From IRP5 to tax assessment 15 minutes CPD

Transcription

1 From IRP5 to tax assessment 15 minutes CPD By ADV. CARIEN VAN DIJK IRP5s are somewhat like family: they can cause you a lot of headaches but you can t (and probably don t want to) live without them. This article aims to provide logical guidance to enable you to make 2018 the year in which you conquer the unavoidable family reunion which is the Tax Season. With the opening of the 2018 Tax Season creeping up on South Africans, some people are faced with the burning question of What is the point of an IRP5? and others wonder How do I go about using my IRP5 to complete the Individual Tax Return? Some people tend to avoid the question and related anxiety of dealing with their tax returns altogether. This is much the same as trying to avoid those yearly family reunions and trying to manoeuver through the cheek pinches and the extremely personal questions. Segment 1: Getting to know the family tree Before attending a family reunion, it is wise to catch up on recent family history. Similarly, it is important to get introduced to the IRP5 certificate, to understand how it works and the pitfalls to watch out for. The IRP5 certificate is a summary of all the remuneration (including allowances and benefits) provided to an employee by an employer during a tax year. This will exclude amounts paid outside the payroll, for example, the reimbursement of a pure non-travel business expense that is paid to the employee via the general ledger. Below are quick navigation guides to a general IRP5. Certificate number is generated by the employer. The employee information is entered by the employer. Update your information with your employer and SARS. Information should be kept updated and accurate to avoid admin penalties from SARS.

2 This reflects the start date of employment and the period of employment at the specific employer in the relevant tax year. Directives are obtained to determine the tax on payments such as gratuities, retrenchments, commission and retirement fund withdrawals. Each income / allowance / benefit paid to the employee has their own unique source code determined by SARS in a BRS Guideline issued annually. Source codes have specific requirements and trigger certain tax implications. This section indicates the totals of all the remuneration earned and divides income into taxable and non-taxable.

3 This section indicates the employer and employee contributions, such as retirements funds and medical aid funds. The specific source code will trigger allowable pre-tax deductions / tax credits. In this section, the totals of PAYE and SDL are indicated. The PAYE determined by a tax directive will be included under source code 4102 unless it relates to a lump sum benefit (source code 4115). Medical tax credits are indicated separately. An employer is obliged by law to issue IRP5 certificates to all its employees after payroll reports have been submitted to SARS (in the form of an EMP501 declaration). The information from the IRP5 will then be prepopulated when compiling the individual s ITR12 on efiling. However, sometimes there are issues that arise in practice, which require caution. SARS has the right to hold a taxpayer (in this case an employee) liable for any outstanding tax debt or tax returns, regardless of the circumstances. The most frequent issues that arise are as follows: The information from the IRP5 is not prepopulatedon efiling This is mostly the result of non-submission or unsuccessful submission of an EMP501 by the employer. The employer s payroll practitioner needs to be informed to take the necessary

4 steps to rectify. This must be done in time to ensure that submission can occur within the Tax Season. Often the demographic information reflected on the IRP5 and the information on the SARS systems are not the same (changes might have occurred since the previous assessment). Then SARS cannot match enough information to prepopulate the ITR12. The IRP5 prepopulates on efiling, but no IRP5 certificate has physically been received by the employee from the employer The submission of the EMP501 might have resulted in errors on the system or the employer may be in the process of doing a resubmission to correct certain errors. Although the IRP5 is prepopulated on efiling, SARS may still require verification by requesting submission of the IRP5 received from the employer. The payroll practitioner must again be notified to rectify the problem in time for submission before Tax Season ends. However, in the case where the employer is not able to provide the IRP5, it is advisable for the employee to provide SARS with an affidavit and to attempt to complete the tax return using payslips or bank statements as a method of declaring the income accordingly. Segment 2: The sibling called IT3(a) certificate The difference between an IRP5 and an IT3(a) is that the latter does not reflect a tax deduction but instead reflects a reason code as to why no PAYE was deducted. The IT3(a) is intended to summarise all payments made to deemed employees (in the tax sense and not necessarily in the labour law sense), to employees earning non-taxable remuneration or to other parties as indicated by SARS. An example of this would be individual contractors supplying services to a company. All payments to them must be declared to SARS via the IT3(a). It is therefore evident that an employment relationship is not always required. A reporting responsibility may be placed by SARS on the company or employer to enable SARS to obtain information on earnings by such persons for audit and other purposes. Segment 3: Meet the dreadful twins Circumstances can lead to persons receiving more than one IRP5, for example when they have worked for more than one employer in the same tax year. Why would this ever be a dreadful situation? Mainly because the PAYE calculated and deducted by each respective employer is based on the remuneration paid by them separately. This could lead to insufficient PAYE deducted and a shortfall due on assessment. When an employer calculates the PAYE monthly, it uses the progressive tax table and determines the relevant tax rate on the remuneration it pays. Once the employee moves to a second employer, the PAYE calculated by that employer may be at a different tax rate. During assessment, SARS will combine all the income received by the taxpayer, calculate the PAYE and deduct the PAYE already paid. If there is a shortfall, it will result in the employee being liable to additional tax to be paid to SARS on assessment. This problem can be managed upfront by requesting the new employer to increase the PAYE deduction monthly or by keeping a monthly provision to cover the eventual shortfall. Segment 4: The family dinner Sitting down for a family dinner and exposing yourself to all the personal questions by your curious family members is similar to the completion of the ITR12 return. As mentioned in Segment 1, certain source codes (and answers provided on your questionnaire in the first part of the ITR12)

5 will trigger sections for completion, and possible submission of documents for verification purposes. It is therefore imperative that the contents of your IRP5 be reviewed before completing the ITR12, to ensure that the IRP5 accurately indicates the remuneration you received and that the correct source codes were used accordingly. The most common source codes that will trigger additional sections for completion are: 3651: Income earned whilst working abroad 3810/4005 Medical aid contributions 4006 Retirement annuity contributions (on payroll) 3701 Travel allowance 3702/3703 Reimbursement for travel 3704/3715 Subsistence allowance (local or foreign) Below is an indication of the documentation that SARS might request for verification or audit purposes: IRP5/IT3(a) Medical aid certificate Retirement annuity certificate Investment income certificate / IT3(b) Completed logbook Other reports to confirm rental or trade income or expenses claimed After submission of the ITR12 to SARS an IT34 assessment will be issued, which will indicate whether an amount of tax is payable to SARS or a refund is due to the taxpayer. Any disputes arising afterwards can be submitted for resolution within a prescribed timeframe.