My client was retrenched and the employer did not obtain a tax directive for the retrenchment lumpsum. The amount was paid to my client without any tax being deducted. It is my understanding that the employer's operations have ceased. The accountants mana
Author: The Payroll Authors Group of South Africa
Important:
This answer is based on tax law year ending 28 February 2021.
Answer:
In terms of paragraph 9(3) of the Fourth Schedule to the Income Tax Act, the employer has an obligation to ascertain the amount of tax to be deducted against a lump sum due to retirement/retrenchment/death, etc.
If the employer has not applied for a directive from SARS on this severance amount, the employer should now apply for a directive in order to correct the situation.
The amount indicated on the directive as PAYE deductible from the severance amount, should then be recovered from the employee, before an IRP5 may be issued to the employee, which reflect this amount of PAYE. Should the amount not be recoverable from the employee, it will be deemed to be a penalty in terms of paragraph 5(5) of the Fourth Schedule and should not be included on the IRP5, but should be included in the EMP501 under the field “deemed penalty”.
The amount should then be paid by the employer to SARS to cover the PAYE indicated on the directive.