|With SARS struggling to meet its revenue targets and individuals carrying the bulk of the tax burden, we can probably expect SARS to increase its audits of employees’ tax returns.
Forewarned being as always forearmed, we discuss the implications for both employees and employers, with suggestions on how employers should have their employees handle queries (whether they do it themselves or through their own tax advisers).
An audit can be a costly, stressful and time-consuming exercise for everyone involved – minimise the risks to your business with these tips…
“Forewarned is forearmed” (Wise old saying)
SARS is having trouble meeting its revenue targets and this is clearly putting enormous pressure on the South African economy. Further economic deterioration in the economy will probably result in a downgrade to junk status by Moodys. This will mean that all three of the major ratings agencies will have consigned our economy to junk status which means further currency weakness and probably a recession.
Most of the tax paid in South Africa is paid by individuals and it is logical that SARS will focus on maximizing its revenue with this segment of taxpayers. Thus, one can expect more auditing by SARS of employees’ tax returns.
Implications for employees
Any SARS queries will be initially directed at employees who will have to justify what they have claimed. Most employees will go back to their employer and say, for example, ‘there is this query on my car allowance and how should I respond?’
It would make sense for employers to ask all employees to run SARS’ questions through the employer so that SARS receive a consistent answer (employees may have their own tax adviser to help the employee respond to the query, but the adviser may not understand how the employer’s tax administration works).
Implications for employers
If SARS are not satisfied with the responses to their queries, they may start to look at how the employer administers its employee tax obligations.
SARS places a substantial onus on employers to collect tax and to pay it over to the Revenue authorities. This involves a knowledge of taxes like:
- Remuneration and benefits paid to:
- expatriate employees
- local employees
- executives and directors
- Retirement benefits for employees, executives and directors
- Payments to labour brokers and independent contractors
- Share incentive schemes
- Cash book payments
- Gifts, prizes, awards and gift vouchers
- Loans to employees
- Company cars
- Travel allowances and reimbursements
- The Employment Tax Incentive (ETI).
These taxes are all different and require an understanding of tax legislation and the administrative systems required to process and collect the taxes.
In making their enquiries of the employer, SARS will most likely look to get an understanding of the employer’s systems and if dissatisfied with the response may audit the employer.
An audit can take up to one year to complete and apart from the stress of the audit there will be penalties, interest plus tax due where SARS finds the tax has been incorrectly calculated. SARS can also go back several years when they find errors, and this can become a costly exercise. At the moment, SARS appears to be homing in for the most part on the ETI, labour brokers, company cars and travel allowances – perhaps therefore pay particular attention to these taxes.
So, it is a prudent idea to frequently test how robust your systems are and how well you understand the tax laws. SARS often tweaks the law and issues interpretation notes on how businesses should levy and pay over tax.
Having an independent viewpoint can be invaluable when testing your systems – make use of your accountant to help you as apart from being at arm’s length he or she has the skill and experience to assist in this important exercise.