August 2020 Employer Interim Reconciliation Submission: 14 September to 31 October 2020

This year, the August 2020 (202008) Employer Interim Reconciliation submission period will commence on 14 September and end on 31 October 2020.

During the Employer Interim Reconciliation, employers need to reconcile their Monthly Employer Declarations (EMP201) for the first six months of a Reconciliation Year (March to August) with the tax values of the interim IRP5/IT3(a) certificates for the same period and submit their Employer Reconciliation Declaration (EMP501).

SARS is constantly enhancing its online offering to make it easy and simple for employers to comply with their payroll tax obligations. For clarity and certainty, we introduced the following changes.

New source codes for the 2021 Year of Assessment

The following new source codes are applicable for the 2021 Year of Assessment:

  • Income code 3618/3668: Fund Administrators must use these codes to declare regular pension or purchased annuity payments originating from provident or provident preservation funds.
  • The following income codes differentiate between pension or purchased annuity payments originating from the following sources respectively:
    • 3603/3653 – pension or purchased annuity payments originating from pension or pension preservation funds,
    • 3618/3668 – pension or purchased annuity payments originating from provident or provident preservation funds,
    • 3610/3660 – pension or purchased annuity payments originating from retirement annuity funds, and
    • 3611/3661 – taxable portion of a purchased annuity paid by long-term insurers not from a retirement fund.
  • Income code 3724: Employers must use this code to declare any payment received by their employees from a COVID-19 Disaster Relief Organisation. These payments do NOT include payments received from the Unemployment Insurance Fund (UIF) Temporary Employees Relief Scheme (TERS).
    • Payments from the UIF TERS are exempt from tax and must not be reflected on the IRP5/IT3(a) certificate issue by employers to their employees.
  • Deduction code 4055: Employers must use this source code to declare any donations made by employers on behalf of employees to the COVID-19 Solidarity Fund.
    • Donations made to other qualifying COVID-19 Disaster Relief Organisations must be declared under existing deduction code 4030.
  • Information code 4587: Employers must use this code to indicate the value of the section 10(1)(o)(ii) foreign remuneration exemption taken into account for calculating PAYE.

Excessive Liability Change Workflow

SARS have found that some employers do not capture the correct PAYE liability on the monthly EMP201 returns. The incorrect calculation of the monthly PAYE liability may result in imposition of penalties and interest. This includes corrections done on the EMP501 reconciliation and any shortfall is attributed to the last month of the reconciliation period.

As from the 2019 Year of Assessment, SARS is comparing the PAYE liabilities captured on the EMP501 with the PAYE liabilities declared in the EMP201 returns and processed in the accounts for the relevant months. If the liabilities captured on the EMP501 is significantly reduced, SARS will inform the employer of the said excessive liability changes per letter. SARS will request the employer to amend its EMP501 submission. If the employer chooses not to amend the EMP501 submission, SARS will route the EMP501 for manual intervention. SARS will determine if the changes are correct based on the reason provided by the employer. If the employer did not provide sufficient motivation, SARS will engage with the employer to resolve the issue.

Employment Tax Validation

The Employer Reconciliation process is a crucial first step in the wider income tax reconciliation process enabling SARS to issue individuals with their personal income tax return prepopulated with payroll data. This, together with information from other providers of third party information, makes it easier for individuals to fulfil their income tax obligations.

Therefore, it is important that the information contained in IRP5/IT3(a) certificates is correct. SARS will validate the employment tax liabilities declared on the IRP5/IT3(a) certificates and if inconsistencies have been identified, notify employers per letter on eFiling or e@syFile™.

New Notice of Non-Compliance Penalty Assessment

From the end of September 2020, a monthly Notice of Non-Compliance Penalty Assessment will be issued to employers showing all the imposition of penalties on the account for that specific month.

e@syFile™ changes

  • Enhanced resubmission function – When a resubmission of an EMP501 reconciliation is done, e@syFile™ will include all IRP5/IT3(a) certificates instead of only the amended certificates.
  • Time-out issue resolved – The time required to download the e@syFile™ Employer varies due to network and PC configurations. In some instances, employers get a time-out notification while the download is running and they have to login again. To address this, SARS had introduced a pop-up message to advise the user that he/she cannot use e@syFile™ functions while downloading the new version.
  • Summary report – SARS will provide a summary report to employers with big payroll systems or use e@syFile™ to merge data from multiple payroll systems to verify the certificates included in a reconciliation submission. This function will be available under the EMP501 Reconciliation and will allow employers to extract a pipe delimited file for a specific period of reconciliation.

