Welcome PSIberWORKS Year end Workshop Oct 2009

1. Welcome PSIberWORKS Year end Workshop Oct 2009

2. Agenda 13.00 – Update on the new format IRP5 14.30 – Tea/coffee 14.45 – Product and Services Update 16.00 – Questions, answers and feedback 16.30 – Refreshments

3. SARS IRP5 Requirements for 2010 Rob Nowicki

4. SARS IRP5 Requirements for 2010 • What we will look at: • - Brief history – why all these changes and how we got here ! • - What does the final IRP5 look like. • - New Employerinformation requirements. • - New Employee information requirements. • - How to collect, audit and update the new Employee information. • What’s mandatory, what’s not and what are the penalties for non compliance. • What’s new (tax wise !!) on the cards for next year

5. A reminder of some important dates

6. A reminder of some important dates The dates for 2010 will probably be similar: i.e 1 – April-May for e@syFile submissions (Companies) 2 – July-Nov for ITR12’s (Individuals)

7. SARS IRP5 Requirements for 2010 Why all these changes ? - There has been a massive under-collection of PAYE as a result of no effective matching process between money, forms (EMP201) and IRP5’s. e-Filing matched the EMP201 to money but not to the data - It has become critical for SARS to collect, balance and allocate taxes sooner in the year ie around budget time. Often “estimates” were used rather than “actual” collection. - SARS needed to reduce assessment time from months to weeks and to A) pay refunds sooner, B) create taxpayer goodwill and C) reduce the ever increasing provision account - SARS needed to find some way to “encourage” the employer to become more compliant through employee pressure

8. SARS IRP5 Requirements for 2010 • Why all these changes ? • Many individuals were not doing their returns correctly, or on time: • a) employers were not submitting the IRP5 correctly/on time and; • b) it was too difficult for many individuals to complete the tax return properly and; • c) tax practitioners were not helping the problem, they were prolonging through delays, queries, objections, etc, and; • d) all this was delaying income due to SARS by up to 24 months – ie SARS couldn’t use the money, interest loss, etc

9. SARS IRP5 Requirements for 2010 • Why all these changes ? • - SARS had problems in: • a) finding taxpayers who were/are due a refund and; • b) refunding problems due to SARS having no or incorrect taxpayer banking details and; • c) This massive “Provision Account” was simply rolling over each year and growing by the year and National treasury had to do something; • d) Internally SARS had issues with lost forms and major error rates when capturing forms.

10. SARS IRP5 Requirements for 2010 • Why all these changes ? • The old IRP2 had fallen away and SARS had no way of getting regularly updated information en masse. • Approx R700 million in taxes due, but unpaid, from previous years was continuously slipping through the cracks (ie delayed Pension/RA payouts, delayed Directors Bonuses, etc) • Employers were deducting employee tax and using it for cash flow, as such employers often could not meet their PAYE obligations at year end – ie they simply did not have the cash

11. SARS IRP5 Requirements for 2010 • Why all these changes ? • - Employers were deducting the tax and never paying over to SARS • In some instances employees were being overtaxed and never able to claim, as their employers had not submitted their IRP5 at year end / or they weren’t registered as a taxpayer and couldn’t submit a return for assessment - eg SITE only payers who had medical expenses or RA contributions which they were entitled to claim on assessment. • The soon to be introduced Social Security System requires regularly updated and accurate information to ensure that funds are distributed to the right beneficiaries.

12. SARS IRP5 Requirements for 2010 How we got here ! - 2006 saw SARS issue notice to taxpayers of its intention to revamp / modernise the whole PAYE system in SA. This included the employer submission process (ie the EMP501 / IRP5) as well as the employee assessment side (ie the much reduced IT12). Both aspects had to be addressed at the same time. - In 2007 SARS made the e@syFile software available (for employers) and the e-Filing service available (individuals), using the standard payroll extract – no major inconvenience to the employer and a much easier tax return for the individual – ie complicated calcs etc were removed. Form reduced from 12 to 4 pages. - In 2008 the e-Filing service was enhanced to pre-populate the individuals tax return with IRP5 data and further employer related enhancements were made to e@syfile.

