6 things payroll managers need to know for the tax year ahead

Payroll Managers Compliance Training

The finance minister, Mr. Enoch Godongwana, presented the 2022/2023 budget speech on 23 February 2022. Many things are due to change in South Africa that is important for payroll managers to know to stay compliant.

Retirement fund tax

The first changes are in respect of retirement fund tax. Where a pensioner has more than one source of income, they might incur a tax debt at the year-end when all income is considered.

To help in these cases, new legislation makes provision for SARS to determine the effective rate of tax in respect of the combined employment and/or pension sources of income of the taxpayer.

The latest data available to SARS is used to determine a more accurate PAYE deduction percentage, and that rate will be given to the retirement fund administrators who can withhold PAYE based on that data.

For pensions or annuities payable during March this year and for the periods after, retirement fund administrators will use this rate to deduct PAYE from a pension or annuity. The rate provided by SARS will be valid for the whole tax year unless the circumstances that influence the year-end tax liability change.

This change, however, does not apply to normal payroll but rather only to retirement fund administrators or insurers paying these annuities.

In addition, with the new changes, while the PAYE deducted might be higher, the chances of a nasty surprise when you file your return are significantly reduced, as you know what you are in for.

Furthermore, employees can still request their retirement fund administrators to use the normal PAYE rate. Employees can also volunteer to pay additional tax if they choose to do so.

Curbing ETI abuse

There have also been amendments to the Employment Tax Incentive Act to counteract schemes where employers claim the ETI in respect of employment agreements that are not genuine.

The definition of ’employee’ has been amended to ensure that the substance of the employment relationship will determine eligibility for the ETI claim instead of its purely legal form. For example, students whose main occupation is studying are no longer eligible.

The amendment intends to close the loophole where employers illegitimately claimed ETI in respect of employees who are not true employees. The amendment of the definition of employee is more an administrative change for the employer.

The definition of monthly remuneration has been amended to exclude certain non-cash remuneration as well as salary sacrifices. However, no formal interpretation has been issued by SARS yet; accordingly employers are waiting to receive guidance from SARS. These amendments will have a monetary impact on their ETI claims for employers.

Fringe benefits on retirement funds

Next on the list is clarifying the calculation of fringe benefits in relation to employer contributions to a retirement fund, aimed at addressing the anomaly that existed where self-insured risk benefits were not seen to be a defined contribution component.

The definitions in the Seventh Schedule to the Income Tax Act, paragraph 12D(1) have been amended to change the definition of a risk benefit, add the definition of a risk benefit policy, and change the definition of a defined contribution component so that self-insured risk benefits are classified as a defined contribution component.

The changes came into operation on 1 March 2022 and apply in respect of years of assessment commencing on or after that date. It is important to note that relevant employers need to contact their retirement funds to confirm whether the fund has changed from defined benefit to defined contribution in time for the March 2022 payroll run.

These amendments do not result in software changes but rather a configuration change from a defined benefit fund to a defined contribution fund, which could possibly lead to a change in PAYE deducted from the employee. If it is applicable, then the setup of the system needs to be updated.

Long-service awards

The government recognised that the prevailing practice is for employers to grant their staff members several awards in recognition of long service, and these awards can take a variety of forms that do not only come in the form of non-cash assets.

With the changes, these awards now also apply to reasonable awards granted for long service that adhere to all the current requirements in the Income Tax Act, such as the number of years in service and the aggregated exemption limited to R5K. The changes came into operation on 1 March 2022 and apply in respect of years of assessment commencing on or after that date.

Previously, when the recognition of long service was paid out, the first R5k was exempt from tax when the reward was an acquisition of non-cash assets, such as a classic gold watch.

Based on the latest changes, it now includes cash payments, acquisitions of assets at less than the actual value, the right of use of an asset, as well as free or cheap services. So, for example, if you receive a spa treatment as an award, the first R5K is also exempt.

Learnership tax incentive

In line with the Minister’s 2021 Budget proposals, section 12H of the Income Tax Act has been amended to extend the learnership tax incentive by two years, from 1 April 2022 to 1 April 2024. This change comes into effect on 1 April this year and applies in respect of learnership agreements entered on or after that date.

“This has no systematic impact on payroll. However, I’m glad that due to a formal structure, employers can still benefit from the tax incentive for the next two years. It’s a great initiative to employ unskilled individuals and upskill them in a specific industry. These types of employees are not expensive. It’s soft on the employer’s pocket, and more importantly, it creates employment.”

Christine Painter, Head of Compliance – PaySpace

Personal service providers

There has also been a change in respect of personal service provider companies. In the budget speech, it was announced there would be a reduction in the rate of tax from 28% to 27% for personal service provider companies, where their year of assessment ends on any date on or after 31 March 2023.

Compliance training for payroll managers

PaySpace offers Payroll Compliance training to help Payroll Managers understand how to remain tax compliant. We offer eLearning as well onsite training. Contact PaySpace if you have any questions regarding our Payroll Compliance training.