PAYE deductions for audit committee members
SARS receives many enquiries from national, provincial and local government institutions regarding whether payments to certain members of the institutions’ audit committees (members) should be subject to the deduction of withholding of Employees’ Tax (PAYE). “Members” in this context refers to members appointed to an audit committee from outside the relevant institution.
SARS would like to clarify the correct tax treatment of payments to members.
Members are appointed to an audit committee in terms of section 77 of the Public Finance Management Act, 1999 (the PFMA). Regulation 3 of the Treasury Regulations published under section 76 of the PFMA, published in Government Notice 225 of 15 March 2005, governs audit committees.
Regulations 3.1.4 and 3.1.5 require that members of audit committees must be independent. For this reason, the payments made to the members do not constitute “remuneration” as defined in the Fourth Schedule to the Income Tax Act, 1962 (the Act). Members are independent contractors under the common law and for purposes of the main body of the Act, and also for PAYE purposes under the Fourth Schedule. No PAYE is therefore required to be withheld from payments to members.
If an institution and member agree to voluntary deductions of PAYE, an Employees’ Tax certificate (IRP5) must be issued. The total amount paid or payable, before the deduction of PAYE, must be disclosed under code 3616 on the IRP5. The total must include any allowances/reimbursements paid to the member.
These amounts will be taxable on assessment of the members’ income tax returns, but the PAYE deducted will be set off against the tax liability.
This notice does not apply to public servants or employees of institutions who serve on audit committees. Such persons do not qualify for additional remuneration to serve on such committees. The ordinary rules applicable to allowances and reimbursements apply to those persons.
SARS tax training for government
SARS hosted information sessions with the provincial government departments regarding VAT on Imported Services this month. As both national and provincial government entities acquire electronic services from entities that are not resident in South Africa, SARS has found that information is lacking as to the tax treatment of such electronic services. The latter could result in tax noncompliance for the South African Government institution that is using those electronic services
Therefore, training has been developed by SARS that provides specific information for the correct tax treatment of such transactions. The training material specifically addresses the following:
- Definition of Imported & Electronic Services
- Implications for VAT
- VAT Implications when the foreign supplier is not a tax resident in SA
- SARS systems to use when processing VAT on Imported Services
At the session held for Mpumulanga and the Eastern Cape provincial governments this month, the following issues were raised and answered by SARS:
With regards to the 10% penalty for making late payment, participants wanted to know how it works if the supplier only issues the invoice later than the actual date of the service and whether they must still work on the earlier of date of invoice or date of payment?
The VAT Act is very specific in terms of submission dates. If there is a delay in the receipt of the invoice, it does affect government as VAT will be calculated 30 days from the date of invoice and not when the service was delivered.
Where must the VAT be collected and paid over to SARS?
VAT is collected in the place of consumption. If the service is consumed in South Africa, the VAT is attributable to South Africa.
Is this project one of SARS’ revenue raising initiatives?
No. SARS realised that this was an area of noncompliance; hence a project was convened around electronic services. These information and education sessions by SARS are intended to improve voluntary compliance in a technical area of VAT.
If any other provincial or national government would like a similar education session, please contact the SARS regional offices in your area and engage the taxpayer education office.
SARS FILING SEASON CHANGES FOR 2021/2022
This year, SARS increased the number of auto assessments to make it easy for taxpayers to fulfill their tax obligations. As this is a relatively new way of managing individual tax obligations, taxpayers have asked SARS to clarify certain issues regarding auto assessments.
The FAQs and SARS responses below addresses issues raised on auto assessments, supporting documents and tax residency declarations.
There are instances where information per the IRP5s and IT3bs of taxpayers are not appearing on the system. Where changes were made, the system ignored these and issued the original auto assessment.
The auto assessments are issued based on the third party data provided to SARS. Any changes made are verified against the third party data. If changes are made and these do not conform with third party data, the original assessment will be issued.
Taxpayers are required to contact the institutions and request them to send the updated data to SARS and to themselves. When the updated third party data is received after the auto assessment (or where the taxpayer submitted a return that was already assessed), a notification will be sent to the taxpayer requesting him/her to review the correctness, and the taxpayer may lodge a Request for Correction. If the taxpayer does not do anything, SARS will proceed to auto revise the return.
Why has SARS taken away the option to ‘accept’ or ‘decline’? If SARS brings back these options, tax practitioners believe they will automatically have the later deadline available as opposed to having to submit the return within 40 business days of the assessment.
