SARS has the power to make you liable for your employees’ tax debts
The tax season deadline is just days away and SARS has issued a stern warning about stricter penalties for non-compliance on Tuesday, 9 November.
Did you know that employers could be held liable for their employees’ outstanding tax debts and penalties should you be appointed as a third-party agent and not comply?
How do you, as an employer, know if you are appointed as a third-party agent? Read more below.
Guidelines for Third-Party Appointments
The Commissioner for the South African Revenue Service (SARS) has the power to appoint any person (referred to as an agent) to pay any outstanding tax, which is due by a taxpayer, out of any money that is held on behalf of the taxpayer. More information:
- If a taxpayer has outstanding tax debts (this includes penalties), the Tax Administration Act empowers the Commissioner for the South African Revenue Service (SARS) to appoint a third party to recover money held by third parties on behalf of the taxpayer. Third parties could be an employer or a bank, etc.
- The Third-Party Appointment process involves the appointment of a third party (employer, bank, or any other person who has the management, custody, or control of any income, monies, or property of the taxpayer.) to collect any outstanding taxes including administrative penalty amounts from a taxpayer. The third-party is responsible to pay the relevant amount to SARS on the taxpayer’s behalf.
- This means that if you do not respond to any of the notices or demands informing you of your outstanding tax debts, SARS may appoint your employer or any other third party who holds money on your behalf or owes you money, including salary, wages, and other types of remuneration, to pay the outstanding amounts to SARS.
- Failure by a third party appointed to act may lead to that third party being held personally liable for the tax debt and can also be found guilty of an offense. If convicted, the person is subject to a fine or imprisonment for not longer than two years.
Who is it for?
An agent appointment is done by appointing a third party as an agent through the issuing of a Third-party appointment notification (AA88) where a person holds money on behalf of the taxpayer.
Examples of agents that may be appointed are employers, financial institutions such as banks and may also include funds, insurance companies, investment managers, attorneys, and debtors
Third-Party Appointment details can be found on e@syFile and it is the responsibility of every employer to check for these appointment notifications.
The New Penalty Rule for Non-Compliant Taxpayers
Individual non-provisional taxpayers only have until the 23rd of November to submit their IRR’s, to avoid being penalized by SARS.
In a statement, the revenue collector warned that penalties would be levied on taxpayers from the 1st of December where one or more returns are outstanding.
Before the change in the legislation, SARS could only levy penalties where two or more returns were outstanding. This older rule will remain in place for one more year for 2020 and earlier returns
During July 2021 SARS used data received from employers, financial institutions, medical schemes, retirement annuity fund administrators, and other 3rd party data providers to issue Auto-Assessments to numerous taxpayers.
Taxpayers in the auto-assessment population, who neither accepted nor edited and submitted their simulated assessments by this date, will receive an original assessment based on an estimate.
This assessment is not subject to objection and appeal. However, a taxpayer who is not in agreement with his or her assessment may file a complete and accurate tax return within 40 business days of the assessment date. Such a return will be late, which means that normal late submission penalties and interest (where applicable) will apply.
7 Reasons to contact your accountant before you do anything
According to an article written by JD Hill & Company, there are 7 very important reasons to contact your accountant before you do anything with your ITR
- SARS will never request banking details via email, post or SMS. If you have received an auto assessment SMS, check with your accountant that the communication you received is legitimate.
- Don’t assume that the partially completed auto assessment return must be correct because it was pre-populated by SARS. The third-party data from employers, financial institutions, medical aids, and others may be incorrect or outdated, and some information may be missing. Your accountant will help you fulfill your responsibility to check for omissions and mistakes before accepting.
- Professional advice will protect you against non-disclosure, which can result in penalties and interest, and even criminal prosecution. Omissions could include, for example, income from sources other than reporting third parties like a capital gain, rental income, cryptocurrency, or offshore investments. SARS’ significantly improved abilities to draw taxpayer information from local and international third parties make it easier than ever before for SARS to detect incorrect or undisclosed information.
- The auto assessments will not in all cases include all the allowable deductions, such as wear and tear, home office expenses, donations to charities and travel expenses. Your accountant can help ensure that all allowable deductions are included to prevent a larger tax liability than necessary.
- Accepting an incorrect or incomplete return, whether by accident, negligence or ignorance, can even lead to criminal prosecution. Accepting the auto-assessment result will also eliminate your ability to dispute the assessment later. Even if the auto assessment seems right, first check with your accountant.
- Failing to accept or edit an auto assessment result by 23 November will result in penalties – or worse. Taxpayers can be convicted of an imprisonable criminal offence for, among others, failing to submit a return when required to do so; retaining all relevant substantiating records; providing any information requested by SARS; or not disclosing any material information to SARS; even if this is due to negligence or ignorance.
- An average of 12% of returns submitted last year was selected for audit and verification. Both these processes are time-consuming and expensive – your accountant can help ensure you are ready for either audit or verification.
As an employer, it may be advantageous to assist your employees to stay compliant with tax laws and avoid any troubles for you as their third-party agent. As an employer, you can take advantage of huge discounts by appointing an accountant to check all your staff’s tax affairs. You can also receive discounts which you can either pay for and load as a fringe benefit to your personnel or offer them as a deduction on their payroll.
Avoid being penalised by SARS and let us help you assess your tax affairs adequately. If you need help or require additional information for any of the above-mentioned matters, please do not hesitate to contact us.
Director, Cornerstone Tax and Accounting Services
011 794 6611