Tax lax boss a problem
BAD FOR STAFF: EMPLOYERS WHO BUCK SARS
During Covid, firms deducted employee’s tax – not paying it over to the Receiver, to stay afloat.
One of the most frustrating tax issues for an individual to deal with is not getting credit for the employee’s tax that has been withheld from their salaries because of non-compliance by their employers.
They are generally caught between their employer who thinks the South African Revenue Service (Sars) should fix the problem, and Sars which thinks the employer should fix it. So says Carmen Westermeyer, who facilitated The Tax Faculty’s recent virtual discussion on persistent tax issues.
One of three main reasons may be the problem:
Employers who do not submit the reconciliation of all employees’ earnings (EMP501);
Sars not getting proof of payment; or The electronic filing system causing hiccups.
It is the employer’s obligation to deduct and declare the correct amount of pay-asyou-earn (PAYE) tax from each employee’s remuneration and pay this over to Sars monthly.
When employers submit the annual reconciliation documents accurately and timeously, they do not only meet their own liability but also ensure that their employees are tax compliant, says Sars website.
The reconciliations are used to prepopulate auto-assessments and personal income tax returns.
Non-compliance includes the wilful or negligent failure to submit an EMP201 return (monthly), an EMP501 return, or IRP5/IT3(a) certificates to Sars, or the wilful or negligent failure to deliver an income tax certificate (IRP5) to an employee or former employee, or deducting or withholding employees’ tax from employees while wilfully using the money for purposes other than paying it to Sars.
Westermeyer says when an employee does not get credit for tax that was withheld, the first prize is to get the employer to submit a correct reconciliation.
Second prize will be to show some documentary proof to Sars that the taxpayer has made an effort to get the employer to fix the problem.
The sluggish economy, Covid, unrest, and floods have severely impacted businesses in SA, and many have deducted employee’s tax but used it to keep the company afloat.
“If an individual finds [themselves] in a situation where [their] employer is bankrupt or insolvent, they should request Sars to issue a bad debt adjustment in their return for the portion of PAYE that was not paid,” says Westermeyer.
However, this still leaves the employee in the unpleasant situation where they thought all their taxes were paid but they now have to “pony up” the sum.
Westermeyer says if the employer claims to have withheld the tax, but it was never paid to Sars, the individual should consider entering a compromise with Sars for the short payment of income tax.
There have been calls for amendments to be made to the Tax Administration Act – for a heavier stick to punish employers who do not meet obligations with respect to their employees.
Currently, Sars may levy an administrative penalty if the employer fails to submit a complete reconciliation on time.
If the employee’s tax is not paid on or before the due date, employers will be penalised by an amount equal to 10% of the outstanding employee tax amount. In addition, interest will be charged for the period the amount remains unpaid.
Westermeyer says Sars views the non-payment of employee’s tax as fraud.
There is a broader conversation about the need for employees to have certain rights that will compel the employer to submit the annual reconciliation, she adds.
One school of thought is that employees must be able to sue their lax employer if they do not meet their obligations.