SARS has announced that the annual Pay-As-You-Earn (PAYE) Employer Annual Reconciliation submission season will be open from the 18th of April until the 31st May 2016. During this time the EMP501 reconciliations that cover the period of 1st March 2015 to 29th February 2016 must be submitted.

The Income Tax Act No.58 of 1962 states inter alia that employers are required to:

  • Deduct the correct amount of tax from employees
  • Pay these amounts over to SARS monthly
  • Reconcile these deductions and payments during the annual and the interim reconciliation process and
  • Issue tax certificates to employees

In order to help with the filing process, you can follow a simple tax year-end checklist:

  1. Ensure all processing for the tax year has been completed and that you are in the final period of the tax year.
  2. Ensure that you have checked and updated all basic company information.
  3. Verify all existing personal detail information for all employees to ensure all mandatory fields are completed. For example, identity number, passport number and country of issue, income tax number, residential and work addresses as well as bank account information when paid electronically through the payroll.
  4. Check the accuracy of the IRP5 codes used for both income and deductions.
  5. Check that the correct split of earnings has been made to calculate the retirement fund income and non-retirement fund income. Where errors are found, make the necessary amendments to reflect the correct values for these total amounts.
  6. Validate the calculations of the medical aid tax credit.
  7. Reconcile the tax paid to SARS by comparing it to the tax calculated by your payroll software.
  8. Where data is to be imported electronically, prepare an IRP5 test run and import the test file into e@syfile-Employer for validation.
  9. Note any errors or warnings and correct them on the payroll software.
  10. Do an IRP5 live run and import the live file into e@syfile-Employer.
  11. Capture any manual tax certificates on e@syfile-Employer.
  12. Check employer information on e@syfile-Employer.
  13. Complete the EMP501 reconciliation on e@syfile Employer.
  14. Ensure that you are registered for IRP5 submission on E-filing.
  15. Submit the electronic information to SARS via e-Filing.
  16. Make a backup of the tax year-end data and store in a safe location.

 

The reconciliation noted in point 7 in the above checklist involves matching the PAYE, Unemployment Insurance Fund and Skills Development Levy contributions which were due during the tax year, with all the payments that were made to SARS and checking these values against the total of all the tax certificates issued at year end. It only relates to the taxes paid and does not include additional tax, penalties or interest. The tax certificate value, tax liability value and tax amount paid should all be equal to each other.

Employer steps to assist with reconciliation:

  1. Determine the total income for each employee and recalculate the tax based on the total taxable earnings for the period of March 2015 to 29 February 2016.
  2. Compare amounts calculated to IRP5 certificates to ensure that the amounts reflected for income, deductions and tax are the same as your current calculations.
  3. Determine the total tax liability as per the tax certificates and compare to the total tax paid to SARS based on the EMP201’s submitted on a monthly basis and the actual payments made. If there is a difference you will need to establish in which months the differences have occurred.
  4. Compare your 12 month summary report of tax liabilities taken from your payroll software to each month’s actual payments made and identify the month in which the variance occurred.
  5. Once the month has been established, you will need to compare each employee’s tax liability for that month to the amount which was originally calculated and paid over to SARS. Where payrolls are maintained on payroll software, a 12 month report detailing all earnings, deductions and company contributions can be used to identify the amounts calculated.

 

The amount paid over to SARS will not reconcile to the amount calculated on the payroll program if any changes were made after the reports used for the tax payments were printed.

The following adjustments being made after taxes have been calculated and paid over to SARS could result in the amount of tax the employee is liable to pay, to change and would therefore influence the reconciliation.

  • The date of birth of an employee if they were to move between the over or under 65 years of age category.
  • Date of engagement, IRP5 start date and termination date where applicable.
  • If an earning item or deduction item was incorrectly processed as to whether it should be taxable monthly, annually or as a travel allowance, or if the incorrect IRP5 code was initially used.
  • Where tax deductible items were not included when initially processed.
  • Where taxable company contributions were not initially processed.
  • The retirement fund income amount is adjusted and results in the contributions to pension funds being over the limit allowed.
  • Where the incorrect number of dependents has been used in regards to medical aid tax credit calculations.
  • If any additional taxable earnings were processed
  • If any additional tax deductible amounts were processed.
  • Where manual calculations are performed, failure to apply the correct tax tables from the start of the tax year.

Once the above steps have been completed, the EMP501 declaration must be completed on e@syfile and any reconciling differences will need to be disclosed with a reason provided for the resulting difference. The EMP501 can then be submitted to SARS where after the tax certificates will be pre-populated on E-filing.

This year SARS has indicated that individuals will no longer be allowed to make any corrections to the pre-populated IRP5 details on their returns and therefore if these details are incorrect, the employee will be unable to file his/her income tax return for individuals (ITR12) during tax season. The employer will then need to make the changes to the IRP5 and re-submit these to SARS. Employers are therefore urged to accurately verify and update each employee’s personal and financial details before submission to SARS, otherwise it could end up being very time consuming and may result in problems for employees who cannot file their returns in time.

Michelle van Coppenhagen

Outsourced Accounting and Payroll Manager, Johannesburg

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