Being an entrepreneur and a boss isn’t easy; there’s only one of you and about a thousand responsibilities that you have to stay on top of. Naturally, one of those responsibilities is making sure that each of your employees is issued an IRP5 form every tax year. Because it isn’t easy staying in tune with absolutely each little thing that life throws at you we, at KWP Attorneys, have taken the opportunity to help you by setting out everything that you need to know about your responsibilities as an employer in terms of your employees and IRP5s.
Each year, our good friend SARS needs to assess the total tax liability due from an individual. This is why SARS needs you, as an employer, to inform it of all the income that an individual has received during a specific period and it needs to know the amount of deductions that are allowable for this same period. SARS gets this information from an individual by looking at the remuneration as reflected on the IRP5 certificate or from the income that an individual has received from another source which will obviously be supported by additional source documents.
Here’s the boring truth – in terms of paragraph 14(3) of the Fourth Schedule to the Income Tax Act 58 of 1962, an employer is obliged to provide a reconciliation statement reflecting the details of the total amount of an employee’s tax which has been deducted or withheld by the employer, as well as the details of the IRP5 certificates issued to the employee during the tax year. Paragraph 14(3) forges a sort of forced relationship between employers and SARS, if you will.
Simply put, the point of the reconciliation statement is to allow SARS to reconcile the amount of tax that has been declared by an employee and that has been paid over to SARS with the tax that is reflected on the IRP5 certificates issued for that tax year. This helps SARS account for all issued, cancelled, lost and destroyed IRP5 certificates. Here’s the rub – if you, as an employer, fail to submit your reconciliation statement, you will have to pay a penalty. The penalty is based on either the assessed loss or on your own taxable income for the preceding year. To make matters worse, if you don’t rectify your non-compliance the penalty amount will increase in equal increments for each month that you fail to rectify it. You definitely don’t need that kind of negativity in your already stressful life!
Just to complicate things a little bit more for you, sometimes an employee may receive more than one IRP5 certificate. In this case, each IRP5 provides details about the dates that the employee has worked at the respective company and it will display the total income, allowances and fringe benefits received during that particular tax year. The IRP5 also reflects any statutory deductions made for Pay–As-You-Earn, Unemployment Insurance Fund and Skills Development Levy, Contributions to Medical Aid, Provident or Pension Funds are also reflected.
You will need to make sure that you give your employees a hard copy of their IRP5 certificates. As with all official documents, it is important to check that the information is correct because, if you don’t, you will have to go through the whole saga all over again—you’ll have to correct the error and re-submit the IRP5 to SARS because your employee won’t be allowed to.
By Stephen Wingate-Pearse