IRP5 document

The basics of the IRP5 document

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The basics of the IRP5 document

Understanding IRP5 document…

Author: Ian Hurst — Managing Director, Paymaster People Solutions

The IRP5 document provides a record of the income that you have earned during a particular tax year. Note: a tax year begins on 1 March and runs until 28 February of the following year. By law, your employer is required to inform the South African Revenue Service (SARS) about the income that you have received for a particular period. This includes informing SARS about the tax that was deducted from your salary. IRP5 information is automatically inserted into the document by SARS. If this hasn’t happened, the employee/taxpayer needs to speak to their employer in order to establish whether a reconciliation was indeed done or not. Note: SARS will not allow changes to the information on the IRP5.

Your employer informs SARS about these details by means of a twice yearly reconciliation submission directly to SARS. Once a particular tax year has come to an end, your employer is required to issue you with a hardcopy of your IRP5 document. If there happen to be any errors on the IRP5, for example, such as an incorrect source code, then your employer needs to correct the error and reissue your corrected IRP5 document.

Note: depending upon the number of employers that an employee works for, it is quite normal to be issued with more than one IRP5 for a particular tax year.

More details about the IRP5 document

The IRP5 document also provides details concerning the dates that you have worked for each employer. Additionally, details on the IRP5 will reflect to which tax year your income received, applies.

The different categories of income will be indicated by a unique SARS source code. Here are some examples of the categories of source codes that one might typically encounter on an IRP5:

Quick-guide to IRP5's

• Salary payments: source code 3601

• Bonus payments: source code 3605

• Travel allowance payments: source code 3701

• Other (i.e. miscellaneous) allowance payments: source code 3713

• Commission payments: source code 3606

• Medical fringe benefit payments: source code 3810

In some instances, the IRP5 might also indicate an employee’s salary deductions, as set-off against the tax calculation. This is done to reflect a series of calculations that applies before tax was deducted from your income amount. Examples of typical deduction source codes include the following:

• Employee pension contributions: source code 4001

• Employee retirement annuity contributions: source code 4006

• Employee provident fund contributions: source code 4003

• Medical aid contributions: source code 4005

To verify whether your employer declared the tax amount that was deducted from your salary, your IRP5 should reflect the primary PAYE source code 4102.

To verify to which tax year the income received amount applies, the uppermost section of the IRP5 document should indicate the relevant tax year. The IRP5 will also indicate the date when IRP5 information was completed by your employer, as well as the date when it was submitted to SARS. This is called the transaction year. For example: rental monies received in March 2023 must be accounted for in the 2023/2024 tax year.

Commission and lump-sum payments received

Quick-guide to IRP5'sIf you earned a commission or received a lump sum during a particular tax year, you should have received a tax directive number which is reflected at the bottom of the IRP5 document. Simply stated, a tax directive is an official instruction that SARS sends to the employer. This official SARS document ‘instructs’ the employer to deduct tax at a specified tax rate. Such tax rates are determined by SARS, on a case-by-case basis — dependent upon initial criteria submitted to SARS by the commission earner.

To conclude, personal income tax submissions have the potential to overwhelm most individuals. However, this need not be so. Contact Paymaster to help you navigate the IRP5 season safely.

Are you still unsure? For more information on how it all works, contact us, click here.

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Company sponsored bursaries

Educational bursaries for your employees and their children

by with 28 Comments Article

Author: Ian Hurst — Managing Director, Paymaster Business Solutions

In these tough economic times, where affordable education is out of reach for a growing number of people, your company could make a meaningful contribution by offering bursaries to your employees (and their children). You can directly uplift them this way. A maximum of R20 000 per employee may be off-set as a tax-free benefit to them. In South Africa, a company may contribute R20 000 per year to their employee’s children too.

NOTE: a bursary is money paid by the company, to a recognised educational institution, on behalf of its employees and/or their children. Usually, this is intended for employees who cannot afford to pay the fees required by the academic institution.

Rules for granting a company-sponsored bursary

Bursaries article illustration

  1. In the bursary agreement, there must be a clause that states should the employee (or their child) fail to complete their studies, or fail the exams, the money will be paid back to the company, by the employee.
  2. Employees that earn less than R600 000 per year are eligible to receive a bursary.
  3. For Grades R – 12 or NQF levels 1-4, the bursary may not exceed R20 000.
  4. For NQF levels 5-10 ( this includes a university education) the bursary may not exceed R60 000.

PLEASE NOTE: In -house training (or on-the-job training) run by the company should be offered FREE of charge, and be NOT funded by the employee. Examples of these courses are;

  • computer courses
  • management and administration courses
  • bookkeeping courses
  • sales courses
  • language courses
  • courses on use of technical equipment
NOTE: where the bona-fide bursary does not qualify for tax exemption, the full bursary amount must be processed as a fully taxable benefit. For example;

Details:

  1. A low-interest or interest-free loan granted by the employer is not a bursary. Such educational financial assistance remains a low-or interest-free loan.
  2. Where the employee is not required to repay the loan, it is considered a taxable benefit. Therefore, employee tax must be deducted and the benefit processed as a PAYE annual payment.
  3. If an employer chooses to reward an employee for obtaining a qualification, it will be considered a taxable remuneration. However, if the company reimburses them for study expenses incurred, it is considered a bursary, of which R20 000 is not taxable.
  4. Only the taxable portion of a bursary paid to an employee (or their child), is subject to the deduction of employee tax.
  5. A bursary to be repaid by the employee because of non-fulfillment of stipulated conditions, is considered a bona fide bursary until the non-fulfillment conditions of the agreement are invoked.

Child educationExample

An employer grants a bursary of R24,000 to each of the employee’s two children — intended for their school education. The employee earns an annual salary of R390,000, a bonus of R18,000 and a housing subsidy of R8,000. The employer does not operate a bursary scheme that is open to the general public.

1. Although the employee’s remuneration does not exceed R600,000 per annum, the bursaries are paid in consequence of services rendered by him.

2. The bursaries of R24,000 each exceed the tax-exemption limit of R20,000 per individual. However, only the additional portion (i.e. R4,000 x2) is deemed taxable: in other words, only R8,000 (R48,000 minus R40,000) will be taxed.

However, if the employee’s remuneration exceeds R600,000 per annum, then the full amount of both bursaries (R48,000) will be taxable.

Paymaster recommendation: reconsider your company bursary policy and employee contracts.

GraduationBased on the above points, if you view your company as a progressive employer, consider offering a bursary scheme to your well-deserving staff ( and their children). This will facilitate their access to education they might otherwise never be able to afford.

And relook, and amend, the cost-to-company packages and employment contracts of employees who earn less than R600 000 per year.

Education is an investment into the future. Facilitating access to education for your employees and their children, will foster loyalty to the company, employee well-being and develop your human capital.

Email our helpdesk for more information. We will be happy to assist with any further inquiries that you might have.

References:

[1] http://www.saqa.org.za/docs/brochures/2015/updated%20nqf%20levevl%20descriptors.pdf

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