Tag Archive: Sage Pastel Payroll


Finance Minister Pravin Gordhan delivered his Budget Speech on 26 February, favouring consistency and steadiness over change and fireworks ahead of the national election on 7 May.

Some tax relief for tax payers in the 2014/15 Budget Speech – 40% of the tax relief was allocated to those who earn up to R250,000 per annum, meaning individuals earning more than R250,000 per annum will receive a little less of the allocated tax relief pool.

Though some commentators had speculated that high earners would need to pay higher income tax, the Minister left income tax rates untouched, says Madelein van der Watt, Development Manager at Sage Pastel Payroll & HR. The lowest tax bracket remains at a tax rate of 18% (annual taxable income up to R174,550) and the highest tax bracket remains taxable at 40% (annual taxable income of more than R673,100).

Tax credits for medical scheme contributions

Effective from 1 March 2012, the medical aid capping system was replaced with a tax credit – bringing in equality for all taxpayers under the age of 65 and improved benefits for lower earners.

In the new tax year, commencing 1 March 2014, monthly tax credits for medical scheme contributions (reduction of tax payable) have been marginally increased from:

  • R242 to R257 for the main member and the first dependent on a medical scheme
  • R162 to R172 for each additional beneficiary on the medical scheme

The medical aid tax credit system allows a reduction on income tax and does not reduce taxable earnings as the medical aid deduction system allowed in the past.

“The credit system is a more fair approach to providing tax relief as each individual contributing towards a medical aid fund will receive equal relief as it is not based on annual earnings. Whether an individual earns R250,000 per annum or R2,500,000 per annum, the income tax liability will be reduced by R257 for each of these individuals with at least a single beneficiary on the medical aid fund.”

From the 2014/15 tax year, medical aid contributions by people older than 65 will also be subject to the medical aid tax credit system. Up until now, those contributions were fully tax deductible. Effective from 1 March 2014, their contributions will also be subject to the medical aid tax credit system.

Is it a fringe benefit?

The company contribution towards an employee’s medical aid yields a taxable fringe benefit.

Generally, any payment made by an employer on an employee’s behalf, must be included in an individual’s taxable remuneration, before calculating the final PAYE deduction. Only pension and provident fund contributions are still exempt from the rule until 1 March 2015.

Regardless of an employee’s age or employment contract conditions, the medical aid contributed by an employer, whether in cash or as a package component directly to the fund, must be treated as a taxable fringe benefit.

The contribution paid by the employer will be subject to employee’s tax and contrary to popular belief, there is no way to structure a salary package to bypass the fringe benefit.

During the 2012/13 year of assessment, 76% of all fringe benefits reported on tax certificates were medical aid contributions made by employers on behalf of their employees.

Medical Aid Contributions must be reported on the employee’s tax certificate

As part of the Employer Filing season, each company is responsible to issue their respective employees with a tax certificate.

Medical Aid Contributions, both the employee and employer contributions must reflect on the employees tax certificate (IRP5/IT3A). If you’re making use of an automated payroll system, the codes are already loaded for you. In addition, a company is making use of an automated payroll system, they can import a payroll file with all the filing requirements directly into the e@syFile™ Employer system and the payroll EMP501 Reconciliation Report to complete the PAYE, SDL and UIF reconciliations. Van der Watt points out that this saves businesses considerable time and cost compared to manual calculation and capturing.

If you’re making use of a manual payroll system or payroll spreadsheets, please make use of the following codes:

  • Source code 4005 for employee and employer contributions
  • Source code 3810 for the taxable fringe benefit equivalent of the employer’s contribution
  • Source code 4116 for tax credits allowed

How can an automated payroll system make your business life easier?