13. SARS IRP5 Requirements for 2010 How we got here ! - A number of new forms were introduced over the period ie the EMP701 – interim form to cater for prior year adjustments to IRP5’s and the re-declaration of the EMP501 values

15. e@syFile

16. SARS IRP5 Requirements for 2010 How we got here ! - A number of new forms were introduced over the period ie the EMP701 – interim form to cater for prior year adjustments to IRP5’s and the re-declaration of the EMP501 values - Updating of the EMP501 to help balance the IRP5’s and the monthly EMP201’s.

18. e@syFile

19. SARS IRP5 Requirements for 2010 How we got here ! - A number of new forms were introduced over the period ie the EMP701 – interim form to cater for prior year adjustments to IRP5’s and the re-declaration of the EMP501 values - Updating of the EMP501 to help balance the IRP5’s and the monthly EMP201’s. - 2009 SARS redesigns the IRP5 layout and its content - 2009 SARS redesigns the EMP201 for use early next year - includes a breakdown of this periods payment as well as payments for prior years / months / IT88’s etc.

20. For normal monthly payments to SARS

21. For normal and additional payments to SARS

22. SARS IRP5 Requirements for 2010 How we got here ! - A number of new forms were introduced over the period ie the EMP701 – interim form to cater for prior year adjustments to IRP5’s and the re-declaration of the EMP501 values - Updating of the EMP501 to help balance the IRP5’s and the monthly EMP201’s. - 2009 SARS redesigns the IRP5 layout and its content - 2009 SARS redesigns the EMP201 for use early next year - includes a breakdown of this periods payment as well as payments for prior years / months / IT88’s etc. - 2010 – the inclusion of other third party data on the tax return – ie interest, Pension/RA contr., medical contr., rent received ??

23. Online tax return

25. In short……. So far, the whole reform process has been successful, from a SARS perspective as well as from the taxpayer perspective – 80 - 85 % of companies have adopted the new way of doing things. In addition over 2 million individuals have also started doing their returns online… So, SARS are a lot closer in meeting their 4 key objectives: 1- Auto Balance PAYE deducted from employees and paid to SARS, and the supporting employee data 2- Reduce the internal admin burden and make staff more compliance focused rather than assessment focused. 3- Move to a self assessment regime and in so doing move the workload from SARS to the employer 4- Easier/quicker identification of non compliant taxpayers – level the playing fields between those who do and those who don’t.

26. SARS IRP5 Requirements for 2010 What does the final IRP5 file and form look like !

27. Page 1 - Basic employee information

28. Page 2 - Employee financial information

29. Payroll Extract as per previous Employer Info Employee Info Update e@syfile as per previous Trailer The data file

30. SARS IRP5 Requirements for 2010 • Some notes about the new form • SARS tried to make as simple yet comprehensive as possible • Limited to the landscape of the form (ie size and makeup) • Designed for scanning (ie the black squares in each corner) • Designed for Bar Code reading • Had to keep Form content and File content the same for capture and subsequent consolidation of data (ie manual capture and electronic generation from e@syFile).

31. SARS IRP5 Requirements for 2010 • New Employer information requirements: • - SDL and UIF Numbers – this will be used to cross reference your IRP5 and EMP201/EMP501 information. • - Employer Contact Person – the person that deals with payroll • - Contact details – ie email, etc – try and use a specially named address eg payroll@company.co.za in case contact people leave • - Payroll Software – auto inserted by your payroll system. Used to identify systems with repetitive problems !! • - Trade Classification VAT/EMP 403 • New format address fields – discussed later

32. SARS IRP5 Requirements for 2010 • New Employee information requirements: • More detailed contact / address info - contact details such as home phone, cell, etc is optional but Bus Tel No is mandatory • ID numbers – SARS insists these are mandatory and will be validated (ie no blue books, no un-barcoded, etc) • Passport mandatory if ID number not available. Also country of issue is mandatory for a passport – SARS list of country codes (should be in payroll system) • - Income Tax Ref Number is “Mandatory” • - Directive Number (up to three). Mandatory for certain earnings codes eg 3608 (arbitration award), 3614 (other retirement lump sums), 3707 (shares options exercised), etc