SARS removed the “accept” option on the eFiling system based on observations from the 2021 Filing Season where 96% of taxpayers who were auto assessed did not amend the returns prepopulated by SARS. If taxpayers are unhappy with the auto assessments, they can submit the returns in the normal way (i.e., open the return and make changes).
What triggers a manual intervention and what is the timeframe for finalisation of an assessment in such circumstances?
A manual intervention is triggered if a risk is identified. The taxpayer will be requested to submit supporting documents. The turnaround time is 21 business days from the date when all required documents are submitted to SARS.
Some of the information reflected on an IT3b is not included on the pre-populated ITR12. Why does this happen?
There are two categories of reasons why third party data is not pre-populated on a return:
- The third party has not submitted the data to SARS at all or the information was submitted to SARS after the auto assessment was done.
- The third party submitted the data to SARS, but the information could not be prepopulated because it does not reach the level of confidence acceptable to SARS.
A taxpayer may use the “Enquire third party data” functionality on eFiling to see if the information he/she is looking for is on the system. If it is, the taxpayer needs to click on refresh data, and the information will then be pre-populated on the return,
In respect of medical aid contributions, the question on the return asks how many dependents the taxpayer has and not how many members are on the medical aid. What is the current position?
The ITR12 return form was amended a few years back to align to the medical aid reporting. When the medical aid reports the data, they show the number of dependents (including the main member). The current return asks for number of dependents (including the main member), so the return is very specific as to what is required.
Most financial institutions have the practice of providing documents which are password protected to a taxpayer. Since SARS does not allow the uploading of such a document in response to a query, how does SARS require the supporting documentation to be provided in a form other than the original document, bearing in mind that not everyone has the ability to print and then scan the print for submission?
Choose Print to PDF option, then save the document.
It seems that the change in tax residency status cannot be declared in the 2022 tax return.
This has to be done on the RAV01 form.
- EMPLOYER INTERIM RECONCILIATION FILING SEASON
This year, the Employer Interim Reconciliation Declaration (EMP501) submission period opens on 19 September 2022 and closes on 31 October 2022. Employers are required to reconcile their Monthly Employer Declarations (EMP201) for the first six months of a reconciliation year (1 March 2022 to SA 31 August 2022). These reconciliations are based on the Monthly Employer Declarations (EMP201) submitted, with the tax values of the interim IRP5/IT3(a)s certificates generated, accurate payroll information, and employees’ tax (PAYE) payments made, before an Employer’s Reconciliation Declaration (EMP501) is submitted. Click here for more information on the employer interim reconciliation submission.
The following enhancements have been implemented for the interim PAYE Filing Season:
- New fields on the IRP5/IT3(a) certificates.
- Amendments to validation rules for certain fields on the IRP5/IT3(a) certificates.
- Enhancements to the EMP201 and EMP501 request processes.
- Employment Tax Validation on EMP501 Reconciliation.
- Backdating of PAYE liability date.
- Enhancements to Employer de-registration process.
The following Guides were updated:
- PAYE-AE-06-G06 – Guide for Codes Applicable to Employees Tax Certificates 2023 – External Guide
- PAYE-AE-06-G07 – Guide for Validation Rules Applicable to Reconciliation Declarations 2023 – External Guide
- PAYE-AE-06-G08 – Guide for Completion and Submission of Employees Tax Certificates 2023 – External Guide
- PAYE-GEN-01-G05 – Guide for Employers in respect of Employment Tax Incentive – External Guide
- GEN-REG-01-G04 – How to Complete Registration Amendments and Verification Form (RAV01) – External Guide
- EMP-GEN-02-G01 – A Guide to the Employer Reconciliation Process – External Guide
The SARS guide on Foreign Suppliers of Electronic Services has been revised to include a process for cancellation of VAT registration. Click here for more information https://www.sars.gov.za/vat-reg-02-g02-foreign-suppliers-of-electronic-services-external-guide/
- DRAFT DOCUMENT FOR PUBLIC COMMENT
Value-Added Tax Act, 1991. SARS has published, for public comment the Draft interpretation note on the value-added tax treatment of debt collection. Click on the link to access the draft interpretation note. Due date for comment: 7 October 2022. 2022.
- PUBLISHED BINDING RULINGS – BINDING CLASS RULINGS (BCRS) – BCR 61-80
Income Tax Act, 1962, and Estate Duty Act, 1955 (BCR 080) – Tax implications for resident beneficiaries of a foreign pension trust.