To calculate the correct employee’s tax effect of a medical aid contribution, an employer must take the following into account:

  1. What is the total contribution that must be processed every month?
  2. How much of the contribution must be deducted from the employee’s gross income and how much is payable by the employer?
  3. Is the employer’s payment made as a cash contribution to the employee or paid directly to the medical aid?
  4. Remember to include any employer payment as a taxable fringe benefit when calculating the PAYE deduction for the month.
  5. How many dependents belong to the employee’s medical aid?
  6. Remember to constantly keep track of new dependents added or dependents removed from the medical aid policy.
  7. Remember to check for any contribution increases or change in medical aid cover that might affect the contribution value processed on the payroll.
  8. Don’t forget to calculate the medical aid tax credit after you have determined PAYE based on taxable earnings. The tax credit is based on the number of dependents and must reduce the PAYE value before you calculate the net pay.
  9. Every six months, you need to submit a PAYE reconciliation to SARS detailing the contributions, fringe benefits and tax credits related to medical aid contributions.

Payroll software will take care of the calculations and reporting of medical aid contributions and the PAYE effect thereof.

It is also important to keep in mind that effective 1 March 2014, employees aged 65 and older are also included in the medical aid tax credit system and their contributions may no longer be allowed as tax deductions. If you still make use of spreadsheet or manual methods of calculating PAYE, it is important to adjust your calculations to not only cater for new medical aid tax credits for the 2014/15 tax year, but also to keep in mind that you need to adjust the calculation for your employees aged 65 and older.

“Our software is designed to make your business life so much easier, so that you can focus on running your business. Let automated payroll solutions take care of the six major payroll acts and the ever-changing legislative plethora that governs payroll,” says Sumay Dippenaar, Marketing Manager at Sage Pastel Payroll & HR.

“There is no reason for businesses to rely on manual payroll spreadsheets since we offer automated solutions that are easy-to-use, smart and affordable, whether you deploy them on the desktop or in the cloud. Our subscription-based payroll solution allows you to pay low monthly fees with no upfront capital outlay, keeping your cash flow in mind.” With an online payroll solution, you only pay per payslip that you process. This pay-as-you-go model is cost-effective at R18 excluding VAT per payslip.

Example

Mr Jim Hardens is 67 years old, he earns a basic salary of R15,000 per month and the company contributes the full medical aid contribution of R1,000 on his behalf. He is the only member on his medical aid.

Below, please see how the calculation differs for tax year 2013/14 and 2014/15. Seeing that Jim is over 65 years, he also needs to be taxed on the medical tax credit system, effective 1 March 2014. Jim will enjoy a tax saving of R143.04 in the new tax year.

TAX YEAR 2014/2015
SALARY R 15 000
ADD MEDICAL AID FRINGE BENEFIT R 15 000 + R1 000 = R16 000
ANNUALISES TAXABLE INCOME R 16 000 * 12  = R192 000
TAX AS PER SARS TABLES R 192 000 – R 174 550 = R 17 450 * 25% + R 31 419 = R35 781.50
LESS PRIMARY REBATE R 35 781.50 – R 12 726 = R 23 055.50
LESS SECONDARY REBATE (FOR EMPLOYEES OVER 65 YRS) R 23 055.50 – R 7 110 = R 15 945.55
DEANNUALISE R 15 945.55/12 = R 1 328.79
LESS MEDICAL AID TAX CREDITS R 1 328.79 – R257
PAYE FOR THE MONTH R 1 071.79
TAX YEAR 2013/2014
SALARY R 15 000
ADD MEDICAL AID FRINGE BENEFIT R 15 000 + R 1 000 = R 16 000
LESS TOTAL MEDICAL CONTRIBUTION R 16 000 – R 1 000 = R 15 000
ANNUALISES TAXABLE INCOME R 15 000 * 12 =  R 180 000
TAX AS PER SARS TABLES R 180 000 – R 165 600 = R 14 400* 25% + R 29 808 = R 33 408
LESS PRIMARY REBATE R 33 408 – R 12 080 = R 21 328
LESS SECONDARY REBATE (FOR EMPLOYEES OVER 65 YRS) R 21 328 – R6 750 = R 14 578
DEANNUALISE R 14 578 / 12
PAYE FOR THE MONTH R 1 214.83
TOTAL SAVING R 143.04

 

Nifty Quick Links and Tools

>FREE Salary Tax Calculator

>FREE Online Logbook

>FREE Tax Guide

>Attend a Budget Speech Seminar, everything explained in laymen’s terms

>New Tax Rates

>Everything else you need to know

>Automate your payroll using an online solution 

For the latest legislative news, connect with Sage Pastel Payroll & HR on Twitter (Payroll News), Facebook or LinkedIn. To read more about the upcoming budget speech, click here.

