Employment tax validation

May 20, 2020 | Employer Reconciliation, Income Tax, PAYE, Sars, UIF

Employment Tax validation

From the 2020 year of assessment SARS will perform an Employment Tax validation on the IRP5/IT3(a) certificates submitted by employers.   Should SARS determine that an incorrect amount of tax was deducted from an employee, a letter will be issued to the employer, together with a file containing a list of all the certificates which failed the SARS Employment Tax validation.  The purpose of the validation letter is to advise the employer of any discrepancies on the amount of taxes or levies deducted for employees.  All certificates accepted and processed will be pre-populated on the employees’ income tax returns.

What should I do if the Employment Tax validation indicates a tax calculation difference?

 

Under-Deduction

Where there is an under-deduction of employment tax (PAYE, SDL and UIF) from an employee’s remuneration:

  • Pay the shortfall to SARS to avoid unnecessary penalties and interest;
  • Recover the shortfall from the employee;
  • Issue an amended IRP5/IT3(a) certificate for the transaction year once the shortfall has been recovered;
  • Submit the amended IRP5/IT3(a) certificate to SARS showing the correct withholding. An amended certificate may only be submitted once all the tax has been recovered from the employee;
  • Determine the reason for the under-deduction to avoid incorrect deductions in future;
  • Where the employee’s ITR12 return has already been assessed, the employee must re-submit the ITR12 through the Request for Correction (RFC) process or, in the instance where the ITR12 was audited, the employee must lodge anobjection;
  • Where the employer cannot recover the under-deduction from the employee, such amount will be deemed to be a penalty payable by the employer.  The relevant tax amount must not be reflected on any certificate.  PAYE must be declared in the “Tax Paid on Behalf of Employee” field on the EMP501 and SDL and UIF must be declared in the “Audit Result not in Certificates” field on the EMP501.

Over-Deduction

Where there is an over-deduction of employment tax from an employee’s remuneration:

  • Determine if the over-deduction is per request of the employee and ensure the field “Voluntary Over Deduction” on the certificate is updated to “Yes”.  An employee must submit a written request for over-deduction to the employer;
  • For PAYE, do not correct the over-deduction of PAYE, regardless of the reason;
  • For SDL and UIF, amend the certificate where it was overstated, and resubmit the certificate to SARS;
  • Inform the employee to submit an ITR12 to claim a refund of any over-deduction;
  • Determine the reason for the over-deduction to avoid incorrect deductions in future.

For more information on the Employment Tax Validation process, how to understand the file layout and how to amend certificates, follow this link to the SARS website or if you require any assistance with the submission of your reconciliation, feel free to contact us.  Remember the deadline for submissions are 31 May 2020.

Author:

Liza Moorcroft

SAIBA: BA (SA) & SAIT: GTP