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Notice for employers on merging income and deduction codes on IRP5

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Notice for employers on merging income and deduction codes on IRP5

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Notice for employers on merging income and deduction codes on IRP5/IT3(a) Employee Tax Certificates
Introduction
This year SARS has introduced a number of changes to the PAYE reconciliation process aimed at simplifying it for employers, ensuring more accurate third party data and providing the source for pre-populating tax returns for individual taxpayers. The reconciliation declaration (EMP501) and employee tax certificates (now the combined IRP5/IT3(a)) have been simplified and we have introduced free custom-built software (e@syFile) to make reconciliation submission much easier. One of the results of this rationalisation is that the new IRP5/IT3(a) certificate has been reduced to 13 income and 7 deduction codes. These accommodate the income and deduction categories for the vast majority of employees. Where more than 13 income and 7 deduction codes exist on any employee tax certificate, employers are required to merge similar codes together. The process to do so is different, depending on which channel you use: •	 •	 •	 If	you	use	e@syFile,	the	software	will	automatically	merge	codes	for	you.	 If	you	use	a	manual	process,	you will have to combine the codes yourself Or	you	can	visit	a	branch	where	SARS	staff	will	assist	you	.

Below is a more detailed explanation of the process to be followed when using e@syFile and the manual process.

1. Merging income and deduction codes using e@syFile
When a payroll file is imported into e@syFile and there are more than 13 income or 7 deduction codes on an employee’s tax certificate, a message will be displayed asking the user whether he/she wants to: •	 Import	 the	 payroll	 file	 excluding	 the	 certificates	 where	 the	 income/deductions	 exceeds	 the	 maximum	 number of codes allowed •	 Merge	the	codes;	or •	 Cancel,	which	will	not	import	the	file	at	all

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Import Where import is selected, the file will be imported but the certificates exceeding the maximum number of codes will be excluded. Under the “Utilities” menu in the Payroll Log the report will reflect the certificates which have been excluded.

The user can then change the excluded certificates on their payroll system or manually combine the codes and thereafter capture the revised certificates on the e@syFile application. Merge Where the user selects the merge option, e@syFile will automatically combine similar codes and proceed with importing the file, including the merged certificates. Cancel If this option is selected the payroll file will not be imported. The user will then have to make the change on the payroll system or manually exclude the certificates from the file and capture them manually on e@syFile.

2. Merging income and deduction codes manually
2.1 Merging income codes If there are more than 13 income source codes on a tax certificate, the following codes must be combined in the same order as specified below until there are no more than 13: •	 All	similar	codes	e.g..	All	3601s	added	together	and	a	combined	total	reflected	under	a	single	3601	entry	 •	 Combine	codes	3602,	3604,	3609	and	3612	and	reflect	the	total	value	under	code	3602 •	 Combine	codes	3706,	3710,	3711,	3712	and	3713	and	reflect	the	total	value	under	code	3713 •	 Combine	codes	3601,	3605	and	3607	and	reflect	the	total	value	under	code	3601 If	there	are	still	more	than	13	income	codes,	codes	3705	and	3716	may	be	ignored. The relevant foreign codes applicable to the income codes listed above may also be ignored where applicable. 2.2 Merging deduction codes If there are more than 7 deduction codes on a tax certificate, the following steps must be taken until there are no more than 7 codes: 1) All Retirement Annuity Fund (RAF) contributions in terms of various RA contracts must be combined to be reflected	as	one	total	under	current	RAF	contributions	(code	4006).	The	same	rule	should	be	applied	to	Arrear	 RAF	contributions	(code	4007).	In	respect	of	the	clearance	number,	the	code	18204000000	can	be	used. 2)	 If	there	are	still	more	than	7	codes	present,	ignore	codes	4472	and	4473. 3)	 If	there	are	still	more	than	7	codes	present,	ignore	codes	4487	and	4485. 4)	 If	there	are	still	more	than	7	codes	present,	ignore	code	4486.	 5)	 If	there	are	still	more	than	7	codes	present,	ignore	codes	4003	and	4004.

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Your questions answered
Q: Once I have combined certain codes for the purposes of the EMP501, do I reflect these combined or separately on an employee’s tax certificate [IRP5/IT3(a)]? A: They should be reflected combined as the version that is given to SARS during the reconciliation process is the official version of the tax certificate that will be used by SARS to pre-populate an employee’s income tax return. Q: What happens if the employee wants to see the breakdown of codes on his tax certificate before they were merged? A: The employee may request a copy from the employer which will be printed directly off the payroll system before the codes were combined. However, this copy is strictly for the employee’s own records and should not be used for their income tax return. Q: What should an employee do if they receive a tax certificate with more codes than are accommodated on the	ITR12? A: This should not happen as the employee will only receive an IRP5/IT3(a) once it has been submitted to SARS during the PAYE reconciliation process, in which case the codes will already be combined. The same applies to an e@syFile-generated IRP5/IT3(a). Q: Are the codes that are combined/excluded not important for tax purposes? A:		 Certain	 codes	 are	 not	 used	 in	 the	 calculation	 of	 the	 employee’s	 tax	 and	 thus	 have	 no	 impact	 on	 the	 employee’s	income	tax	assessment.	Certain	codes	that	have	the	same	tax	implications	can	be	combined	 without affecting the assessment.

PLEASE NOTE: The information relating to reconciliations (e.g. source codes) is no longer contained in the Guide for Employers in respect of Employees’ Tax as per previous years. This	 information	 is	 now	 available	 in	 the	 updated	 Reconciliation	 Guides	 on	 the	 Tax	 Season	 2008	 site	 under	 Publications, namely: •	 Overview	of	PAYE	reconciliation	process	and	2007/08	policy	changes •	 Step	by	Step	Guide	to	the	new	PAYE	reconciliation	process •	 AS-PAYE-13	-	Reconciliation	and	IRP5	/	IT	3(a)	For	Manual	Employers	-	Guide	-	01	July	2008	 •	 AS-PAYE-17	-	Reconciliation	and	IRP5	/	IT	3(a)	For	Computerised	Employers	–	Guide	-	01	July	2008	

For further queries,	visit	your	nearest	branch	or	call	0860	12	12	18.	Additional	information	can	be	obtained	 on the SARS website at: www.sars.gov.za


								
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