Madelein van der Watt, development manager at Sage Pastel Payroll & HR.

Madelein van der Watt, development manager at Sage Pastel Payroll & HR.

Finance Minister Pravin Gordhan delivered no surprises in his Budget Speech on 26 February, favouring consistency and steadiness over change and fireworks ahead of the national election on 7 May. His Budget Speech once again put job creation, infrastructure development, social spending and education right on top of the nation’s list of priorities.

Taxpayers will benefit from R9,25 billion in personal income tax relief in the new tax year, though this relief hardly caters for the effects of inflation, says Madelein van der Watt, Development Manager at Sage Pastel Payroll & HR.  40% of the tax relief was allocated to those who earn up to R250,000 per annum, meaning individuals earning more than R250,000 per annum will receive a little less of the allocated tax relief pool.

Personal income tax brackets and rebates

Personal income tax brackets and rebates have been slightly adjusted. The amount an individual can earn before being required to pay income tax has been increased for the 2014/15 tax year:

  • Increase from R67,111 to R70, 700 for individuals below the age of 65
  • Increase from R104,611 to R110, 200 for individuals between the ages of 65 to  below 75
  • Increase from R117,111 to R123, 350 for individuals over 75 years

Individuals aged 65 and older will pay less tax due to an increase in the secondary rebate. The tertiary rebate for individuals aged 75 or older has also been increased which means less tax payable by the elderly from 01 March 2014.

The annual tax rebates for individuals have been increased as follows:

  • Under the age of 65 increased from R12,080 to R12, 726
  • Aged 65 to 75 increased from R6,750 to R7, 110
  • Aged 75 and older increased from  R2,250 to R2, 367

Though some commentators had speculated that high earners would need to pay higher income tax, the Minister left income tax rates untouched, says Van der Watt. The lowest tax bracket remains at a tax rate of 18% (annual taxable income up to R174, 550) and the highest tax bracket remains taxable at 40% (annual taxable income of more than R673, 100).

Tax credits for medical scheme contributions

Effective from 1 March 2012, the medical aid capping system was replaced with a tax credit – bringing in equality for all taxpayers under the age of 65 and improved benefits for lower earners. Monthly tax credits for medical scheme contributions (reduction of tax payable) have been marginally increased from:

  • R242 to R257 for the main member and the first dependent on a medical scheme
  • R162 to R172 for each additional beneficiary on the medical scheme

The medical aid tax credit system allows a reduction on income tax and does not reduce taxable earnings as the medical aid deduction system allowed in the past. The credit system is a more fair approach to providing tax relief as each individual contributing towards a medical aid fund will receive equal relief as it is not based on annual earnings. Whether an individual earns R250,000 per annum or R2,500,000 per annum, the income tax liability will be reduced by R257 for each of these individuals with at least a single beneficiary on the medical aid fund.

From the 2014/2015 tax year, medical aid contributions by people older than 65 will also be subject to the medical aid tax credit system. Up until now, those contributions were fully tax deductible.

Fuel levies & subsistence allowances

The general fuel levy and the Road Accident Fund levy will increase by 12c per litre and 8c per litre respectively by 2 April 2014. This will push up the general fuel levy on petrol to R2.25 per litre and R2.10 per litre of diesel. Subsistence allowances paid to employees who travel for business within South Africa, will be tax-free provided the amount paid for meals and incidental costs does not exceed R335 per day. An amount not exceeding R103 per day for incidental costs will also be exempt.

Any good news for SMEs?

Van der Watt says that SMEs could benefit from a recommendation made by the Davis Tax Committee to introduce a tax compliance rebate that replaces the current progressive tax rate structure for income tax on companies. “Minister Gordhan’s speech indicated that he is looking at ways to reduce red tape for small businesses by amending the turnover tax regime and replacing the graduated tax structure for small businesses with refundable tax compliance credits,” she adds.

