Author: Ian Hurst — Managing Director, Paymaster People Solutions
In a few weeks the tax season for individuals will open! Yes, can you believe that it’s ‘that time’ again — time to submit our tax returns to the receiver of revenue and ultimately to find out whether SARS will be paying us a refund, or whether we need to pay money over to SARS. To assist employees with understanding this process, this article offers a short quick-guide overview of important points that your staff may not yet know about.
Note — you may wish to circulate a copy of this article to all your employees. Additionally, for professional support with the submission of personal tax returns, why not consider acquiring the TaxTim service
The basics of the IRP5 document
The IRP5 document provides a record of the income that you have earned during a particular tax year. Note: a tax year begins on 1 March and runs until 28 February of the following year. By law, your employer is required to inform the South African Revenue Service (SARS) about the income that you have received for a particular period. This includes informing SARS about the tax that was deducted from your salary. IRP5 information is automatically inserted into the document by SARS. If this hasn’t happened, the employee/taxpayer needs to speak to his/her employer in order to establish whether a reconciliation was indeed done or not. Note: SARS will not allow changes to the information on the IRP5.
The manner in which your employer informs SARS about these details, is by means of a bi-annual (i.e. twice yearly) reconciliation submission directly to SARS. Once a particular tax year has come to an end, your is required to issue you with a hardcopy of your IRP5 document. If there happens to be any errors on the IRP5, for example, such as an incorrect source code, then your employer needs to correct the error and reissue your corrected IRP5 document.
Note: depending upon the number of employers that an employee works for, it is quite normal to be issued with more than one IRP5 for a particular tax year.
More details about the IRP5 document
The IRP5 document also provides details concerning the dates that you would have worked for each employer. Additionally, details on the IRP5 will reflect which tax year your income received applies to. Differing categories of income will be indicated by a unique SARS source code. Here are some examples of the categories of source codes that one might typically encounter on an IRP5:
- Salary payments: source code 3601
- Bonus payments: source code 3605
- Travel allowance payments: source code 3701
- Other (i.e. miscellaneous) allowance payments: source code 3713
- Commission payments: source code 3606
- Medical fringe benefit payments: source code 3810
In some instances, the IRP5 might also indicate an employee’s salary deductions, as set-off against the tax calculation. This is done to reflect a series of calculations that applies before tax was deducted tax from your income amount. Examples of typical deduction source codes include the following:
- Employee pension contributions: source code 4001
- Employee retirement annuity contributions: source code 4006
- Employee provident fund contributions: source code 4003
- Medical aid contributions: source code 4005
To verify whether your employer declared the tax amount that was deducted from your salary, your IRP5 should reflect the primary PAYE source code 4102.
To verify which tax year the income received amount applies to, the uppermost section of the IRP5 document should indicate the relevant tax year which the assessment applies to. The IRP5 will also indicate the date when IRP5 information was completed by your employer, as well as the date when it was submitted to SARS. This is called the transaction year For example: rental monies received in March 2016 must be accounted for in the 2016/2017 tax year.
Commission and lump-sum payments received
If you earned a commission or received a lump sum during a particular tax year, you should have received a tax directive number which is reflected at the bottom of the IRP5 document. Simply stated, a tax directive is an official instruction that SARS sends to the employer. This official SARS document ‘instructs’ the employer to deduct tax at a specified tax-rate. Such tax-rates are determined by SARS, on a case-by-case basis — dependent upon initial criteria submitted to SARS by the commission earner .
To conclude, personal income tax submissions have the potential to overwhelm most individuals. However, this need not be so. Why not consider taking the frustration out of your annual tax returns by considering the use of a handy automation tool like TaxTim.
Do you want to see the TaxTim affordable pricing schedule: click here.
Are you still unsure? For more information on how it all works, click here.
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