In times of fiscal shortfall, increased enforcement is of the utmost importance to the South African Revenue Service ('SARS') to minimise leakage. Last year, SARS announced that one of its focus areas was limited scope employees' tax audits on Large Business Centre clients (which represent the majority of large employers). Personal income tax comprises more than a third of SARS' revenue, and employees' tax represents by far the biggest component of personal income tax — so it is not surprising that it has come under, and remains in the spotlight.
The objective of these questionnaires is to risk-profile employers in respect of specific risk areas. The SARS Large Business Centre is now issuing an expanded questionnaire to employers. The taxpayer's completed response is then expected to reach SARS' offices within 14 working days from the date of the letter notifying the taxpayer of the limited audit. Compliance with this request is of the utmost importance, as it may be an offence to refuse, or neglect to answer the questionnaire truthfully, and within the required period.
The questionnaire focuses on the following specific risk areas:
- Share schemes
- Travel allowances
- Expatriates (outbound and inbound)
- Third party payments (labour brokers, independent contractors and personal service providers)
- Fringe benefits
The third party payment and fringe benefit questionnaires are new additions to the previous questionnaire.
The third party questionnaire requires employers to submit to SARS documents in respect of a sample of 10 service providers tested by the employer for the employees' tax classification of independent contractor (or not). In addition, the questionnaire also requires documents in respect of a sample of 10 service providers tested by the employer for the employees' tax classification of personal service providers (or not).
The fringe benefit questionnaire is very detailed. It covers questions on a wide number of fringe benefits that an employer can provide to its employees. The employer is required to state whether a particular type of benefit is provided to its employees on a check the box basis. If the employer's reply is in the affirmative, the employer is required to state the following:
- The general ledger account to which the expense is debited
- Whether employees' tax was deducted from the fringe benefit
- The IRP 5 certificate code that is used to report the fringe benefit to SARS
- Whether the employer has a policy covering the specific fringe benefit and if so, to provide SARS with a copy of the policy.
The fringe benefit questionnaire contains questions in respect of employee-related long-term insurance policies (group life and disability). In light of the amendments recently introduced, it is clear that SARS will focus on this area to ensure that employers comply with the law. Many employers do not treat premiums paid on these policies as fringe benefits due to their interpretation of the law, and to clarify this, proposed new legislation will make it clear that long-term insurance contributions are taxable fringe benefits in the hands of employees.
Taxpayers may receive questionnaires dealing with any or all of the focus areas. Taxpayers who are identified for this special project, must take care when completing the questionnaires, and it is recommended that they seek professional advice when doing so. Although the audit is limited to selected areas of employees' tax, a comprehensive audit could follow if certain areas of non-compliance are identified.
Taxpayers who are not classified as Large Business Centre clients by SARS should, nevertheless, take heed of this special focus by SARS and ensure that they are compliant with the Act and SARS' practice in respect of the above areas of employees' tax.
Therefore, in addition to the recommendations above, all employers are reminded to ensure that they are compliant with their obligations to SARS, extending beyond the current areas of special focus, as the area of employees' tax will remain a strong focus point for SARS.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.