IRP5 document

The basics of the IRP5 document

by with One Comment Article

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.

Paymaster People Solutions. Accurate, Timeous, Client Centered, Process driven, Payroll Software Simplified.

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Foreign tax legislation brings shift in SA payroll management

by with No Comment Tax

THE introduction of foreign legislation such as the US Foreign Account Tax Compliance Act (Facta) will bring about a fundamental shift in the way South African employers manage their payrolls.

South Africa has become a signatory to the inter-governmental agreement with the US that requires financial institutions to provide financial information on US citizens in South Africa.

Beatrie Gouws, associate director at KPMG, says Facta was followed by the Common Reporting Standards issued by the Organisation of Economic Co-operation and Development, which has been called Facta ‘on steroids’.

The G20 finance minister endorsed the Common Reporting Standards for the automatic exchange of tax information in February last year with the first exchanges scheduled for 2017.

“It means all the information of foreigners that is in the banking system or financial system will be provided to the South African Revenue Service (SARS) who will share it with other revenue services,” Ms Gouws said at the annual Tax Indaba in Sandton recently.

“The introduction of these two elements is going to explode our world, because things are no longer within the employer and within the payroll where nobody else knows about it. There will be intense scrutiny on what you do and how you do it,” she said.

Another issue that has been causing employers nightmares is the statement of account. Ms Gouws says SARS is permitted to take money from a taxpayers account if the taxpayer is in arrears.

Piet Nel, head of the School of Applied Tax at the SA Institute of Tax Professionals, says a statement of account records all the monthly payments of employee taxes such as pay-as-you earn, skills development levy and unemployment insurance.

The account is supposed to be nil, but differences arise because of the late capturing or recognising of payments by SARS, automatically levying a penalty of 10%.

Mr Nel says if there is a balance outstanding and the employer does not have a suspension of debt request or an instalment agreement, SARS is entitled to take the outstanding amount from the employer’s bank account. This does not happen often but SARS is entitled to do that, he says..

Ms Gouws tells of an instance where an employer was under the impression that his affairs with SARS was in order, and did not request a statement of account regularly.

However, there were some issues with the account of which the employer was unaware. SARS took what it believed was owned from the business account.

The owner could not pay his employees and the factory was subsequently burnt down.

“The ramification of not getting it right is real. You need to check if every single link in the chain is closed,” Ms Gouws warns.

Personal income tax is government’s biggest revenue source and amounts to 35% of the total taxes collected. According to Ms Gouws, 90% of this is collected through the employees’ tax system.

Employers need to realise that they are not simply a conduit for employees’ taxes. There are big tax management risks, she says.

First published on BDLive BY AMANDA VISSER, 12 SEPTEMBER 2015, 12:12

Overview of the basics of employer tax

by with No Comment EmployersLatest Payroll NewsSARSTax

Overview of the basics of employer tax

By starting a business, you’re helping to create jobs, contributing towards skills development, and even inspiring other entrepreneurs.
But it’s important to get your SARS red tape right from the start if you want to avoid problems and penalties with the tax authorities later down the line. This overview sets out the basics of employer tax – an area where you have no margin for error.
As an employer, you must deduct taxes from employees, file a range of submissions to SARS, and supply your employees with IRP5 certificates that they will also submit to SARS. You must also register all employees for income tax – everyone who is formally employed needs to be registered with SARS.Declarations and forms to be submitted:

  • Monthly Employer Declaration (EMP201) – This form declares the following deductions: PAYE (Pay as You Earn), SDL (Skills Development Levy) and UIF (Unemployment Insurance Fund) contributions.
  • Employer Reconciliation Declaration (EMP501) – Twice a year you must file this reconciliation of all amounts paid to SARS on behalf of your employees. The next deadline is 29 May 2015 – don’t miss it!
  • Employee Tax Certificates (IRP5/IT3(a)) – You must provide these tax certificates to employees after each tax year, and they will submit them to SARS.
  • Cancellation of Tax Certificates (EMP601).
  • Adjustment to Annual Reconciliation (EMP701) – Where you need to make adjustments to past reconciliation and declarations, this is the relevant form.

Employers must submit their Monthly Employer Declaration (EMP201) by the seventh of each month. Then, you will usually submit an interim Employer Reconciliation Declaration (EMP501) in September-October for the six months from 1 March to 31 August. Your final annual EMP501 submission is done during April and May for the tax year 1 March to 28/29 February.

You will normally issue employee tax certificates once a year. Watch out for SARS announcements at the end of each tax year (end of February) to keep ahead of the annual submission dates.

Steps to follow

SARS no longer accepts paper-based declarations for companies with more than five employees. If you have more than 20 employees, you’ll do most of your reconciliations and declarations electronically using the e@syFile software or use the eFiling website if you have under 20 employees.

Remember:

  • Always use the latest version of e@syFile, since SARS will not accept data submitted using an old version of the software.
  • Backup your data before installing an upgrade of e@syFile to protect yourself against the risk of possible data loss during the upgrade process.

Compiling the PAYE data and submitting employers’ tax reconciliation declarations can be easy if you use the right tools – especially a reliable and efficient payroll software system – and keep track of new SARS requirements and legislative changes.

BY: MADELEIN VAN DER WATT

Payroll and Employee Tax

by with No Comment EmployeesPayrollTax

Payroll and Employee Tax

To be a truly world class, long surviving payroll department, you had better have a fantastic understanding of all the elements that effect the employees net pay. The biggest of these is the tax deduction. You will be abused and sworn at if the employee is incorrectly taxed and has to pay in or pay off additional amounts to the Receiver of Revenue.

5 ways to make sure we tax our employees correctly:

  1. Start with pro forma payslip
    When the new employee start work at your company, print a pro forma payslip that details what is being paid and what is being deducted. The net pay should be highlighted and the new employee should sign that he accepts this as correct. This gives you a chance to spend time explaining the payslip to the employee and spotting any errors that may have been made
  2. The correct earnings and deductions codes must be used
    We all know that each earning and deduction has an IRP 5 code. The receiver will assess the employee based on those codes. Make sure your codes are correct or the wrong assessment can be had. Some payroll software programs have the codes automatically linked.
  3. Car allowances, company cars and subsistence allowances and cell phone allowances
    Ah yes my favourite. Forever an issue. Make sure that you understand this legislation and that the employee clearly understands what is required. Get him/her to sign the pro-forma payslip that shows the car allowance or subsistence allowance as well the company policy that clearly spells out the responsibilities of the employer and the employee. If you are unsure, then ask someone you can trust.
  4. Medical aid
    Make sure we have the right dependent entered onto the system and new borns are added.
  5. Trust in your payroll software
    Make sure you are using trusted payroll software. Excel is great for spreadsheets but not ideal for payroll. Your payroll should be processed on a professional system. The cost of not doing so could be a lot higher than you think.