A taxpayer paid a sum to an employee who left their employment in July 2019. This was regarded as a bonus payment. The employee left due to illness but it was recorded as a normal resignation. The ex-employee only became aware of this when he was looking
Author: The Payroll Authors Group of South Africa
Important:
This answer is based on tax law year ending 28 February 2021.
Answer:
Yes a tax directive must be requested in terms of paragraph 9(3) of the Fourth Schedule for severance packages. Due to the fact that the income accrued in a previous tax year (2020), the employer need to correct the IRP5 issued with the correct values as soon as SARS issue the tax directive. If the PAYE deductible on the severance package (according to the tax directive) is more than the PAYE which was deducted when it was calculated as a bonus: • The transaction year of the certificate with the severance package (tax directive) details must be 2021; the assessment year must be 2020; and the additional PAYE must be paid over in the current month during which the tax directive is issued. • The incorrect income amount must be removed from the previous IRP5 with the 2020 transaction year. The above scenario will not be likely as the severance benefit calculation will be less PAYE than the bonus PAYE calculation. If the PAYE deductible on the severance package (according to the tax directive) is LESS than the PAYE which was deducted when it was calculated as a bonus: • The IRP5 for 2020 must be revised to show the correct income amounts, the tax directive number and the severance package. • The PAYE on the IRP5 will have to be split; tax directive PAYE will have to be reported to code 4115 and the balance on 4102 (PAYE). • The over-deducted PAYE on the IRP5 may not be reduced as the individual will get the refund of this additional PAYE on assessment.