Concerns were rightfully raised about the various relief options being announced to help individuals and businesses being affected by the national lockdown enforced to stop the spread of the coronavirus. It became evident that:
- most relief funding options were in the form of a loan repayable with interest
- interest and fees were still charged on payment holidays
- the criteria set to apply for relief funding was harsh
- some insurers excluded covering the coronavirus impact on policies
- application systems did not work properly or application processes reached capacity status and were being closed early on.
Subsequently, many people were left stranded, not knowing where to turn to for assistance and also not knowing how they would surve the financial impact given the lockdown period being extended for another two weeks.
Amidst the negativity, uncertainty, stress and questions, SARS announced their relief measures. Eventually the dark cloud got a slight silver lining for some tax payers. The SARS relief options, whereby a portion of PAYE and provisional payments will be deferred with no interest and penalties, will truly benefit taxpayers’ cash flows. This is the kind of relief most people being heavily affected by this crisis were probably looking for and hoping to receive from all role players.
What form of relief has SARS offered?
The tax relief will apply for tax periods from 1 April 2020 to the following tax types:
- Employees’ Tax (PAYE) Deferral – 20% of an employer’s total employees’ tax liability can be deferred; and
- Provisional Tax Deferral – 35% of a taxpayer’s provisional tax liability can be deferred.
Both PAYE and provisional tax payments will be deferred with no interest or penalties being charged i.e. a true benefit to assist with cash flow in a positive way over the short-term.
Who will qualify for the PAYE and Provisional Tax relief?
Companies, partnerships, trusts and individuals who are tax compliant will qualify for the PAYE deferral. On the provisional tax side, companies, trusts and individuals will qualify, provided they are tax compliant.
Taxpayers whose gross trade income doesn’t exceed R50 million for the year of assessment will qualify. The gross income shouldn’t include more than 10% of income derived from interest, dividends, foreign dividends, rental from letting fixed property and any remuneration received from an employer. For PAYE relief, the employer must have been registered as an employer with SARS prior to 1 March 2020.
Furthermore the taxpayer should be fully tax compliant to qualify for the deferral. Tax compliance will include the following:
- The taxpayer is registered for all tax types applicable to the taxpayer;
- All returns across all tax types have been submitted; and
- No outstanding payments due to SARS or payment arrangements have been made.
More good news is that tax payers who are not currently fully tax compliant will have the opportunity to rectify the situation and become tax compliant before the next PAYE / provisional tax return is due. Once the applicable return/-s have been submitted and the taxpayer is still not fully tax compliant, the deferral will not be allowed.
The PAYE 20% deferral
For each tax period running for the four months from 1 April 2020 to 31 July 2020, 20% of the total employee’s tax liability will be deferred. The remaining 80% of the monthly tax liability for April to July will still be due as per the usual payment due dates (i.e. before 7th of the month). The total amount being deferred (i.e. cumulative 20% for 4 months) will be payable in 6 equal monthly payments from September 2020 to February 2021. The first payment of the deferred amount becomes due together with the August 2020 PAYE payment which is due on 7 September 2020.
Please note for the August payment which is due on 7 September there will be no deferral, thus 100% of the tax liability as well as the first payment of the deferred amount will be due and that will be the scenario for the following 5 months. Tax payers should plan accordingly.
Below is an illustration of the 20% PAYE liability being deferred between April and July (i.e. R80 000 in total); and then becomes payable in 6 equal payments from September 2020 in addition to the 100% monthly PAYE liability.
|20% Deferral||80% Payable||Due Date|
|April 2020||100 000||20 000||80 000||7 May 20|
|May||100 000||20 000||80 000||5 June|
|June||100 000||20 000||80 000||7 July|
|July||100 000||20 000||80 000||7 August|
|Total amount deferred||80 000|
|20% Deferral Due|
(R80 000 over 6 months)
|100% Payable||Due Date|
|August||100 000||13 333||100 000||7 September|
|September||100 000||13 333||100 000||5 October|
|October||100 000||13 333||100 000||6 November|
|November||100 000||13 333||100 000||7 December|
|December||100 000||13 333||100 000||7 January 21|
|January 2021||100 000||13 335||100 000||7 February 21|
|Total deferral paid||80 000|
The Provisional Tax 35% deferral
Provisional tax payers whose 1st provisional payment is due between 1 April 2020 and 30 September 2020 should pay 15% (i.e. 50% less 35% = 15%) of their total estimated tax liability and 35% will be deferred. Where the 2nd provisional payment is due between 1 April 2020 and 31 March 2021, 65% (i.e. 100% less 35% = 65%) should be paid, taking into account the 1st payment already paid, and 35% will thus be deferred. The 35% that will be deferred will become due when the 3rd provisional tax payment is due.
Below is an illustration of the 35% provisional tax deferred payment that will be due on the 3rd provisional tax payment due date.
|Estimated Taxable Income||10 000 000|
|Company tax @ 28%||2 800 000|
|1st Provisional Payment||420 000||2 800 000 x 15%|
|2nd Provisional Payment||1 400 000||2 800 000 x 65% less 420 000|
|3rd Provisional Payment||980 000||2 800 000 x 35% deferred|
Source of information: www.sars.gov.za
SARS indicated that they are working on adjusting their systems to automatically allow for the deferrals. Tax payers should however check on their status prior to submitting the relevant returns and follow the SARS instructions / processes with regards to applying for the deferral if registration / applying is required at the time. Tax payers should also keep an eye on all tax calculations during this period to identify any errors early on.
Both the PAYE and provisional tax deferrals will thus benefit qualifying tax payers’ cash flow during this difficult time. It is advisable for tax payers to put money aside during this period to have funds available when the deferred amount becomes payable to avoid cash flow shortages at that stage. Hats off to SARS for offering real relief with a positive impact on tax payers’ cash flows over the short-term.
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