33. SARS IRP5 Requirements for 2010 • New Employee information requirements: • Employee Bank Account info: • Type (as per payroll codes eg 1=cheque, 2= savings, 3= transmission etc) • Account Number • Bank and branch number/name. Payroll systems won’t need you to key in the bank name as this is determined by the bank/branch codes • Account holder name. Payroll systems could but won’t assume same name as employee • Relationship. 1=Own, 2=Joint, 3=Third Party (red flag !!)

34. SARS IRP5 Requirements for 2010 • New Employee information requirements: • Allowance and deduction code consolidation : • To reduce volume of data SARS has to deal with • Income source codes – max 13 • Employer/Employee Deduction Codes – max 7 • The sub codes that make up these main codes can be stored in the payroll and printed in detail on the employee IRP5 produced by the payroll. Old format IRP5 as confirmation to employee is still acceptable.

35. SARS IRP5 Requirements for 2010 • New Employee information requirements: • RFI and Non RFI : • Indicator per income code is no longer required • All RF income to be accumulated in code 3697 • All Non RF income to accumulate in code 3698 • Clearance Numbers on Pension / Provident Fund codes no longer necessary • No negative values are allowed on a tax certificate • All date fields: ccyymmdd, ccyymm, ccyy • Cents still applicable – were considering rounding off cents (which no one knew the standard ie round up or round down !)

36. SARS IRP5 Requirements for 2010 • Some Do’s: • Make sure that what you write on the form is legible – remember, the computer has to try and interpret what you have written. • Put in the Employers Physical Address etc if the employee does not have one – this makes things easier for SARS if they need to contact the employee. • Check the banking details you get from the employee (ie bank name etc) • Put the person responsible for payroll related issues as the contact – not the MD/FD. This means that the payroll person will deal with queries from SARS and as such has to be fully “up to speed” with your company’s payroll matters.

37. SARS IRP5 Requirements for 2010 • Some Do’s: • Do make sure you ALWAYS use unique Tax Certificate Numbers. If using a computerised payroll system this should be an automatic function/feature. Bear in mind it is now a 30 char field. • You can have foreign and local income specified on the same certificate. • Make sure that the tax certificate has at least one income code with a value greater than zero otherwise it will be rejected. • If you can’t do this for a director, or member of a cc (ie because they haven’t earned anything !) then make sure that code 3615 (Directors remuneration) with a zero value is reported on the certificate

38. SARS IRP5 Requirements for 2010 • Some Don’ts: • Don’t use special characters in alpha fields such as Addresses, Names etc - eg /, (), %,$,#, etc • Don’t confuse “Year of Assessment” with “Transaction Year” i.e: • “Year of Assessment” is the tax year in which the remuneration paid or payable to an employee accrued. • “Transaction Year” is the year during which the Employer deducted and paid the employees tax in respect of remuneration paid or payable to an employee (could include tax on remuneration which accrued in a previous tax year). • Your payroll system will deal with the above automatically when you enter the information.

39. SARS IRP5 Requirements for 2010 • How to Collect, Audit and Update the employee info: • Make sure you have the latest version of the payroll/HR software as screen changes and IRP5 extracts had to be done first. (NB - could be 2 releases - 1) screen layouts and 2) IRP5 changes) • - Convert existing data (if possible) and compare result. • - There should be a standard audit report which highlights missing data and / or incorrect data. This will give some indication of the effort required to update the payroll. • - Produce a standard form either from the system or design your own • - Make sure that the employee signs the form as proof of what you have been given and if you can print out what has been captured as proof

40. SARS IRP5 Requirements for 2010 In practice !!

41. Be careful !! 43

42. Data Differences

43. What Could Happen

44. What Could Happen 43

45. 43

47. What e@syFile will produce

48. Forms !!