In light of President Ramaphosa's announcement of a phased approach to the end of lockdown, many businesses will still be required to remain closed (or partially closed) after 30 April 2020. With this in mind, many employers will still require assistance from the Coronavirus (COVID-19) Temporary Relief Scheme ("C19 TERS"). However, what are the tax implications of these TERS benefits?
On 16 April 2020, the Minister of Employment and Labour issued a notice amending a few significant aspects of the C19 Directive of 25 March 2020 (the "Amendment"). Although this Amendment has not yet been formally gazetted, the National Economic Development and Labour Council (NEDLAC) has confirmed that the Amendment should be treated as being in full force and effect, until it has been gazetted.
The effect of the Amendment is as follows:
- If an employee has been required to take annual leave as a result of the COVID-19 pandemic, s/he will now be entitled to apply for the TERS benefit; and
- An employer may set off any benefit amount received from the Unemployment Insurance Fund ("UIF") against the amount paid to the employee in respect of annual leave, provided that the employee is credited with the proportionate entitlement to annual leave in the future.
In situations where employers apply for the C19 TERS and continue to remunerate employees (either in full or partially), the following scenarios could arise:
- An employer pays 100% of an employee's remuneration, which includes an advance on the C19 TERS benefit. In this scenario, if the employee is on annual leave, the employee's leave balance must be credited proportionally once the benefit is received; and
- An employer pays less than 100% of an employee's remuneration, which may or may not include an advance on the C19 TERS benefit.
The question inevitably arises as to how an employer should practically treat the payment for the purposes of tax.
The answer is, at this time, unfortunately not all that clear. UIF benefits are generally not taxable and similarly, the C19 TERS benefit should not be taxable. However, the South African Revenue Service ("SARS") has not yet provided confirmation of the applicable tax code under which to separately record this benefit.
The practical problem a lot of employers are being faced with currently is that their C19 TERS application is still in process and they have not received the C19 TERS benefit. This means that employers who are "topping up" employees' salaries (either partially or in full) do not know, with any certainty, the value of the C19 TERS benefit before processing their payroll for the month. As such, practically, employers are unable to allocate the C19 TERS benefit to a separate line item (or tax code, if applicable) and sympathetic employers are finding themselves in a position where they cannot, in good conscience, delay the payment of remuneration to employees.
As a result, numerous employers are opting to make payment of the full amount of the remuneration due to employees. This is problematic because PAYE must be withheld on this full amount in the absence of any confirmation of the value of the C19 TERS benefit.
Another practical problem that employers are experiencing is, in some cases, employers have received the C19 TERS benefit but the amount received is not aligned to their initial calculation of the C19 TERS benefit (in terms of which they paid employees) and employers need to adjust any tax withheld on incorrectly calculated amounts. It is important that the C19 TERS benefit is reflected separately to avoid disputes with SARS in the future.
These situations pose a real challenge for employers who need to reconcile the applicable tax treatment, especially in light of the fact that:
- PAYE must be paid over to SARS within seven days after the end of the month of withholding; and
- the TERS benefit must be paid out within 48 hours of receipt.
We are continuously engaging with SARS to understand how best to disclose the TERS benefit on an employee's payslip (ie, should it be reflected under a new code or by some other existing code) and we are working closely with our all clients to practically advise them in the midst of the uncertainty, as to what the best course of action is, given the current legislative requirements for employers and depending on each client's individual circumstances.
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.