Question posted in the General Law category relating to KwaZulu-Natal
Good day. I trust that you are well. Please can you provide me with advice on the following scenario:
My dad was employed by a company, this company was subtracting PAYE & tax from his salary however, they did not submit the tax to SARS. My dad has proof of his payslips showing that the money was deducted and IRP5 forms however, it was not submitted to SARS. This has caused an issue whereby SARS contacted my dad stating that he now owes over R200k in taxes due to the company failing to pay it.
How do we go about resolving this issue? My dad is currently unemployed and is in no position to pay such a large sum of money.
Answer to the Question
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Not good news I'm afraid ...
It is trite that employees’ tax is not a separate form of tax, but that the employer is obliged to withhold employees’ tax in respect of the employee’s liability for normal tax. The employee will then, on assessment, be able to set off the employees’ tax so withheld against his or her liability for normal tax.
The employees’ tax so withheld must be paid over to SARS (by the employer) by no later than the seventh day of the next month. Should the full amount due not be paid to SARS by this date, the employer will be subject to a 10% penalty as well as interest, unless a deferral arrangement is in place.
The employer could also be held criminally liable for failure to withhold and pay PAYE.
In our experience, SARS generally prefers to recover any unpaid PAYE from the employer: It is far simpler to pursue a recovery against one employer, rather than to attempt to recover the tax in question from a multitude of employees. Logic would also dictate that SARS should not absolve the employer from its PAYE liability where the employee received only his or her net remuneration, after the deduction of PAYE.
What does this mean for the employee - like your Dad?
Could SARS still hold the employee liable even if the employer was the defaulting party? --> The answer, unfortunately, is yes, as the ultimate income tax liability resides with the employee.
The 2002 case of Estate Late G A Pitje v CSARS considered the scenario where no PAYE was paid to SARS in respect of remuneration paid to the late Mr Pitje. While the facts are not very clear, it appears that the IRP5s issued to the late Mr Pitje reflected his gross remuneration less PAYE deducted by his employer. However, it appears that such PAYE was never paid over to SARS. On submission of the late Mr Pitje’s income tax returns, assessments were issued which reflected an outstanding income tax liability and SARS sought to recover this amount from Mr Pitje.
The Court further held that the ultimate liability to pay income tax rests with an employee.
The collection mechanism created by the Income Tax Act does not extinguish the liability of the employee.
Whilst the employer is primarily liable for the PAYE shortfall, employees may find themselves at risk. It is thus advisable for employees, especially where their employer is in financial distress, to keep monitoring the situation in order to protect their (the employees’) position to the extent possible.
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