Payroll Taxes: Back to Basics. Event: SAIT Tax Indaba September 2015

Transcription

1 Payroll Taxes: Back to Basics Event: SAIT Tax Indaba September 2015

2 Content Positioning employees tax The nature of employees tax Employees tax & the employer Current focus areas & trends Best practice take aways 1

3 Positioning employees tax

4 Employees tax, what is it? Employees tax or Pay As You Earn (PAYE) refers to the amount withheld, deducted & paid to SARS by an employer in respect of remuneration paid or payable to its employees The amounts deducted or withheld must be paid by the employer to SARS on a monthly basis Conceptual individual tax base: Taxable income of South African residents & non-residents with South African sourced & deemed source income Tax is calculated at the marginal rate of the individual or according to tax tables depending on the nature of the income 3

5 Employees tax contribution to gross national tax revenue In the just ended 2015 tax year, PIT receipts accounted for 35% of gross tax revenue. Historically, PIT receipts account for at least 30 % of total gross tax revenue as illustrated in the graph below. Sources: National Treasury 4

6 Contribution of employees tax to personal income tax receipts The graph below shows the proportion of (personal income tax) PIT receipts attributed to employees tax set against the collections attributed to provisional tax & upon final assessment. As illustrated, at least 90% of annual personal income tax receipts come from employees tax: Sources: SARS 2014 Tax Statistics 5

7 The modernisation of employees tax administration SARS begins the modernisation of employees tax administration in 2007, & implements a new employees tax reconciliation process & releases a free custom-built software package, E@syFile on 1 July 2008 E@syfile must be used by all employers to reconcile & submit employees tax returns & certificates electronically SARS uses the employer s electronic submissions to pre-populate the employees individual tax, simplifying the process of assessing individuals SARS also set the mandatory data requirements for the submission of tax certificates & employer reconciliation through E@syfile in the Business Requirement Specification (BRS) document Failure to submit bi-annual employees tax returns on time leads to penalties 6

8 The nature of employees tax

9 Employees tax: Whose liability is it anyway? Employees tax = withholding tax: Tax deducted at source from amount payable (para 2(1) of the 2 nd Schedule to the Income Tax Act (ITA)) The withholding obligation leads to own liability & responsibility to comply for the employer Conceptually most employers do not budget for employees tax on the basis that the amounts payable are deducted from employees remuneration & employees tax is therefore not a cost for the employer However... 8

10 Claiming employees tax from employees... Although employers have a right of recovery to claim employees tax from employee (para 5(3) of the 4 th Schedule to the Tax Administration Act (TAA)), recovery becomes unlikely after a period where an employer has underpaid because: The responsibility to withhold rests on the employer (position & power) Although employees & employers are jointly & severally liable, SARS prefers in practice to collect from the employer Employees cannot afford to pay or may no longer be in employment The employer may decide to settle the liability with SARS even in instances where the liability falls on the employee with the employer only having a reporting obligation 9

11 Self-assessment tax Employees tax is a self-assessment tax Self-assessment is a mechanism applied as part of a tax collection system Under self-assessment, the taxpayer is required to report the basis of assessment (e.g. taxable income), to submit a calculation of the tax due & usually, to simultaneously pay any outstanding tax due as calculated by the taxpayer Under a self-assessment tax, the onus is on the taxpayer to calculate the correct amount of tax payable A feature of a self-assessment system is that it seeks to reduce administration (need to have substantive administrative systems) 10

12 What happens if an employer slips up... The employer is personally liable for the employees tax (para 5.(1) of the 4 th Schedule to the ITA, read Chapter 10 the TAA The employer also becomes liable for penalties & interest which may far exceed the employees tax liability: Under payment (up to 200%), Late payments penalties (10%) & Interest at the SARS prescribed rate (often for multiple years) But prescription

13 Prescription what is it? In the case of a self-assessment tax, the prescription period prohibits SARS from issuing an additional assessment (section 99 of the TAA) Technically, five years after the date of assessment of an original assessment by way of self-assessment by the taxpayer... (section 99 of the TAA) What happens when you resubmit a particular year? Prescription not does not apply if the reason why the full amount of tax chargeable was not assessed was due to - (section 99 of the TAA): fraud;; intentional or negligent misrepresentation;; intentional or negligent non-disclosure of material facts;; or the failure to submit a return or, if no return is required, the failure to make the required payment of tax. 12

