Most Read Contributor in South Africa, September 2016
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
Expatriates (outbound and inbound)
Third party payments (labour brokers, independent contractors
and personal service providers)
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
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'
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.
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