Overview of PAYE reconciliation process and 2007/08 policy changes Another helpful guide brought to you by South African Revenue Service
Overview of PAYE reconciliation process and 2007/08 policy changes This guide to the PAYE reconciliation process is not meant to delve into the precise technical and legal detail that is often associated with tax. It should, therefore, not be used as a legal reference. Should you require additional information concerning any aspect of taxation, you should: Contact your local SARS office Contact the National SARS Call Centre on 0860 12 12 18 Visit the SARS website www.sars.gov.za South African Revenue Service 18 July 2008
This document is intended to address key questions to help with your 2007/08 PAYE submissions: 1 2 3 4 5 6 7 8 What does PAYE reconciliation aim to do?... 2 What is the overall PAYE process?... 3 How do I fill out the PAYE portion of the EMP501?... 4 What is PAYE reconciliation?... 6 What is not PAYE reconciliation?... 7 What if my tax certificates do not match what I have paid SARS?... 8 Case studies 1: Adjustment for manual certificate issued... 9 Case studies 2: Adjustment for late payment commission... 10 9 10 11 12 Policy changes in 2007/08 tax year... 11 What will SARS do once I have submitted my declaration?... 12 Useful terms... 13 Who do I contact if I have any questions?... 14 1
1 What does the PAYE reconciliation aim to do? A 2007/08 PAYE reconciliation aims to answer two questions Have I matched my actual PAYE liabilities as declared on the EMP501 with all the IRP5s for the tax year? - Have I accurately reflected the PAYE liabilities on the IRP5s? - Have I made adjustments for all errors? Why do these questions matter? This will help you Exclude liabilities or payments related to certificates issued in prior years Identify and resolve any differences between liabilities declared on your EMP201s and actual liabilities based on IRP5s Determine what is due to/by SARS for the tax year B How do I ensure the employee data is correct for accurate pre-population of tax returns? - Have I accurately matched the liabilities to employee records? This will help you Reconcile your 'to be issued' IRP5s with the taxes withheld Issue accurate IRP5s to your employees for 2007/08 tax year You will not be allowed to issue IRP5s to your employees if you are not reconciled for tax year 2007/08 2
2 What is the overall PAYE process? What does the employer do? 1 Run monthly payroll Run the monthly payroll to determine your current declarations and monthly liabilities 2 3 4 5 Submit monthly declaration and pay withheld liabilities Compute actual annual liability as per IRP5s to be issued Match the computed liability in step 3 to the liabilities and payments and adjust for errors Submit the reconciled declaration Declare this liability on form EMP201 and submit it together with the payment to SARS by the 7 th of the month following the month of employee remuneration Compute the actual liabilities for transactions in the 2007/08 tax year based on your annual payroll: - Imported as a CSV - Manual certificates issued Remove liabilities or payments relating to certificates issued in prior years Reconcile the actual declared 2007/08 liabilities and payments to the certificates to be issued this year Account for the differences Submit your signed EMP501 and associated payroll data to SARS by August 29, 2008 Pay any adjustments owing to SARS Note: The employer will be liable to pay any adjustment owing to SARS 3
3 How do I fill out the PAYE portion of the EMP501? 1 Enter your revised monthly liability 3 Calculate the actual IRP5 tax liability Import payroll files Enter manual certificates 4
2 Enter the revised amounts paid to SARS (excluding previously issued IRP5s, penalties and interest) 4 Calculate amount due to/by SARS. This does not have to equal zero 5 Sign and submit the declaration 5
4 What is PAYE reconciliation? Reconciliation is... A process to match taxes declared on monthly EMP201s and the actual liabilities based on the IRP5s to be issued... which means You need to start by knowing what you have declared and what you actually owe for the year The ability to understand the difference between actual tax liabilities and payments made to SARS You need to be able to match what you owe, to the payments you have actually made A process to match back your actual liabilities to funds withheld from your employees You need to be able to work out how the total you have paid matches individual employee liabilities for their IRP5s 6
5 What is not PAYE reconciliation? Reconciliation is not... Just a reconfirmation of the payments for the amounts declared on your monthly EMP201 forms... which means A reconciliation can be correct even if the balance identifies that you owe money or have a credit for the tax year Note: It is possible you may have overpaid for the year, but submitting a refund may require careful documentation for this and prior years 7
6 What if my tax certificates do not match what I have paid SARS? Likely causes of differences between taxes withheld and payments to SARS Taxes withheld vs. actual payments Rounding errors Non 2007/08 payments amounts paid in 2007/08 tax year pertaining to another tax year for which IRP5s were previously issued Taxes withheld vs. should have paid Manual IRP5s not included in the monthly EMP201 forms Late payments such as: Commissions Overtime Directors' remunerations Tax table changes This is not an exhaustive list, just a summary of most common items 8
