Tax relief measure that can help small businesses during coronavirus (Covid-19)

Broadly, the tax relief measures were as follows:

1.     The introduction of a tax subsidy to employers of up to R500 per month for the next four months for those private-sector employees earning below R6,500 under the Employment Tax Incentive. This will help over 4 million workers;

2.     The South African Revenue Service to accelerate the payment of employment tax incentive reimbursements from twice a year to monthly to get cash into the hands of compliant employers as soon as possible;

3.     Tax compliant businesses with a turnover of R50 million or less will be allowed to delay 20% of their employees’ tax liabilities over the next four months and a portion of their provisional corporate income tax payments without penalties or interest over the next six months. This intervention is expected to assist 75 000 small and medium-term enterprises.

Employment Tax incentive: 

Applies to an employee:

1.     Who is between the ages of 19 and 29 years; and

2.     Has a monthly remuneration of less than R6 500

Currently, the maximum monthly ETI claimable per qualifying employees is limited to R1000 in the first year of employment and R500 on the second year of employment. Also, the employer can only claim the ETI in the first 24 months of the qualifying employee’s employment.

The proposal is to extend the ETI for a period of four months from 1 April 2020 to 31 July 2020 by:

·       Increasing the maximum amount of ETI claimable during this four-month period for employees eligible under the current ETI Act from R1 000 to R1 500 in the first qualifying twelve months and from R500 to R1 000 in the second twelve qualifying months.

·       Allowing a monthly ETI claim in the amount of R500 during this four-month period for employees in the ages of :

1. 18 to 29 who are longer eligible for ETI as the employer has claimed ETI in respect of those employees: and

2. 30 to 65 who are not eligible for ETI due to their age.

·       Accelerating the payment of  ETI reimbursements from twice a year to monthly as means of getting cash into the hands of tax-compliant employers as soon as possible.

This expansion will, however, only apply to employers that were registered with SARS as at 1 March 2020

Deferral of payment of PAYE for tax compliant SMEs businesses (businesses not exceeding a turnover of R50 million) 

In order to help small businesses who are tax compliant to alleviate any cash flow burden arising as a result of COVID-19, the government proposed the following measures for a period of 4 months from 1 April 2020 to 31 July 2020:

1.     Deferral of payment of 20 per cent of the PAYE liability, without SARS imposing administrative penalties and interest for the late payment thereof.

2.     The deferred PAYE liability must be paid to SARS in equal instalments over the six-month period commencing on 1 August 2020, i.e. the first payment must be made on 7 September 2020.

Important things to note: 

The above proposals will not apply to an employer or representative employer who:

1.     has failed to submit any return as defined in section 1 of the Tax Administration Act, 2011 (TAA) on the basis required by section 25 of the TAA; or

2.     has any outstanding tax debt as defined in section 1 of the TAA, but excluding a tax debt

a.      in respect of which an agreement has been entered into in accordance with section 167 or 204 of the TAA;

b.     that has been suspended in terms of section 164 of the TAA;

3.     Interest and penalties will apply if the employer has understated the PAYE liability for any of the four months.

Deferment of provisional tax payments: 

In order to assist with alleviating cash flow burdens on businesses arising from the effects of Covid-19, the government proposed provisional tax relief measures for tax compliant SMEs businesses for a period of 12 months, starting 1 April 2020 and ending on 31 March 2021:

1.     Deferral of a portion of the payment of the first and second provisional tax liability to SARS, without SARS imposing administrative penalties and interest for the late payment of the deferred amount;

2.     The first provisional tax payment due from 1 April 2020 to 30 September 2020 will be based on 15 per cent of the estimated total tax liability, while the second provisional tax payment from 1 April 2020 to 31 March 2021 will be based on 65 per cent of the estimated total tax liability;

3.     Provisional taxpayers with deferred payments will be required to pay the full tax liability when making the third provisional tax payment in order to avoid interest charges.

4.     Eligibility of individuals carrying on a business is yet to be finalised, but this is expected that they will be eligible if their turnover is less than R5 million or if no more than 10% of their turnover is derived from interest, dividends, foreign dividens, rental letting of fixed property and any remuneration received from an employer.

Exceptions: 

The above proposals will not apply to a provisional taxpayer that:

1.     has failed to submit any return as defined in section 1 of the Tax Administration,

2.     has any outstanding tax debt as defined in section 1 of the TAA, but excluding a tax debt

a.      in respect of which an agreement has been entered into in accordance with section 167 or 204 of the TAA

b.     that has been suspended in terms of section 164 of the TAA; or

c.      that does not exceed the amount referred to in section 169(4) of the TAA.

Please note that interest and penalties will apply in instances where, upon assessment, it is discovered that a taxpayer does not qualify for relief under the proposed amendments.

Example: 

Company B has a 28 February 2021 FYE, meaning that its first provisional tax payment will fall during the temporary period. As such, the first provisional tax payment (due by 31 August 2020) will be R120 000 (15per cent of its estimated total tax liability of R800 000 for the year) instead of R400 000, allowing temporary relief of R280 000. As a further relief measure, only 50 per cent of the estimated tax liability (R400 000) will be due by 28 February 2021, so that the cumulative total tax paid at that point is 65 per cent of the estimated total tax liability. The remaining balance of R280 000 (35 per cent of estimated tax liability) will be due by 30 September 2021 in order to avoid interest charges.

Are you taxes affairs keeping you awake at night? Are you wondering if you can save a bit of cash during COVID-19? We can help. Get in touch.

Share on facebook
Facebook
Share on google
Google+
Share on twitter
Twitter
Share on linkedin
LinkedIn