Soon the taxman's tentacles will reach into every corner
New IRP 5s will force employers to supply details of benefits that have escaped tax in the past, writes LEIGH ROBERTS
The SA Revenue Service has ushered in a new format for the IRP 5 - the tax certificate issued by employers at the end of the tax year which employees submit with their annual tax returns.
The new IRP 5, which comes into force at the end of the current tax year, requires employers to provide a full breakdown of all payments, allowances and benefits to the employee. It also requires non-financial information, such as the employee's ID and passport numbers.
If the employer does not disclose the mandatory information on the new IRP 5, Revenue will return it as cancelled.
And this could have dire consequences for employees.
At worst, if their IRP 5s are cancelled, employees will not be credited by the Revenue Service for the tax payments deducted from their salaries during the year. This could see them faced with huge "unpaid" tax bills once their tax return has been assessed.
At best, the IRP 5 will be reissued, delaying the assessment process, which is particularly detrimental if you are expecting a tax refund.
Christo Henning, spokesperson of the Revenue Service, agrees this is harsh, but says employers have been informed well in time of the new IRP 5 format so that they can get it right.
"We will be reasonable by looking at the circumstances of the employee not having his IRP 5. But if the situation is such that there is no alternative, then that's the route we will go."
Des Kruger, tax partner of Deloitte & Touche in Cape Town, says if Revenue are going to apply this law strictly, employers should make sure they comply with the new format. "Employers will have to spend a lot more time and effort getting their IRP 5s correct than they've done in the past."
The new IRP 5 brings in another first: employers will have to transfer details of issued IRP 5s electronically to the Revenue Service. This will allow the Revenue Service's brand new sophisticated computer system, called Nits, to pick up the details of each employee and cross check the information disclosed in the employee's tax return.
The enhanced cross checking ability of Nits is the prime reason behind the new extended format of the IRP 5.
Another implication for employees is that the new format could result in higher tax bills.
Tax consultants around town, who have been called in by employers to help with the changed format, say they have picked up many payments to employees which should have been taxed, but were not - for example, a R50 cash payment for supper during overtime work, a tool allowance, and buying the company's merchandise at a discount, should all be taxed.
The extended format of the IRP 5 - with its space for every conceivable allowance and fringe benefit - imposes a greater obligation on the employer to ensure all payments are disclosed.
Beric Croome, tax partner of Grant Thornton Kessel Feinstein in Gauteng, highlights some requirements of the new IRP 5:
Taking a long-term view, the new IRP 5 is a big stride in the direction of self-assessment by taxpayers. We're still a couple of years away from this, says Henning, but in time, each individual taxpayer will calculate his own deductions and tax liability.