7 Case study 1: Adjustment for manual certificate issued You realise that you issued a manual certificate for R5 000 in May 2007, which was not declared on your monthly EMP201 submission The amount was withheld from the employee, but was not paid to SARS Summary of employee liability B March April May June Sample of Employer Reconciliation Declaration* PAYE SDL UIF 10 000 10 000 15 000 10 000 R5 000 added to adjust for the error Total payments 10 000 10 000 10 000 10 000 A Total 45 000 40 000 Difference Liability and Certificate Values Total Value Of Tax Certificates 45 000 Declared Liability 45 000 Due by/to you 5 000 C A B C You withheld R5 000 in May and should have paid a total of R15 000 to SARS but only paid R10 000 This amount should be declared on your EMP501 by adjusting the May 2007 amount to R15 000, as the certificate was issued and taxes were withheld in the 2007/08 tax year Therefore, you now have a liability of R5 000, which should be paid to SARS * Only PAYE and 4 months used for illustrative purposes 9
8 Case study 2: Adjustment for late payment commission You pay your employee commissions in May 2008 which were earned in January 2008 You withheld taxes and issued tax certificate in May 2008 Commissions earned by the employee End of 2007/08 tax year Taxes withheld and tax certificate issued January 2008 February 2008 May 2008 Though the payment was made in May 2008, it was to rectify the error made in January 2008 This certificate for the tax withheld should be included in the 2007/08 submissions Employer should therefore adjust the January EMP201 amount on the EMP501 to reflect the correct liability Note: Errors determined prior to filing your 2007/08 reconciliation (29 August 2008 at the latest) should be adjusted on the 2007/08 reconciliation. Thereafter any adjustments should be made on 2008/09 reconciliation. 10
9 Policy changes in 2007/08 tax year 2007/08 submissions You have to submit your 2007/08 PAYE declarations to be compliant If you do not submit - You will not be allowed to issue any IRP5 forms to your employees - Your employees will not receive pre-populated tax returns from SARS You do not have to be reconciled for prior years to submit your declarations for 2007/08. However, you will remain liable for those submissions Refunds If you have overpaid for the tax year 2007/08, you may be eligible for a credit from SARS The refund will not be paid out by SARS, even if it is from 2007/08, until the prior years have been reconciled Deadline All EMP501 submissions are due by August 29, 2008 No extensions will be granted and late/non submissions will be subject to penalties Directors' remuneration Current rules as set out in the EMP10 apply 11
10 What will SARS do once I have submitted my declaration? Final submission date for 2007/08 PAYE submissions. You do not have to be reconciled for prior years to declare for 2007/08 If the submission has no discrepancies, it will be accepted by SARS and employees will begin to receive (upon request) prepopulated tax returns SARS has the right to audit for up to 5 years 29 August 1 September 5 years If you do not submit your declarations, your employees will not receive a pre-populated tax return If you do submit, SARS will check for discrepancies in your declarations, for example: - If there is a significant difference in the liability you declared and the actual liability you owe - If the funds declared were not actually paid to SARS Once SARS has validated your declaration (i.e. your reconciliation has not been rejected), SARS will (on request) send a pre-populated 2007/08 tax return to your employees If you owe SARS you will need to pay, but if you have a credit, the refund will only be issued after the prior years have been reconciled 12
11 Useful terms Terms Taxpayer Tax liability Year of Assessment Transaction year CSV EMP201 EMP501 Description Individual/entity who pays tax or is subject to taxation Amount of tax withheld from the employees which is owed to SARS Is the tax year in which the income/benefit was accrued Example employee should have been paid in 2005, but was paid and taxes were withheld in 2008, the assessment year is 2005 Is the tax year the income/benefit was paid and the taxes were witheld Example - employee should have been paid in 2005, but was paid and taxes were witheld in 2008, the transaction year is 2008 CSV (Comma-Separated Variables) is a data file created from your payroll system, which can be loaded into the SARS software for creating 2007/08 submissions A form used by employers to file monthly declarations with SARS stating the total amount of taxes withheld from the employees pay cheques A form used by employers to file annual declarations with SARS stating - Monthly liabilities declared on the EMP201s as adjusted - Funds paid to SARS - Actual computed tax liability (from the IRP5s) for the year and amount due to/by SARS 2007/08 Tax year starting March 1, 2007 and ending February 29, 2008 13
12 Who do I contact if I have any questions? General PAYE questions E-filing questions Website www.sars.gov.za www.sarsefiling.co.za E-mail paye.cc@sars.gov.za info@sarsefiling.co.za Phone 0860 12 12 18 (08:00-17:00 excluding weekends and public holidays) 0860 12 12 18 (08:00-17:00 excluding weekends and public holidays) Fax 031 328 6013 011 602 5312 Branch To find a branch closest to you, please call 0860 12 12 18 or go to www.sars.gov.za 14
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Lehae La SARS, 299 Bronkhorst Street, Nieuw Muckleneuk 0181, Private Bag X923, Pretoria, 0001, South Africa Telephone: +27 12 422 4000, Fax: +27 12 422 5181, Web: www.sars.gov.za