PAYE up or pay more

The fact that employees' tax has been in circulation for ages, and that the process is rather simple to administer, has created the perception among taxpayers that the authorities' focus is on areas of greater (and newer) concern, such as value-added tax (VAT) and capital gains tax (CGT).

In addition, the few legislative amendments passed over the past couple of years concerning such taxes (mostly rate changes) were easily incorporated into long-existing systems and didn't create much of a stir.

Parties involved became aware of that misperception earlier this year when it was announced in the Budget speech that Revenue was planning to make PAYE and related taxes a focal point in future by enlisting dedicated audit teams to counter abuse in that area.

Jasoken Pillay, manager at Deloitte's Tax Employer Solutions, says that although employers' tax legislation already exists, its policing is going to take a fresh, more assertive course. "Revenue's main role is to enforce prescribed tax legislation and collect monies due - and it's getting increasingly better at it as more taxpayers are drawn into its revenue net. Employers could be liable for penalties of up to 200% and interest over and above taxes still due if they are found to be in contravention of those laws."

Pillay adds that Revenue will not only look into taxpayers' contributions but plans to standardise its own controls and procedures throughout its regional offices. "Tax offices may differ in their application of legislation and approved procedures, mainly due to habit, revenue staff members' interpretation of the law or past rulings that have been revoked but are still being applied.

"Revenue wants to ensure PAYE and related taxes are treated the same across all jurisdictions to eliminate any confusion and streamline the collection process."

To stay out of trouble and avoid unnecessary tax expense, the Income Tax Act states that any employer of staff should register with Revenue as an employer for the purpose of employees' tax. Employers are then deemed collection agents of Government and are obliged to transfer SITE (calculated on the first R60 000) and PAYE (calculated on remainder) on salaries earned by employees on a monthly basis.

Additional levies required include SDL, UIF and Workmen's Compensation (now called COID). The Act also prescribes that all individuals have to be registered with the taxman in their own personal capacity if they earn more than R60 000 or if they receive any allowances. Employees earning less than R43 000/year (under the age of 65) and R69 000/year (over the age of 65) are not liable for tax.

Owners, partners, members and directors of proprietorships, partnerships, close corporations and companies are classified as employees by the Act and both the enterprise and the individual need to be registered.

Pillay says: "On the one hand, owners, partners and members who derive their income from profit-sharing usually register as provisional taxpayers and declare and pay taxes biannually. On the other hand, companies (or in some cases CCs) have a monthly PAYE withholding obligation regarding their director (or member) based on the previous tax year's income."

Apart from the cash portion of salaries, the Act states that all fringe benefits paid to or paid on behalf of employees should also be included when calculating taxes due. For example, the use of a company car, sports club memberships (if not part of a corporate contract), use of company holiday homes, overseas trips (if accompanied by their spouse), cellphone allowances (if the business portion can't be proved), chauffeur services and school fees. Share options are also included within that definition and are subject to PAYE as well as CGT.

"Revenue has taken a firm stance on this, stating that if you can't afford the taxes then you should sell the shares to pay for the taxes," says Pillay.

Part-time employees that work less than 22 hours/week and earn more than R153/day have a 25% tax on remuneration duty. "If possible it's easier and cheaper to get an employee letter declaring sole service and incorporate them into your payroll," Pillay says. "They'll probably then fall under the PAYE threshold and won't be liable for tax.

"Enterprises that make use of independent contractors or labour brokers aren't responsible for the provider's staff's taxes. However, ensure a subcontractor agreement exists or obtain a labour broker certificate to legally clear you of such a responsibility and future recourse."

Details contained in sections pertaining to PAYE seem endless, and only a few could be mentioned. But, knowing an audit might lurk in the not too distant future, businesses must ensure they understand what's expected of them by the Act. Though tax legislation can be very complicated, Revenue and various tax advisory services exist to translate it into layman's terms.