Compliance is encouraged

We thank all employers who heeded the call for compliance and successfully submitted their annual reconciliations during April/May 2020. By submitting the interim Employer Reconciliation Declaration (EMP501) for the period 1 March 2020 to 31 August 2020, you are paving the way for the submission of the annual EMP501. Any issues that may arise may be addressed timely. We encourage employers to comply and meet all their tax obligations. For information and clarity, please contact SARS through the various online channels at > Contact Us.

Jacobs also suggested in response to questions that to allow for easier retention of staff, SMEs should review all expenses, especially rent.

A third retention tactic that he suggested was that small companies remodel the roles of their staff, so they take on extra duties or get the employees to help the company offer new services and products given the opportunities because of COVID-19.

If a company had to retrench staff, it was critical that the business part with its staff on the best possible terms so that when the economy grows again, these former employees would be keen to re-join the business.

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Tips and Ideas to Retain Your Best Staff and Skills During COVID-19

Small businesses across South Africa face the challenge of keeping their best staff and skills during the COVID-19 pandemic to ensure that they can survive these hard times and can thrive when the economy picks up again.

For small and medium enterprises (SMEs), keeping top talent is vital to ensuring that these companies deliver effective products as well as services to their clients.

This comment comes from a “thought paper” published in June this year about talent management and penned by six University of Pretoria master’s students.

The right talent is a differentiator

The right talent was a key differentiator for companies to gain a competitive advantage and attain future success, they wrote. They defined the right talent as “giftedness, individual strength, meta-competency, high potential and high-performance workers”.

“Employees are a crucial and valuable element of any organisation. They are the life force that drives innovation, profitability and sustainability,” they added.

Nishan Pillay, Gordon Institute of Business Science’s (Gibs) executive director for open programmes, said during an interview that it was vital for small businesses to keep their high-performing staff.

A quote to bear in mind

The master’s students’ paper included a quote that is worth bearing in mind when considering strategies to keep top people.

It comes from the former chairman of the Citicorp, Walter Wriston, who said: “Human capital will go where it is wanted, and it will stay where it is well treated.”

“In a time of…disruption, evolving technology, stiff competition, and increased demand for limited talent, no organisation wants to lose their top talent that they have invested so much in to acquire and develop,” the master’s students wrote.

Costly to replace staff that exit

Adding to the picture is that it is expensive and time-consuming to replace staff.

Alex Nieuwoudt, manager of recruitment firm Michael Page’s finance and legal team in Johannesburg, said during an interview that it could cost between R150 000 and R350 000 to fill a middle to senior role.

“Hiring people, getting them to know your culture and systems, is hugely expensive. Recruitment costs aren’t just about the agency costs of bringing someone in, it’s about the training, development and the cultural assimilation,” Gibs’ Pillay said.

Changing candidate questions

It is also worth noting that candidates that Michael Page interviewed before COVID-19 focused their questions on the job in question.

But now the critical issue for these candidates was how the company doing the hiring was coping with COVID-19, Nieuwoudt added.

It was essential to answer these questions accurately, as a new hire would find the truth once he or she joined the company and could leave if what they discover wasn’t to their liking. Thus the company would have to incur all the hiring costs again, he said.

Given this, it is essential that when small businesses advertise for a post that they have their answers ready for this burning topic.

Four strategies to keep staff

There are many strategies that companies can use to keep staff.

Nieuwoudt suggested four strategies that SMEs can consider for keeping staff. These four strategies are:

  1. Allowing staff flexible working conditions,
  2. Empowering employees,
  3. Providing virtual wellness, which is where the company gives their employees the means to operate successfully remotely while maintaining staff motivation,
  4. Promoting staff and acknowledging their achievements.

Virtual wellness is also determined by a company’s reputation, including its corporate social responsibility schemes. This measure impacts on employee mood and decisions about whether to join and then stay with the company, Nieuwoudt said.

The desire for flexible employment

Michael Page ran a poll recently, and 84% of the respondents wanted their companies to give them a permanent option to have flexible conditions of employment, Nieuwoudt said.

