 and tax certificate data.
Payroll data is the basis on which an employer complies with the governing legislation in terms of employment law and taxation, and is also the means by which SARS will assess compliance. “Be mindful, the burden of proof lies with the employer should SARS request supporting documents for assessment, verification, or audit,” says Badenhorst. Payroll records must be retained by the employer for a period of five years from the date of submission of a return.
“In addition, as per the Fourth schedule to the Income Tax Act, these records must include employment remuneration paid or due to the employees, the amount of employees’ tax deducted or withheld from this remuneration, as well as the employees’ income tax reference numbers.”
With all these hoops to jump through, it is easy to see why having a payroll specialist to help smooth the process becomes paramount. In addition, having a true-cloud software-as-a-service (SaaS) provider that takes care of payroll data without the burden of payroll backups eliminates the possibility of losing valuable employee information.
Bearing in mind the sheer volume of legislation that governs compliance in the payroll space, having an expert that can analyse, interpret and apply this legislation will help mitigate some of the risks associated with incorrectly interpreting and applying the legislation as well as reducing the risk of penalties for non-compliance.
Speaking of the pitfalls to avoid during filing season, Badenhorst says to never underestimate the value of backups. “This is particularly important when it comes to SARS e@syFile™ software which is used to submit declarations and employee tax certificates. Do backups on a regular basis to make sure that data is not lost should a system glitch occur.”
In addition, employers must always check the status of submissions to ensure their EMP501 has been successfully filed at SARS.
Employers are encouraged to always meet the deadline, as those who file the EMP501 late will be penalised under the provisions of paragraph 14(6) of the Fourth Schedule to the Income Tax Act. A penalty may be levied up to 10% of the year’s PAYE liability. Having an expert that will prioritise the EMP501 reconciliation process on behalf of the employer will enable the business to focus on its core activities and mitigate the risk of late submission penalties.
Finally, Badenhorst offers a checklist that all companies should follow when submitting their declarations:
- Verify company information
- Verify employee information
- Determine the liability for PAYE, SDL, UIF and ETI including any manual certificates.
- Determine EMP201 payments made to SARS on e-filing.
- Compare figures in step 3 and step 4 to establish if there are any differences.
- Determine the specific employee records where variances occurred.
- Process any necessary corrections.
- Upload the test employee tax certificate file for validation check.
- Once the test employee tax certificate file has passed the validation check, complete the submission.