YP2 - Tax obligations after civil unrest

Tax obligations after civil unrest

In an article titled A guide to Employers’ tax obligations after damage to their premises, Joon Chong and Nina Keyser from Webber Wentzel provides valuable guidance on tax options available to business owners.

“The recent looting and damage to businesses in KwaZulu-Natal and Gauteng has had a devastating impact on many businesses, both small and large. In some cases, the damage is so severe that the business cannot continue to produce or sell, and valuable data may have been lost, including employee and tax records.”

Below follows a shortened version of this article, which deals with some of the possible implications for affected employers and employees.

No money for payroll

If an employer’s premises are so severely damaged that employees cannot work and there is no work from home alternative, the “no work no pay” principle with no accrual of benefits would likely apply, as the employer is not able to perform in terms of the employment contract due to supervening impossibility.

Where employers are severely cash constrained, they may not able to pay their employees at all. Ideally, the employer and employee can consult and agree to a temporary lay-off while the business is rebuilt. The employees may receive no or minimal remuneration during this period. In this case, employees would qualify to receive reduced work time (RWT) benefits from the Unemployment Insurance Fund (UIF).

The UIF recently enabled a bulk application process for Covid-19 affected employers to apply for the RWT benefits for their employees. These payments are conditional on:

  • the employees being contributors to the UIF and having sufficient UIF credits and
  • employers being up to date with their UIF compliance obligations.

Impossibility of meeting tax deadlines

National Treasury has confirmed that the deferral of the PAYE liabilities and ETI amendments will be from 1 August 2021 for four months. A more detailed note on all the tax relief will be published.

Employers who are still unable to meet their payment obligations after the four months of relief should apply to SARS for deferral of these obligations or a compromise / waiver of tax debts, to avoid collection measures which could include debiting the taxpayer’s bank account for the amounts due.

Where the 10% late payment penalty has been triggered, it may be possible for the employer to justify the late payment if SARS is satisfied that one of the following exceptional circumstances prevented the taxpayer from complying with its payment obligations:

  1. human-made disaster
  2. civil disturbance or disruption in services
  3. serious emotional or mental distress
  4. serious financial hardship in the case of a business, which is an immediate danger that the continuity of business operations and the continued employment of its employees are jeopardised
  5. any other circumstance of similar severity.

In applying for the deferral or write-off of tax obligations, the employer should submit supporting documents such as photos, insurance or police reports, and bank statements to SARS demonstrating the direct link between these circumstances and the late payment.

Interest can also be remitted on the basis of circumstances beyond the taxpayer’s control, and these circumstances are limited to the first three listed above.

SARS is likely to adopt a case-by-case consideration of whether to remit the penalties and interest and we hope that SARS will adopt a sympathetic approach.

Inability to submit payroll returns

If the employer’s records and computers are destroyed and the employer has no off-site or cloud backup, then it may not be in a position to issue IRP 5 certificates to employees for the 2021 year of assessment, for which the filing season recently opened. SARS is unlikely to accept damage of computers as the sole reason for non-compliance. The employer should possibly reconstruct the payroll using best estimates and submit the IRP 5 for the 2021 year of assessment. This is to prevent the employees having to submit their ITR12 tax returns without SARS having records that the PAYE had been withheld and paid to SARS for them.

Business closures

Employers who are unable to recover without government support should commence the section 189 or 189A of the Labour Relations Act retrenchment process. If it is necessary to retrench their employees, any statutory payment as a result of termination of employment (excluding notice and leave pay) would qualify as a severance benefit.

Employees that have not made a lump sum retirement withdrawal or not previously received severance benefits will be able to take up to ZAR500 000 as exempt from income tax. The employer would need to apply for a directive before making the severance payment.

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