In a statement released by Treasury on Monday 30 March 2020, government confirmed details of emergency Covid-19-related measures that will help to ease the tax repayment burden on some businesses and provisional taxpayers. Read on to find out what applies to you and your business.
- Small and medium-sized business can delay paying PAYE tax to SARS
Normally, every resident employer must pay SARS all the employees’ tax it has withheld by no later than the 7th day of the month following the month in which such tax amount was withheld. The employer faces penalties and interest if the payments are late.
Now, for the next four months, employers with a turnover of R50 million or less may delay 20% of their PAYE obligations without incurring penalties and interest. The deferred PAYE liability must be paid to SARS in equal instalments over the six-month period commencing on 1 August 2020, i.e. the first payment must be made on 7 September 2020.
- The scope of the Employment Tax Incentive (ETI) has been massively expanded
The ETI is an incentive aimed at reducing youth unemployment by encouraging employers to hire young people (aged 18 – 29). Employers are incentivised to employ youngsters in terms of a cost-sharing arrangement with government that allows the employer to reduce the amount of PAYE it must pay SARS. This provides an immediate cash benefit to the employer.
Now government is extending its existing Employment Tax Incentive (ETI) programme to workers of all ages – and it will hike the amount of money companies can claim.
Currently, for every worker who earns less than R6,500 and is younger than 30, employers can claim back R1 000 a month in the first year of employment and R500 in the second year of employment from SARS. This is done by claiming back the amount of employees’ tax (PAYE) they paid to SARS, which reimburses these amounts twice a year.
Now, companies will able to claim R1 500 in the first year and R1 000 in the second year for employees younger than 30. Companies will also get R500 for all workers younger than 65 who earn less than R6,500 a month. For young workers who have already been covered by ETI payments for two years, employers will be entitled to R500 per employee.
SARS will also work towards accelerating the payment of ETI reimbursements from twice a year to monthly to help to get cash into the hands of compliant employers.
- The UIF will pay a portion of qualifying employees’ salaries
Employers who have had to close their businesses due to the lockdown, and can’t afford to pay their employees, may apply for money from government to help pay salaries from the Covid-19 Temporary Relief Benefit. Companies will have to prove that their businesses have been severely damaged by the coronavirus crisis to get access to funding.
The fund will cover salaries for a period of up to three months – both during the lockdown and afterwards if companies continue to struggle with their cash flow.
The payouts, called the special Temporary Employee/Employer Relief Scheme (TERS) and administered by the Unemployment Insurance Fund, will work on the same principal as maternity benefits. If a company can still afford to pay employees a part of their salaries, the TERS money will “top up” these payments. Either way, employees can’t earn more than 100% of their current salaries.
The amounts paid will be a percentage of an employee’s salary, according to a legislated sliding scale from 38% (highest earners) to 60% (lowest earners).
The sliding scale stops at R17,702: All workers earning more than this will only get the 38% maximum benefit, which is R6,730 a month. (Previously Cosatu interpreted the gazetted regulations to mean that the maximum pay-out would be R17,702 a month, but new stipulations from the UIF indicate that this is wrong.)
Companies who are struggling to pay salaries due to the coronavirus crisis need to report this by email to Covid19ters@labour.gov.za. They will receive an automatic response outlining the application process.
Each company will be judged on its own individual merits before the Covid-19 Temporary Relief Benefit is extended to them. Companies need to have already registered with the UIF to secure payments for their workers, but the normal UIF rule that stipulates that employees accumulate one day’s pay-out for every four days’ work (up to certain maximums) will fall away for this benefit. All workers at approved companies will be entitled to these payments.
- Companies and individuals can delay paying their provisional tax
The Income Tax Act of 1962 makes provision for every provisional taxpayer (companies and individuals who earn income other than a salary) to make two provisional tax payments in respect of their annual tax liability.
Now, provisional taxpayers will only have to pay 15% (as opposed to 50%) of the estimated total tax liability for the first provisional tax payment. The second provisional tax payment (due at the end of the tax year) will remain unchanged at 50% of estimated total tax liability. The outstanding 35% will have to be paid by 30 September 2021 (or six months after a company’s financial year-end), to avoid interest charges.
Here’s an example: A company’s financial year ends on 28 February and it estimates that it will have to pay R1 000 000 in tax for the year. Its first payment (due by 31 August 2020) will now be R150 000 (15% of R1 000 000). In the past, it would have had to pay 50% or R500 000. The second provisional payment (due on 28 February 2021) will be R500 000, bringing payments for the year to R650 000, or 65%. The remaining balance of R350 000 needs to be paid by 30 September 2021 to avoid interest charges.
- Donations to the SOLIDARITY Fund are tax deductible
Government has set up a SOLIDARITY Response Fund to help fund the response to the Covid-19 pandemic. All donations to the SOLIDARITY Fund, no matter how large, are tax deductible. https://www.solidarityfund.co.za/
You can only benefit from the aforementioned tax stimuli if all your tax affairs are up to date. If you haven’t already done so, please get your ducks in a row now. We all need all the help we can get to drag ourselves and our nation through this difficult time.
Jacques van Niekerk TEP FPSA
Trust Executive & Estate Planner
Sentinel International Advisory Services (Pty) Ltd
For further information, please contact Werné Strydom (firstname.lastname@example.org)