“This gives you an understanding of how the mind-set of employees has changed in South Africa,” he added.

“Flexible working conditions are now at the forefront of hiring conversations. It is very critical to keep that in mind,” Nieuwoudt said.

Digital working is vital

Geoff Jacobs, president of the Cape Chamber of Commerce & Industry, advised that for companies to keep their staff, it was vital for them to move to the digital way of working, especially given the COVID-19 social distancing requirements.

Jacobs also suggested in response to questions that to allow for easier retention of staff, SMEs should review all expenses, especially rent.

A third retention tactic that he suggested was that small companies remodel the roles of their staff, so they take on extra duties or get the employees to help the company offer new services and products given the opportunities because of COVID-19.

If a company had to retrench staff, it was critical that the business part with its staff on the best possible terms so that when the economy grows again, these former employees would be keen to re-join the business.

Recruit from your pool of alumni

Karel Stanz, a University of Pretoria professor, said during an interview that hiring a company’s former employees or alumni was one of the most cost-effective ways of recruiting staff.

He is a professor in industrial psychology at the Department of Human Resource Management at the university.

Jacobs also advised that as part of the staff retention strategy, small companies should ensure frequent interaction across digital platforms.

“Build online communities that aid in social interactions for employees preferring flexible work arrangements. These online communities allow employees to interact with colleagues, superiors, and clients. It also allows the organisation to monitor the employees’ engagement levels and needs,” the University of Pretoria master’s students wrote.

These students in their paper also listed the following measures to ensure a company keeps its top staff:

  • Have a conducive company culture,
  • Provide staff with meaningful work,
  • Offer employees career advancement,
  • Provide staff with a sense of belonging.

They also referred to respect, recognition and rewards as necessary means to keep staff.

Opportunity to gain scarce skills

In a surprising turn of events, Stanz said that the COVID-19 pandemic had provided specific companies with a chance to gain scarce skills.

He said that a former student of his was working in a human resources role for a timber company in Nelspruit. Before the lockdown, it was difficult for this company to find people with technical skills such as artisans. But ArcelorMittal South Africa retrenched many people, including artisans, and this has provided the timber company with access to these skills.

Digital skills important

Dr Jabulile Msimango-Galawe, Wits Business School programme director for business and executive coaching, said in response to questions that during and after lockdown, some businesses would continue to work online.

“People in the digital space with the required skills will need to get businesses trading again, and marketing online will be in demand,” Msimango-Galawe said. These skills would include analytical and digital capabilities, she added.

Attitude is key

“From what we’ve seen in the past few months, it’s not so much skills that you need to keep, but the attitude of your staff that supports the values of the business,” Jacobs added.

Individuals with multiple skills would be in demand and the era of having one critical skill was over, Msimango-Galawe said.

Michael Page’s Nieuwoudt said that essential skills right now included candidates that helped companies achieve their employment equity targets.

Gibs’ Pillay identified types of people and critical areas of skill where small businesses needed to keep staff, and these included staff with high levels of creativity as well as those with strong people skills.

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UIF TERS Extended Once More and Certain Tax Relief Measures Have Come to an End

On 7 September 2020, the Minister of the Department of Employment and Labour announced that the Temporary Employee/Employer Relief Scheme (“TERS”), operated by the Unemployment Insurance Fund (“UIF”), will once again be extended.

The extension, starting 16 August 2020, shall remain in operation as long as the declaration of the COVID-19 State of National Disaster, in terms of the National Disaster Management Act No.57 of 2002, subsists or until withdrawn, whichever comes first.

In addition, the Minister has communicated that the UIF TERS applications for the respective claim periods of March up to July 2020 will be accepted by the online system until 15 September 2020. The applications for the July/August claim period will be accepted until 30 October 2020 (previously 15 September).

The Government Notice communicating the above can be found HERE.

This extension comes after the suspension of key management at the UIF, including the Commissioner Teboho Maruping, following the release of a report by the Auditor General stating that certain control weaknesses have been found in the payment of UIF TERS benefits.

Certain COVID-19 tax relief measures that have ended

The Skills Development Levy (“SDL”) payment holiday that has been in effect from 1 May 2020 up to 31 August 2020, has come to an end with the submission of the EMP201 by 7 September 2020.

We remind our readers that SDL will once again be payable as per normal legislation from 1 September 2020 (i.e. the first EMP201 return with SDL will be due by 7 October 2020).

