[Question] PAYE responsibility

[Jacob4295]

Good day all.

I have an interesting question upon which I have not yet been able to find the answer. I have looked everywhere, so anyone who could help would be a sigh of relief for me.

Firstly, if an employer did not deduct enough PAYE from an employee, who will be responsible for the difference in PAYE that needs to be paid to SARS at the end of the year, when the employee submits his/her Income tax return?

Secondly, should an employer revise their EMP501 (and with that the IRP5's for their employees) as a result of miscalculation, and the amount owing to SARS increases, will the employer be able to claim the amount owing from the employees, or will the employer be liable for the amount?

Kind regards,
Jaco

[Andromeda]

Hi Jaco
Ultimately the responsibility to pay the tax rests with taxpayer. That takes care of your first question.

The second question might be different. If the miscalculation relates to income, and the tax deducted is therefore too little, then the employer should have left it at that. If tax was short-deducted, it should have been left as is. I would require a bit more information to reply properly.

[Jacob4295]

Hi Andromeda,

The employer is an estate agency, and they have deducted too little paye for all their employees. The problem with this is that every single employee pays in on their tax returns at the end of the year, and for some it is a really large amount. I am looking at ways to help these employees, but finding it very hard to do, as the employer just shrugs their shoulders and moves on. We have tried to get the employer to use the services of someone that knows what they do, but they refuse, so I have recommended to the employees that they should register for provisional tax, so the burden of that once off payment becomes a little easier.

We would like to get the employer just make some kind of contribution towards this, but cannot find anything in the law binding them towards it.

The only way I see this happening, is to get the employer to resubmit the EMP501 reconciliations.

I am still a bit new to the whole labor law, and this is a very difficult case to please everyone.

Please help if you can.

[EAB]

To resubmit the EMP501 is only going to shift who gets "paid" the taxes. Assuming the EMP501 was submitted with the correct information (even if the calculation to get to the information was wrong).

If they resubmit the EMP501 using the correct amount of tax then the difference needs to come from somewhere. The employee is responsible for the tax, the employer needs to pay it over to SARS. So if R1000 to little were deducted the employer will either deduct it from the next payroll or make arrangements with the employee on how to repay the taxes. They will then resubmit the EMP501 showing R1000 more PAYE.

If they leave the EMP501 as it is now then the employee will have to pay the difference on the assessment to SARS.

So either way the employee will have to pay the taxes. 1 through the employer when they resubmit the EMP501 or 2 to SARS on assessment.

As Andromeda said the responsibility of the tax will end at the taxpayer.

[Dave A]

The employer is an estate agency, and they have deducted too little paye for all their employees.

At a rate of 25% by any chance?

[Jacob4295]

Hi Dave A,

Yes at 25%.

[Jacob4295]

Thank you for the help. I will speak to my clients and the employer, and see to what arrangements we can come. I would rather keep the process simple, and submit the income tax returns, and pay SARS over the period suitable for the client, even if a little interest will occur.

Kind regards,

[dellatjie]

Perhaps the employees should apply for a tax directive, in which case the employer will have no other choice but to deduct that amount of tax.

[EAB]

Agree, but they need to make sure the tax directive is done properly. I've seen it that they request a directive at the lowest possible rate and when they need to submit their tax return they want to complain about the big amount that they need to pay.

[Dave A]

If the remuneration is all commission (which it typically is when agencies pay their agents), then a flat rate deduction for PAYE of 25% is surely correct. And the agency is unlikely to change that for a few reasons - some of which favour the agency and some that favour the agent.

What the agents need to do is keep track of what their tax liability is as they go along -

Or to flip that around a bit - They need a system that will help them keep track of their tax liability for them...

That smells a bit like an opportunity.

[EAB]

Not sure how changing the rate will affect the agency. If the total commission is R100 000 and 25% PAYE is deducted the total expense for the agency is R100 000 (R75 000 to the agent and R25 000 to SARS). If the rate changes to 30%, the total cost to the agency will still be R100 000 (R70 000 to the agent and R30 000 to SARS).

The tax directive (if used correctly) is in place to help commission earners get tax deducted at a rate which is closer to their actual rate. This is based on historical cost. As I said, if used correctly. A lot of these "self taught" accountants/bookkeepers do not know how to apply a tax directive.

In the end it will all be the same. If your directive said 18% or 35%, when you get assessed at the end of the year you are still taxed on the normal tax tables. It just help the commission earner to not have a huge tax bill at the end of the year

[Dave A]

Welcome to the oft grossly underestimated complexities of estate agency politics...

[Andromeda]

Of even more interest to me is, does the commission earner know what he or she may submit as a deduction?