The South African Revenue Service recently introduced Pay As You Earn (PAYE) administrative penalties for the failure to submit EMP501 reconciliations on time. According to SARS, this measure is aimed at encouraging timely and accurate submissions and fostering greater tax compliance from employers.
The PAYE admin penalty has been structured in three phases, with the first two phases implemented in June 2021 and April 2022, respectively. Currently, SARS is in the process of implementing phase 3, which took effect on 23 June 2023. Phase 3 aims to incorporate the legal changes enacted on 19th June 2022, further reinforcing the penalty framework.
According to Danielle Luwes, Tax Manager at Hobbs Sinclair, “The PAYE Admin Penalty introduces important provisions that employers and tax practitioners need to be aware of. Notably, the Commissioner is empowered to estimate the total amount of employees’ tax to be deducted or withheld, or which should have been deducted or withheld for a specific period, based on available information. Subsequently, the penalty will be imposed on the estimated amount.”
Luwes explains, “Besides the penalty imposition, there’s a crucial adjustment rule. If SARS calculates the actual employees’ tax for the taxpayer and finds that the estimated amount is incorrect, the penalty will be adjusted to the correct tax amount. This change will take effect from the initial penalty date.”
It is crucial for taxpayers to take note of the effective date of the enhanced admin penalty process, set from the date of promulgation on 19 January 2022. Importantly, these legal changes for admin penalty imposition and adjustment will not apply to any reconciliation period prior to 19 January 2022. The revised rules are applicable for the reconciliation period 2022/02 and onwards.
Hobbs Sinclair stresses the importance of staying informed about regulatory updates and maintaining tax compliance.