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Home… Tax Types… Pay As You Earn (PAYE)… PAYE Changes: Public Comment
PAYE Changes: Public Comment
Overview of PAYE 2010
Introduction
In May 2007 SARS embarked on a journey to transform the income tax process from a complex, paper-based and labour-intensive process to a simplified, automated and electronic one. The motivation behind this endeavour was two-fold: Firstly, to reduce the costs to both SARS and taxpayers of meeting income tax obligations and secondly, to enhance the ability of SARS to effectively ensure the compliance of taxpayers.
However, despite the huge successes achieved in 2007, one key obstacle impacted on the ability of SARS to provide fast, efficient and effective assessments to taxpayers: the quality of information contained in tax returns and in the possession of SARS (third party data). We thus embarked on a redesign of the PAYE process – the foundation of the PIT system – in 2008 in partnership with employers, payroll administrators and payroll software vendors. This allowed SARS to:
• Significantly reduce non-compliance in the PAYE process and the associated revenue risks
• Significantly reduce the occurrence of errors and verification failures of income tax returns
• Lay a foundation for the pre-population of income tax returns
• Lay a foundation for management of the social security reforms.
As part of these changes to the PAYE process, in 2008 we introduced new forms: an Employer Reconciliation Declaration (EMP501), Tax Certificate Cancellation Declaration (EMP601) and combined Employee Tax Certificate (IRP5/IT3(a)), as well as free software (e@syFile PAYE) to assist employers with electronic completion of forms offline. These changes were overwhelmingly welcomed by employers and resulted in one of the most successful PAYE reconciliation processes yet with more than 85% submitted electronically.
In 2009 we continued with these reforms, introducing another new form – an EMP701, which allows employers to make adjustments to previous years’ declarations, enhancing e@syFile so it could handle larger volumes of documentation, adding a status dashboard to eFiling and e@syFile for employers to check the status of their submitted documents, and making certain information within the files employers submit to SARS mandatory from a policy perspective.
Proposed PAYE amendments for 2010
For the 2010 tax year we intend continuing on our journey of modernisation, building on several of the changes from this year and introducing entirely new elements next year.
Proposed amendments for the 2010 tax year include:
• Certain information will become mandatory on the files that employers submit to SARS. This was introduced from a policy perspective in 2009, but it will be enforced from a system validation perspective in 2010. This will mean that employers’ payroll systems will need to be adjusted.
• Enhancing the employee tax certificate [IRP5/IT3(a)] to include significantly more data - for example, providing demographic information regarding employees, including:
o Addresses in a defined format;
o Compulsory banking details;
o Compulsory tax reference number; and
o Compulsory ID number for SA citizens and passport number in other cases.
These fields must be added to the CSV files generated by the payroll systems.
• Enhancing the EMP501, by adding employers’ demographic details. These will be mandatory for employers to complete as part of their reconciliation declaration.
• Rationalisation of existing PAYE, SDL and UIF codes to simplify the reconciliation process.
These will all be in place by the time Employers Tax Season starts in April 2010.
Proposed amendments in 2011
Further to the 2010 changes, in 2011 another key change proposed is for payroll systems to produce XML files of employees’ tax certificates, rather than CSV files. These can be submitted directly to SARS and need not be put on a disc – as with CSV files – as XML is the format that SARS uses. It is also the format that we intend to use to eventually administer the social security system.
Another key change for 2011 is that employers will be required to submit their reconciliations bi-annually and not once a year. This is also part of our preparation for administering the social security system.
Comment on PAYE proposals
Detail of the proposed PAYE amendments for 2010 is contained in the Business Requirements Specification: PAYE Reconciliation 2010 which was published on the SARS website for comment in November 2008. Many discussions have subsequently taken place between large payroll/employer representative organisations and SARS to finalise this document. To ensure that all stakeholders have taken note of the proposed amendments, employers, practitioners, payroll administrators and other interested parties are again invited to comment on these proposals by emailing employerunit@sars.gov.za before 7 August 2009.
The following documents provide detailed information concerning the proposed amendments and requirements:
1. Business Requirements Specification: PAYE Reconciliation 2010 (click on heading to view document)
This document details the proposed requirements for submitting reconciliations to SARS for the 2010 tax year. It also specifies the following:
o The proposed rules and processes that must be adhered to during the 2010 tax year reconciliation periods;
o The proposed CSV fields, formats and validation rules that must be adhered to for the 2010 tax year reconciliation submission process; and
o Other proposed rules that will impact on the 2010 tax year reconciliation submission process.
To see the Trade Classification Guide for Vendors and Employers (VAT/EMP 403) referred to in the above document, click on this document VAT 403 Trade classification.
2. Functional Specification: IRP5/IT3(a) form (click on heading to view document)
This document provides detailed specification relating to the new IRP5/IT3(a) form to be implemented during the 2010 period.
3. Look and Feel: IRP5/IT3(a) form (click on heading to view example)
This is the new IRP5/IT3(a) form to be implemented during the 2010 period.
4. XML: IRP5/IT3(a) form (click on heading to view documents)
This document will detail the defined XML format for the new IRP5/IT3(a) form which will be used in 2011.
Thank you for partnering with us as we continue on our journey towards modernisation of the PAYE and Personal Income Tax Assessment Process. We look forward to your feedback.
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