The Importance and Risks of PAYE to Employers
Transcription
The Importance and Risks of PAYE to Employers
The Importance and Risks of PAYE to Employers BY MICHAEL STEIN INTRODUCTION Employers who are residents and the representative employers of employers who are not residents who pay or become liable to pay remuneration to an employee are obliged to deduct or withhold employees’ tax (PAYE) from the remuneration. WHY PAYE MATTERS TO EMPLOYERS that the employer will invariably be saddled The employer, which I shall assume is a with the liability. company, is then required to pay the PAYE deducted or withheld to SARS within seven days An employer company that has not been after the end of the month during which the absolved from liability for the tax still has a right amount was deducted or withheld. of recovery against the employee for the tax paid by it. This right exists in addition to any Severe sanctions are imposed on employers other legal rights that it may have, but there is who neglect these duties. Except in certain a catch. It may deduct the tax from future circumstances, an employer who fails to deduct remuneration that becomes payable to the or withhold the full amount of PAYE as required employee concerned only ‘in such manner as will be personally liable for the PAYE. Even the Commissioner may determine’. It must, though it has not deducted or withheld the full therefore, obtain a directive from SARS as to amount required to be deducted, it must pay how to deduct the tax from the employee’s the correct amount to SARS by no later than the future remuneration. date on which the PAYE should have been paid over if it had in fact been properly deducted or But the employee will not be entitled to receive withheld. an IRP 5 employees’ tax certificate from the employer, unless and until the tax has been recovered from him or her. When the Commissioner is satisfied that the employer’s failure to deduct or withhold PAYE was not due to an intent to postpone payment Any tax that the employer who has failed to of the tax or to evade its obligations under the deduct or withhold PAYE is required to pay to law, he may absolve the employer from its SARS liability for the PAYE, but only if he is satisfied deemed to be a penalty due and payable by the that there is a reasonable prospect of ultimately company. It should therefore be noted that any recovering the PAYE from the employee. The penalty imposed under the Income Tax Act is recovery of previously under-deducted PAYE not deductible in the determination of the from an employee is a very difficult exercise, so payer’s taxable income. The result is that a and entitled to recover from employees, is defaulting employer is not only liable for the 1 The Importance and Risks of PAYE to Employers BY MICHAEL STEIN PAYE not deducted from its employee’s employees are ‘residents’ of South Africa, remuneration, but will also be unable to claim a either because they are ordinarily resident here tax deduction for the amount in question. or meet the physical presence tests of residence, and the amounts payable to them To add to its problems, the employer who fails therefore constitute gross income and, for that to pay the PAYE due within the prescribed seven- reason, ‘remuneration’ as defined. day period will be liable for a penalty equal to 10% of the amount not paid, but SARS may Some employers think that, provided that the remit the penalty in certain circumstances. payments of remuneration take place offshore, PAYE need not be deducted, but this is Interest at the ‘prescribed rate’ (9,25% at the incorrect. It does not matter how the payments time of writing) is also payable on outstanding are labelled, as long as they accrue to a PAYE, resident, they are taxable here and the local unless the Commissioner otherwise directs having regard to the circumstances. employers paying them must deduct PAYE. THE EMPLOYEE’S POSITION WHEN THE PAYE EX-PATS WORKING IN SOUTH AFRICA IS WRONG The remuneration payable to ex-pats working When PAYE has been under-deducted, the here is subject to the deduction of PAYE since employer may recover the shortfall from the the amounts will be derived from a source in employee concerned, but to the extent that it is South recovered from future remuneration payable to Africa therefore, him or her by the employer, it must be for local constitute services gross and will, income. His statement is correct under our law, but a deducted from that remuneration in a manner relevant double tax agreement may affect the agreed with the Commissioner. The employee situation, depending upon its terms. is not entitled to receive an IRP 5 tax certificate for PAYE that has not yet been recovered from him or her and therefore will not be entitled to How PROVISIONAL TAX FITS IN a ‘credit’ for this tax when he or she is assessed Many people think that PAYE and provisional tax to tax for the relevant year of assessment. are (Para 5(3)). The employee is not entitled to incorrect. receive an IRP 5 tax certificate for PAYE that has ‘remuneration’ to an employee, it is obliged to not yet been recovered from him or her. deduct or withhold PAYE, regardless of whether (Para 5(4) and therefore will not be entitled to the employee happens also to be a provisional a ‘credit’ for this tax when he or she is assessed taxpayer. In fact, there is special provision for to tax for the relevant year of assessment. a provisional taxpayer to reduce his or her somehow As mutually long as exclusive. an This employer is pays provisional tax payments by any employees’ tax deducted or withheld from amounts paid or OFFSHORE EMPLOYEE An employer who pays remuneration payable to him or her in the period covered by to his or her provisional tax estimate. offshore employees must deduct PAYE if the 2