Youth subsidy and spending

Government will be collecting around R1.02 trillion in tax revenues for the 2014/15 tax year, but how will that money be spent? Mindful of the country’s budget deficit, Minister Gordhan plans to increase real non-interest spending by only 1.9% over the next three years.

Sage Pastel Payroll & HR correctly predicted that the lion’s share of revenue allocation during this year’s budget announcement would go to health services, education and social grants. Minister Gordhan allocated R254 billion for education, R146 billion for healthcare, R143 billion allocated to build new homes and improve basic infrastructure in communities.  Social grant expenditure has risen to R118 billion this year.

The Minister also provided feedback about the Employment Tax Incentive in his speech. The Minister mentioned that already in the first month of implementing the subsidy – aimed at increasing employment for the youth – about 56,000 beneficiaries were recorded.

What’s next?

Though Minister Gordhan’s Budget Speech was conservative, South Africans might see more radical changes to the tax system when he or his successor delivers the Medium Term Budget Policy Statement in October. The Tax Review Committee led by Judge Denis Davis has started wide-ranging investigations into South Africa’s tax system, including a focus on value-added tax, mining taxes and wealth taxes.

In addition, Government will soon publish its National Health Insurance white paper, which may also impact on South African businesses and taxpayers.

Sage Pastel Payroll & HR assists SMEs

To assist SME businesses with the changes outlined in the new Budget, Sage Pastel Payroll & HR is incorporating all of the Budget changes to tax bracket values, medical aid benefits, and tax relief rebates. This will ensure that Sage Pastel Payroll & HR customers are immediately compliant when the new Budget stipulations take effect in the new tax year.  “With our automatic software updates, our customers will have the new year’s tax rates and calculations downloaded as soon as they open their software to process the first payslip run for March 2014,” says Van der Watt.

“We understand small and mid-sized businesses’ day-to-day challenges. Our software is designed to make your life so much easier so you have more time to do what you do best – grow your business,” says Sumay Dippenaar, Marketing Manager at Sage Pastel Payroll & HR.

“There is no reason for businesses to rely on manual payroll spreadsheets since we offer automated solutions that are easy-to-use, smart and affordable, whether you deploy them on the desktop or in the cloud. Our subscription-based payroll solution allows you to pay low monthly fees with no upfront capital outlay, keeping your cash flow in mind.” With an online payroll solution, you only pay per payslip that you process. This pay-as-you-go model is cost-effective at R18 excluding VAT per payslip.

For more information

For more help understanding what the Budget Speech will mean for you and your business – and a chance to win R10,000 – check out Sage Pastel Payroll & HR’s extensive set of online resources for Budget 2014/15:

>Competition: Stand a chance to win R10, 000

>Attend a Budget Speech Seminar, everything explained in laymen’s terms

>Free Salary Tax Calculator

>FREE Online Logbook

>FREE Tax Guide

>New Tax Rates

>Everything else you need to know

>Automate your payroll using an online solution 

For the latest legislative news, connect with Sage Pastel Payroll & HR on Twitter (Payroll News), Facebook or LinkedIn. To read more about the upcoming budget speech, click here.

Madelein van der Watt, development manager at Sage Pastel Payroll & HR.

Madelein van der Watt, development manager at Sage Pastel Payroll & HR.

In 2013 South African Revenue Services collected taxes amounting to R814-billion, an increase of 9.6 percent on total revenue received in 2012.

“More efficient collection systems and the deployment of online technologies such as SARS eFiling have simplified the collection process and made it easier for taxpayers to submit their returns on time,” says Madelein van der Watt, development manager at Sage Pastel Payroll & HR.

“The speed and convenience of using online technology has created a situation where 64% of the total revenue collected for 2012/2013 was received through internet payments.”

Van der Watt adds that the cost of collecting revenue is decreasing thanks to the high technology systems that were put in place as part of the SARS Modernisation Programme. Less human interaction is required as SARS is able to employ fewer people to complete assessments and instead, apply their skills more efficiently. The proof is clearly visible in the numbers supplied by National Treasury. In 2006, 98.8% of returns were paper-based. Today, less than 1% of taxpayers do not submit their returns electronically.

“South Africa boasts a progressive tax system in which the rich subsidise the poor with tax relief being applied in the lower income brackets. There are special rebates applying to individuals in the 65 and 70 age brackets, so elderly people pay less tax.

