Did you know that as an employer, you are required to provide the South African Revenue Service (SARS) with relevant data about the annual taxes you deducted from your employees’ payroll? Employers are obligated to declare and submit annual tax reconciliations (form EMP 501) to SARS by 31 May 2021. This will give employers ample time to generate Tax Certificates (IRP5/IT3) and send them to their employees before the start of the filing season for annual tax returns. This season usually begins in July or August following the February tax year-end.
The EMP 501 Process
The data that must be submitted to SARS should cover the Monthly Employer Declarations submitted and payments made covering the full tax year from 1 March 2020 to 28 February 2021. This process also includes the issuance of the 2020/2021 employees’ tax certificates, also known as IRP5s/IT3, which are used to pre-populate individual annual income tax returns (ITR12s). Failure to meet this deadline (submission of the EMP 501), will result in non-compliance penalties as stipulated in Paragraph 14(6) of Fourth Schedule of the Income Tax Act No. 58 of 1962 (ITA). The penalties may not exceed 10% of the total amount of employees’ tax withheld in the reconciliation period.
In March 2021, SARS issued a communication that a penalty of 1% per month of the total amount of employees’ tax withheld from remuneration for the reconciliation period of 1 March 2020 – 28 February 2021 will be imposed.
Mitigating the Risk of Incurring Penalties
It is imperative for employers to meet this filing obligation, not only to avoid penalties and maintain a compliant tax status but also to make sure that SARS does not levy interest on the late payment of employees’ tax. The data submitted to SARS should be timely and accurate, which leads to a seamless tax experience for both employees and employers.
Tax Compliance
Being tax compliant should be every business’ priority in order to maintain current tax rates, apply for letters of good standing, apply for tenders, as well as for foreign investment and emigration purposes. Additionally, it contributes to the positive growth of our country’s economy which in turn benefits all our fellow South Africans.
What does it mean to be tax compliant? It means the following:
- You do not have any outstanding tax returns
- You do not owe any money to SARS unless a payment arrangement or suspension of debt has been agreed to
- You are registered for all the tax products that you are liable for
- Your registered particulars are updated.
- You have either merged all your registered tax reference numbers.
Are your tax affairs in order?
B-Advisory’s tax professionals have the technical skills and experience to assist you with the preparation and submission of EMP 501 and with navigating other tax matters beyond this process to:
- Provide lasting solutions to assist you in running a sustainable and compliant business
- Strategically plan around your core financial objectives to optimise your tax position
- Drive continuous payroll process improvements within your organisation
- Resolve any tax disputes with SARS
We ensure that our clients do not miss filing deadlines, they are well informed about their tax obligations, and they are tax compliant all year round. This breadth of experience helps us bring a unique perspective to the tax services we provide
Conclusion
This is a call to all employers to submit their EMP 501s before the looming deadline at the end of May 2021. Addressing such filing obligations on time is always a sound financial responsibility to manage cashflows, as it eliminates the need to allocate a portion of the business’s finances to penalties and interest that could have been easily avoided.
“The only thing that hurts more than paying an income tax is not having to pay an income tax.” Thomas Dewar