14 Prescription tax risk management In order to determine if you were negligent, your conduct would be measured against the conduct of a reasonable man faced with similar circumstances The employer is responsible, not only for the structuring but also for the actioning of any reward, recognition, & reimbursement, but also to treat these transactions correctly from a tax point of view It is submitted that on the basis of the employer s responsibilities, the mark of a reasonable man is that they must have completed their duty of care regarding their responsibilities adequately In short, the employer should have applied its mind to all the transactions & agreements relating to its employees in order to determine the correct tax treatment, & then to report on that basis to SARS It is submitted that an employer may struggle to argue a lack of tax knowledge, & that an employer should ensure that it has the proposer policies, processes, procedures & controls in place to manage its employees tax liability in defense of any allegation of negligence 13

15 Employees tax & the employer

16 Inside the employer: Who is responsible? There is a high volume of transactions & often great complexity The perception prevails that employees tax is not a cost of doing business; i.e. employees tax is withheld & paid over by an employer on behalf of its employees Furthermore, employers are heavily reliant on payroll software to manage their employees tax risk So who is responsible in the business to manage the employees tax risk? 15

17 Inside the employer: The environment Employees tax generating transactions may originate from anywhere in the business & even where decisions are centralised, budgets are not & business unit heads often have the authority to act on behalf of the business Stakeholder responsibility falls on human resources (HR), payroll, finance, information technology (IT), & business units (BUs) The motivation of the various stakeholders in the business differs & are often in opposition 16

18 Current focus areas & trends

19 Current focus areas & trends: Focus areas Foreign nationals expenses, inbound & outbound expats (foreign payrolls & incentive plans across multi-national groups) Travel allowances, company cars & travel reimbursements Independent contractors, personal service providers & labour brokers Employment Tax Incentive (ETI) Mobile phones allowances Employer-provided risk benefits 18

20 Current focus areas & trends: Trends A single point of entry with data being delivered in set parametres allows the use of risk engines across industries, for multiple tax years: Increase in targeted audits Risk now stretches multiple tax years (compliance is no longer focused on current years only) Increase in use of the Voluntary Disclosure Programme (VDP) More to collect with no/little increase in tax base + effect of the TAA: SARS has little room to negotiate Compliance administration has become critically important for taxpayers Unclear legislation may cripple an employer/industry 19

21 Current focus areas & trends: Trends The introduction of Foreign Account Tax Compliance Act (FATCA) & other intergovernmental agreements (OECD Common Reporting Standard (CRS)) allowing the sharing of information: Increase in cross-border tax collection & enforcement International cooperation to alert revenue authorities to tax (& exchange control) evasion Increase in use of the VDP Mobile workforce in the global village: Bigger focus on group-wide incentives & packages Focus on getting it right first time (school fees are too high) Complexity of expat environment no longer limited to a few employers, but has become the norm 20

22 Current focus areas & trends: Trends Need for a tax clearance certificate to do business & SARS ability to recover monies due from third parties: Increased focus on compliance & ensuring correct statement of account Strategic use of incentives (ETI) & VDP due to its effect on the statement of account Being tax compliant is no longer viewed as a luxury, but has become a necessity 21

23 Best practice take aways

24 Best practice take aways Whilst tax is now firmly in the boardroom, employees tax is a relative new addition due to the combination of the TAA, data analytics, information sharing & a tough economic environment Ensure that you have a risk management strategy with regard to your employees tax liabilities (ensure that proper policies, processes, procedures & controls are in place) Ensure that there is a strong relationship between HR, payroll, finance, IT, & BUs (i.e. employees tax is no longer confined to the payroll) Be prepared to establish certainty upfront & to invest in compliance 23

25 Best practice take aways Where you operate across multiple tax jurisdictions, ensure that your groupwide reward & recognition policies include the tax angle Where, as part of encouraging global mobility, you take active responsibility for your employees individual tax liabilities & responsibilities, invest in appropriate tax advice Consider the consequences of structuring certain benefits & actively steer away from risky or unclear areas of tax law Be prepared 24

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27 Beatrie Gouws Associate Director Global Mobility Services & Employment Tax Advisory KPMG Services (Pty) Ltd