Obligation to deduct correct amount of PAYE every month
Employers are obligated to deduct the correct amount of employees’ tax (PAYE) from an employee’s remuneration and to declare and pay such amount to SARS on a monthly basis. The amounts declared by the employer on the EMP201 monthly return is the total amount of all PAYE deducted from all employees during the relevant month.
This means that the employer cannot deduct amounts, which are more or less the amount that is properly deductible from the employee’s remuneration and calculated at the appropriate tax rates or tax deduction tables. For this reason, the employer should not have any large or under over-deduction of PAYE unless the employee requested the employer in writing to deduct an additional amount of PAYE.
Employers are obligated to re-calculate the final tax liability at the end of the employee’s year of assessment, or employment period when the employee resigned, is retrenched, became insolvent or passed away before the end of the year of assessment. However, this often only happens when the reconciliation documents are prepared. The re-calculation of tax may then result in an over- or under-deduction of tax.
IRP5/IT3(a) Certificate Validation Process
From the 2020 year of assessment, SARS is performing additional validations on the IRP5/IT3(a) certificates. These validations check if the:
- IRP5/IT3(a) certificates was already assessed on the Income Tax System;
- Income Tax Reference number on the IRP5/IT3(a) certificate is not duplicated for multiple individuals;
- Directive information on the IRP5/IT3(a) certificate corresponds with the directive information on the SARS Directive System;
- Correct amount of PAYE or SDL was deducted from employee/declared on the IRP5/IT3(a) certificate by employer.
Where it is found that any of these criteria were not met, a letter will be issued to the employer, accompanied by a file containing a list of the certificates that have failed the SARS employment taxes validation.
The tilde (~) delimited text file containing the reasons for the failure(s) will also be sent to the submitting channel:
- [email protected] validation calculation file: Can be found on the EMP501 Status Dashboard. After clicking “Update” to see the submission status, click the “Download Employment Tax Validation” button located at the top of the screen to download the tilde (~) delimited text file.
- eFiling validation calculation file: Can be found on the EMP501 work page next to the EMP501 information. Click on “View” under the View Certificate Errors heading. The file will be downloaded or an option to save will be displayed (depending on browser used).
Note: The purpose of the Employment Tax Certificate Validation Feedback letter is to inform the employer of ETV discrepancies identified on the IRP5/IT3(a) certificate submitted to SARS and issued to employees in order for employers to rectify the identified issue. Certificates that failed the directive information check will be rejected and will not pre-populate on the employee’s income tax return (ITR12). Certificates that failed the other validation checks will be accepted, processed and pre-populated on the employee’s income tax return (ITR12).
Understanding the file layout
Indicates the certificate number on which the tax calculation discrepancy occurred
Indicate the type of certificate which can be IRP5 or IT3(a)
The Trading Name of the Employer
The ID number of the Employee
The passport number of the Employee
The alternate identification number of the Employee
|ITREFNUMBER||The Income Tax Reference number of the Employee|
The name of the Employee
The total number of periods within the year of assessment (total PP)
The number of periods worked within the year of assessment (worked PP)
|ASSESSEDSTATUS||Indicates if the certificate has already been used by SARS’ systems to assess the employee’s ITR12 return|
|ITREFDUPSTATUS||Indicates that the same Income Tax Reference number has been used for different employees|
|DIRECTIVENUMBER||Number of the directive issued by SARS relating to a specific income|
|DIRECTIVESTATUS||Indicates if the directive number passed or failed the directive information check|
|DIRECTIVEFAILREASON||Indicates the reason for the failed directive information check|
The Gross Employment Income of values declared on the certificate
The Total Deductions declared on the certificate
The income tax reference number of the Employee
The PAYE amount declared on the certificate (code 4102)
The UIF amount declared on the certificate (code 4141)
The SDL contribution declared on the certificate (code 4142)
The medical scheme tax credit declared on the certificate (code 4116)
The additional medical scheme fees tax credit (code 4120)
The reason for non-deduction of tax (code 4150)
The status of the PAYE calculation according to SARS – PASS / FAIL
The amount as calculated by SARS
The status of the SDL calculation according to SARS – PASS / FAIL
The amount as calculated by SARS
The status of the ETI calculation according to SARS – PASS / FAIL*
The amount as calculated by SARS*
* Due to the certificate not containing monthly remuneration, UIF is excluded from the tax calculation process.