When Minister of Finance Pravin Gordhan presents the budget on 26 February 2014, we should see this trend continue and expect most of the personal income tax relief to be allocated to lower income earners and the elderly.

Based on the 2012/2013 assessment statistics, 76% of total fringe benefits reported included medical aid payments made by employers on behalf of their employees. A likely increase in the medical aid tax credits for the 2014/2015 tax year will therefore also create welcome relief to many individual tax payers. In addition, medical aid contributors who are aged 65 years and older will also benefit from the tax credit system effective 01 March 2014.

Although tax payers will be glad to put some extra money in their back pockets thanks to personal income tax relief that is most likely to be announced by the Minister of Finance, the relief will be short lived as we can also expect the usual suspects to hit our pockets hard after the budget announcement. “Sin taxes” on alcohol and tobacco products will more than likely be increased to ensure larger revenue collections. Expect an increase on the fuel levy as well and as a result, combined with the recent increase of the repo rate, consumers will have to spend more on their monthly grocery bill.

Minister of Finance Pravin Gordhan calls upon taxpayers every year for input on tax deductions and an area which has been open for debate over the past 3 years is that personal home security expenses should be allowed as a tax deduction due to the lack of service delivery from SAPS and the high occurrence of crime in our country.

To reduce the crime rate, we have to raise the rate of employment in South Africa. Van der Watt says the recent Employment Tax Incentive (ETI) initiative Gordhan introduced as part of the Wage Subsidy proposed in 2010 has been in effect since the beginning of January. The minister is expected to provide feedback in the budget speech on ETI’s expectations in increasing employment for young people aged 18 to 29 years. The legislation allows employers to claim a rebate on their PAYE liability provided their PAYE accounts with SARS are up to date.

The lion’s share of revenue allocation during this year’s budget announcement should likely go to health services, education and social grants. It will be interesting to see whether Eskom and Sanral will receive another round of government funding, especially since e-tolls are now generating revenue since December 2013 and Eskom were allowed a rate increase early last year.

Nifty links:

For more information on the changes that will be announced in the upcoming Budget Speech, on 26 February 2014, book your seat for the Seminar.

For the latest legislative news, connect with Sage Pastel Payroll & HR on Twitter (Payroll News), Facebook or LinkedIn. To read more about the Employment Tax Incentive Bill Seminar, click here.

The bi-annual company tax return season opens on 1 September 2013 and it makes sense for companies to prepare their mandatory information in August to avoid SARS e@syFile rejections and late submission penalties.

All South African companies are required to reconcile and submit PAYE, UIF, SDL contributions for the period of 01 September 2013 – 31 October 2013.

“Companies have about four weeks to prepare their submission information and update their payroll systems before performing their last payroll run in August,” says Philip Meyer, technology director at Sage Pastel Payroll & HR.

“It is critical for companies to ensure that they download and install the latest version of SARS e@syFile before reconciling.  Companies are advised to backup their current information on their computers prior to installing a new version of e@syFile Employer, as the installation may delete the current information.

Another important requirement for companies is to comply with new legislation pertaining to employees making use of company vehicles leased by their employer. Meyer says the fringe benefit value is the rental contract plus the fuel cost for the month. However, the rental contract must be classified as an operating lease.

Income tax reference numbers are another important element in returns. Companies can only submit tax certificates to SARS if each employee has an income tax reference number. Submissions in which one or more tax certificates do not have the mandatory individual income tax reference number specified will not be accepted by SARS.

Companies using an automated payroll software solution can obtain employee tax reference numbers via the bulk ITREG functionality and the e@syFile Employer system to simplify the reconciliation.

Attention should also be paid to new source codes in the event that the employer pays a lump sum to the family of a deceased employee. The first R300 000 of the lump sum is tax free but the portion exceeding R300 000 is taxed  by way of a SARS directive and the lump sum must be reported against code 3922 and the PAYE on the lump sum must be allocated to code 4115.

For the latest legislative news, connect with Sage Pastel Payroll & HR on Twitter (Payroll News), Facebook or LinkedIn.