The PAYE deferral relief applied to date must be repaid in six equal monthly instalments. A final amendment to the PAYE deferral legislation was made at the end of August, with very few taxpayers being able to respond in time. This amendment allowed for the PAYE deferral to apply for the month of August as well (previously the deferral stopped on 31 July 2020).

The legislation currently reflects that the PAYE deferral value must be repaid in six equal instalments as follows:

  • September 2020 – payment due by 7 October 2020;
  • October 2020 – payment is due by 6 November 2020 (last business day before the 7th);
  • November 2020 – payment is due by 7 December 2020;
  • December 2020 – payment is due by 7 January 2021;
  • January 2021 – payment is due by 5 February 2021; and
  • February 2021 – payment is due by 5 March 2021.

For our readers that did not apply PAYE Deferral relief for the month of August and paid their first instalment on the deferred value by 7 September, we suggest continuing with this payment plan and making the final instalment by 5 February 2021 (as opposed to the current deadline date of 5 March 2021).

Refer HERE for more information on the PAYE relief measure and payment details.

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Tax Incentives to Invest in Small Business: The Clock is Ticking

Creating an environment where SMMEs can thrive is inextricably linked to creating conditions in which all businesses can thrive.

National Treasury, 2019 Economic Strategy Document

The VCC (Venture Capital Companies) incentive allows a holder of shares to claim a 100% tax deduction of the cost of the shares issued by an approved VCC, provided certain requirements are met. The deduction is subject to recoupment if the VCC shares are held for less than five years.

VCCs have been investing in small and medium-sized businesses (SMEs) that include education, agriculture, renewable energy, hospitality and tourism, and student accommodation. Many of them are especially hard-hit by the strict lockdown regulations imposed on businesses.

Funding has always been a major stumbling block for start-ups, and small businesses wanting to expand. They will find it far more difficult post-COVID-19 to get access to funding.  Without the tax incentive it is possible that investments may flow offshore – investors will take their money where the rewards match the risks.

According to SARS, there were 180 registered and approved VCCs which had raised R8.3 billion at 28 February 2019.

The VCC industry body, 12J Association of South Africa, conducted its own survey on the impact investments have made to date. It released the results in June this year. 

Responses were received from 12J managers that collectively manage 106 VCCs and R9.3bn in assets under management to date.

The R9.3bn industry assets under management has been raised from over 5,500 investors, equating to an average investment amount of R1.7m per investor.

The survey report shows that the Section 12J capital raised has been invested into more than 360 small, medium and micro-sized entities which in turn support 10,500 jobs (50% of them permanent) across dozens of industries.

According to the survey the incentive has been cost-effective at an average cost per job of approximately R126,000 for each current job created. This is in contrast to current job creation focused incentives in South Africa, which allow for a required cost per job of up to R450,000.

Getting the investors

When the VCC tax incentive was introduced these companies were to be the “marketing vehicles” to attract retail investors with the tax incentive as a major advantage.

There was an initial investment limit of R750,000 per tax year and a lifetime limit of R2.25m. This limit was removed around 2011 in order to make the incentive more attractive.

However, due to several amendments to the Act, aimed at combatting perceived abuse, the incentive only really gained traction after 2015.

In July last year new caps were introduced. Investments by a natural person and trusts were capped at R2.5m and for companies investments were capped at R5m in a tax year.

Small businesses – the clock is ticking!

The regime is subject to a 12 year sunset clause that ends on 30 June 2021.

Many of the industries qualifying for VCC investments were hard hit by the impact of the COVID-19 pandemic. Survey participants expect COVID-19 to have a negative impact on the ability of SMEs to obtain equity capital over the next year and even the next two years. This is likely to manifest itself in a far higher unemployment rate and corresponding lower growth in the South African economy.

More than 75% of the participants in the industry survey said investors would not have invested their capital in SMEs, had it not been for the attractiveness of the Section 12J tax incentive.

The 12J Association of South Africa suggests that the tax incentive should be extended until at least 2027.

SMMEs will now need more support than ever before, and if your small business is struggling to find funding, ask your accountant now for advice on applying to a VCC. Unless the June 2021 sunset clause on tax incentives for section 12J funding is extended, support from investors will soon dwindle – the clock is ticking!

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