Understanding Pay As You Earn (PAYE) Tax

We have summarized the most important details for you…

This article teaches you the basic information on PAYE (Pay As You Earn Tax). SME TAX has extracted the most important details and summarized for you:

1. When an employer pays or becomes liable to pay remuneration to an employee, the employer has an obligation to deduct or withhold PAYE tax also called employees’ tax from the remuneration and pay the tax deducted or withheld to the South African Revenue Service (SARS).
2. The amount of PAYE tax owed to SARS is calculated on the balance of Salary after the subtraction of all allowable deductions. Examples of deductions are Retirement fund contributions, donations, and medical aid.
3. Employees may voluntarily request (in writing) to pay additional monthly PAYE tax or Employees’ tax in order to pay in a smaller assessment at year end or enjoy a month without any PAYE deduction.
4. The employer must pay SARS, on a monthly basis, the amount calculated and fill in a Monthly Employer Declaration which is called an EMP201 submission.
5. An employer must reconcile these monthly EMP201’s biannually, whereafter, the employer is obliged to submit an Employer Reconciliation Declaration (EMP501) to SARS.
6. The EMP501 declaration is used by SARS to populate the employees’ personal tax returns, to match the issued IRP5’s.
7. In most instances, the employer is obliged to issue each employee with an employees’ tax certificate called [IRP5/IT3 (a)] at the end of each tax period which reflects, amongst other details, the employees’ tax deducted.
8. In terms of Paragraph 3 of the Fourth Schedule, employees’ tax receives preference over any other deduction from the employee’s remuneration which the employer has a right or is obliged to deduct otherwise than in terms of any law.
9. The start date and end date of a tax period is 1 March and 28/29 February.
10. Employer and employee may under no circumstances conclude an agreement whereby employer undertakes not to deduct or withhold employees’ tax or UIF contributions. Such agreement is void in terms of Paragraph 7 of Fourth Schedule.

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