What should I do if the IRP5/IT3(a) certificate has already been assessed?
An IRP5/IT3(a) certificate may already be assessed if you have submitted an amended certificate, or the employee has manually captured the IRP5/IT3(a) on his/her income tax return (ITR12). The certificate that you have submitted may affect the financial information and you need to inform the employee to request a correction for his/her ITR12 return and resubmit. You do not have to resubmit these certificates.
What should I do if the Income Tax Reference Number is duplicated for multiple employees?
You must ensure that you have the correct Income Tax Reference number for each employee. If you do not have the Income Tax Reference number for an employee or you are not sure if the Income Tax Reference number that you have is correct, the “What is my Tax Number” service on the SARS webpage can be used to obtain the correct Income Tax Reference number for the employee and update your records. You do not have to resubmit these certificates.
What do if the Directive Information on the IRP5/IT3(a) certificate is incorrect?
You must ensure that the directive information captured on the IRP5/IT3(a) certificate corresponds with the information on the directive issued by SARS, rectify any discrepancies on the IRP5/IT3(a) certificate and resubmit the certificate to SARS.
Note: IRP5/IT3(a) certificates that failed the directive information check will not be prepopulated on the employees’ ITR12 return.
What should I do if there is a tax calculation difference?
Where there is an under-deduction of employee’s tax from an employee’s remuneration:
- Pay the shortfall (employees’ tax, UIF and/or SDL) amount to SARS. Penalties and interest may be payable;
- Recover the shortfall (employees’ tax only) from the employee;
- Issue an amended IRP5/IT3(a) certificate for the transaction year in which the under-deduction occurred to the employee, once the employees’ tax shortfall has been recovered;
- Submit the amended IRP5/IT3(a) certificate to SARS showing the correct withholding. The employer may only submit such amended certificate once all the employees’ tax has been recovered from the employee; and
- Determine the reason for the under-deduction. If it is as a result of a calculation error or incorrect setting in the payroll system, the necessary changes must be made to avoid such incorrect deductions in future.
Where the employee’s ITR12 return has already been assessed, the employee must resubmit the ITR12 through the Request for Correction (RFC) process or, if the ITR12 was audited, the employee must lodge an objection.
Where the employer cannot recover the under-deduction of employees’ tax from the effected employee, such amount will be deemed to be a penalty payable by the employer only. The relevant tax amount MUST NOT be reflected on any certificate. PAYE MUST be declared in the “Tax Paid on Behalf of Employee” field on the EMP501. SDL and UIF MUST be declared in the “Audit Result not in Certificates” field on the EMP501.
The EMP501 values available are as follows:
|||Sum of monthly Declarations – March to February|
|Total Liability less Annual Total|
|Sum of Tax Paid on behalf of Employer plus Audit Result not in Certificates plus Tax Certificates Total|
|||Sum of code 4102 and 4115 on certificates. The total value of IRP5 certificates issued|
|Where an audit was conducted and the tax cannot be collected from the employee, complete the value in this field|
|Where it is determined that tax should have been withheld and cannot be collected from the employee, complete the value in this field*|
*For SDL and UIF the Audit Results not in Certificates must be used.
Where there is an over-deduction of employment tax from an employee’s remuneration:
- Determine if the over-deduction is per request of the employee and ensure that the field “Voluntary Over Deduction” on the certificate is updated to “Yes”. Please note that the employee must submit a request for over-deduction to the employer in writing;
- For PAYE, do NOT correct the over-deduction of PAYE, regardless of the reason for over-deduction;
- For SDL and UIF, amend the certificate where it was overstated, and resubmit the certificate to SARS. The amendments must be submitted for the transaction year for which the overstatement occurred.
- Inform the employee to submit an ITR12 to claim a refund; and
- Determine the reason for the over-deduction. Where the over-deduction is as a result of a calculation error or incorrect setting in the payroll system, the necessary changes must be made to avoid such incorrect deductions in future.
How to Amend Certificates
- Where there are no changes required for the type of certificate [IRP5 or IT3(a)] or the transaction year or the year of assessment, the certificate must be amended (same certificate number).
- Where either the type of certificate [IRP5 or IT3(a)] or the transaction year or the year of assessment must be amended, the original certificate issued must be cancelled and replaced with a new certificate (new certificate number).
Examples which can result in an over- or under-deduction
- Unpaid extended sick leave