“Failure by an employer to comply with its obligations does not only harm that employer and the fiscus, but also employees. SARS vigorously pursues employers that fail to comply.” (SARS)
Employers must submit their annual reconciliation declarations (EMP501) with accurate and up-to-date payroll information about their employees by 31 May this year.
This is among the requirements imposed on employers by the Fourth Schedule to the Income Tax Act:
- deducting or withholding employees’ tax from remuneration,
- paying the above to SARS monthly before the 7th of the following month,
- reconciling employees’ tax during the annual and the interim reconciliation, and
- issuing tax certificates (IRP5s/IT3(a)s) to employees timeously.
A SARS focus area
The employer-reconciliation process is a focus area for SARS, not only to ensure compliance among employers, but also because it enables SARS to issue individuals with income tax auto-assessments.
SARS uses the IRP5/IT3(a) certificate information submitted by employers through the annual reconciliation process to prepopulate the employees’ annual income tax returns (ITR12), and employees cannot change this information.
This means the employer-reconciliation process is also a key phase in the Income Tax Filing Season, because incomplete or incorrect information will make it difficult for employees to fulfil their tax obligations and because employees require IRP5 and IT3 certificates to file their income tax returns in time during tax season.
As such, SARS says it vigorously pursues employers that fail to comply and, where necessary, aims to make tax non-compliance hard and costly through hard enforcement, for example, court action, asset seizure and criminal prosecution.
What needs to be done?
- Register employees who are not registered for income tax.
- Review the year’s EMP201 declarations that declare the total tax liability for each tax period for:
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- Employees’ Pay-As-You-Earn (PAYE) tax,
- Unemployment Insurance Fund contributions (UIF),
- Skills Development Levy (SDL)
- Employment Tax Incentive (ETI) amounts (if applicable).
- Submit any outstanding monthly declarations (EMP201) and settle all payments due to avoid administrative penalties for non-compliance or late submission, and to reduce interest charges on delayed or outstanding amounts.
- Ensure the values on the EMP201 declarations and on the tax certificates balance to the actual payments made to SARS.
- If any discrepancies are identified in the EMP201 declarations, these must be corrected when submitting the EMP501.
- The EMP501 Annual Reconciliation Declarations must include:
- Monthly employer declarations (EMP201).
- Information about payments made (excluding penalties and interest paid).
- Employee tax certificates (IRP5/IT3(a) generated) covering the tax year from 1 March 2023 to 29 February 2024.
- Monitor the status of your submission to ensure the EMP501 has been successfully filed with SARS – a submission rejected as incomplete or due to a data error is considered not to have been submitted, and the taxpayer will be liable for non-compliance penalties.
- Keep accessible employer records with a register that contains each employee’s personal details and financial records as prescribed by the Commissioner for at least five years.
- Also complete the interim reconciliation process in September/October each year to enable an easier and more accurate annual reconciliation submission and an up-to-date employee database.
Consequences of non-compliance
- ETI refunds (unused ETI amounts) can only be claimed by submitting interim and annual reconciliations (EMP501s). Failure to do so will result in ETI refunds being forfeited.
- Submitting an incomplete EMP501 or submitting an EMP501 after the due date will result in administrative penalties, amounting to 1% of the year’s PAYE liability. This penalty increases by 1% monthly, reaching up to 10% of the year’s PAYE liability. A penalty assessment notice (EMP301) will be issued. It is possible to incur two penalties for the same period i.e. both a PAYE late payment penalty and PAYE administrative penalties.
- In addition, it is a criminal offence for an employer wilfully or negligently to:
- Fail to submit full and complete EMP201 or EMP501 returns to SARS by the due date.
- Fail to issue an IRP5 or IT3(a) certificate to an employee within the specified periods.
- Fail to deduct or withhold PAYE or UIF, or not to pay any PAYE or UIF deducted or withheld over to SARS as required by law.
- Use or apply PAYE deducted or withheld for any purpose other than to pay that amount to SARS.
Any person found guilty of one of these offences is liable, on conviction, to a fine or imprisonment for up to two years.
We can help!
Let us help you review your employees’ tax obligations and prepare for submission of the Annual Reconciliation Declaration. Similarly, if penalties and interest have already been imposed on your business, we can assist in requesting remission from SARS.
Disclaimer: The information provided herein should not be used or relied on as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your professional adviser for specific and detailed advice.
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