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 than the amount that is properly deductible according to the employee’s remuneration tax rates. For this reason, the employer should not have an under- nor over-deduction of liability 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 when the employee resigns, is retrenched or dies before the end of the year of assessment. However, this often only happens when the reconciliation is prepared (up to 60 days after the end of the year of assessment). The re-calculation of tax may then result in an over- or under-deduction of tax.
Tax Calculation Process
From the 2020 year of assessment, SARS is performing tax calculations on the IRP5/IT3(a) certificates. Where it is found that the incorrect amount of tax was deducted from the employee, a letter will be issued, accompanied by a file containing a list of the certificates that have failed the SARS calculation.
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 Payroll Tax Validation letter is to inform the employer of discrepancies on the amount of tax or levies that were deducted for employees. All the certificates submitted were accepted and processed and will be 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|
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 there is a tax calculation difference?
Where there is an under-deduction of employment tax (PAYE, SDL and UIF) from an employee’s remuneration:
- Pay the shortfall amount to SARS to avoid unnecessary penalties and interest;
- Recover the shortfall 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 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 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, in the instance where the ITR12 was audited, the employee must lodge an objection.
Where the employer cannot recover the under-deduction 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