According to the analysis conducted by National Treasury (NT), the Employment Tax Incentive has been implemented and took advantage of by many qualifying employers. Between 1 January 2014 and 31 March 2016, employers have accessed a total value of R6.06 billion in ETI claims.
The Taxation Laws Amendment Act, 2016, promulgated on 19 January 2017 in Government Gazette 40562, has extended the ETI for another 2 years, ending on 28 February 2019.
It is therefore important to revisit the following:
How to qualify for the incentive:
- Be an eligible employer:
“Person” that pays remuneration to its employees, who is in the private sector and who is registered for PAYE because one or more of its employees are liable for PAYE. Local, provincial or national governments, municipal entities and public entities are excluded.
- Have the following employees in employment:
- Permanent employees.
- Aged from 18 to 29 years. Therefore, an employee will start to qualify in the month that they turn 18 and will end in the month before they turn 30.
- Non-permanent employees (Casuals to temps)
- Season workers
- Fixed term contractors
- Learners in terms of a learnership agreement – NOTE those who are employees i.e they have signed a learnership agreement and a contract of employment.
It is also important to note the following, from SARS’s own website, as this is the area where we as tax practitioners and employers have the biggest problems:
“EMPLOYMENT TAX INCENTIVE (ETI) REFUND PROCESS
…How do we as an employer claim a refund?
On submission of the EMP501 for the end of the reconciliation period, all credits not utilised are being refunded as it can’t be carried forward. No action is required from the employer if the employer is tax compliant and the bank account details are in order. “
The SARS process of refunding the ETI credits are unfortunately flawed from the start. When it was implemented by SARS they did not take into account that the SARS Employees Tax system has big problems with paying out refunds of any kind, never mind the “NEW” ETI credit. Therefore, please note that the statement made on the SARS website: “No action is required from the employer… “ is not true.
Our tax department has experienced the following:
- A letter / request for the payment of the valid ETI credits must be send to SARS (email@example.com (Tax practitioners) or firstname.lastname@example.org (employer) as soon as possible after the mid-year and end of the year EMP501’s have been submitted. SARS do not pay out ETI Credits (not utilised and carried forward) automatically.
- Follow-up regularly and ensure you keep records of all the case numbers received from SARS in this regard.
- The requests for ETI credits to be paid out ends-up at the SARS PAYE audit team as they need to verify the figures, ensure compliance and give instruction to the accounts department that the ETI credits can be paid out. The auditor will request the following:
Detailed ETI schedules which must include the
- Full names and surnames of the qualifying employees.
- ID numbers.
- Period employed.
- Wage/remuneration on which the ETI credit was calculated.
- ETI credit calculated,
From these schedules SARS will sample certain employees and request the following additional information (SARS can extend the scope of the audit to all the employees if they deem it necessary):
- Copy of the ID document of the South African citizens
- Asylum seeker permit
- Refugee identity document
- The SARS auditor will notify the employer whether they found calculation errors that needs to be rectified or whether they have now instructed SARS accounts department to pay out the valid ETI credit.
- The biggest hold up is when SARS’s Accounts department have to pay out the ETI credit. This is merely due to system problems within SARS. The PAYE system cannot pay out these credits as the PAYE system is not setup for refunds. Therefore, the Accounts department needs to do a journal from the PAYE account to the Income Tax account of the relevant employer for the valid ETI credit to be paid out.
- As soon as this journal is done and the ETI credit shows on the IT account the refund will most probably be selected for an Income Tax refund audit. The only way to prevent this is if the accounts department make a note on the Income Tax scratch pad of the employer explaining the reason for the journal and that the amount was already audited.
- Now only will the ETI credit be paid out to the employer.
The above seven steps seem not to be too intimidating or too time consuming. Unfortunately, we have learned the hard way that getting the valid unutilised ETI credits to be paid out can take up to 6months and in some cases even longer.
SARS’s feedback during these seven steps is also extremely limited. SARS is not pressed for time as no interest can be claimed from SARS for the late payment of these amounts.
Chances are also extremely good that the request for paying out the unutilised ETI credits will end up at the SARS Complaints Management Office (CMO) (0860 12 12 16) and eventually at the Tax Ombud (email@example.com) for them to resolve the matter and get the money paid out.
It is therefore important that all employers making use of the EMPLOYMENT TAX INCENTIVE ensure that they are tax complaint in all tax types, that their records are in the correct format and up to date before requesting the unutilised ETI credits to be paid out.
If you have any queries, please contact Petri Westraadt at firstname.lastname@example.org