We receive many emails from people who have recently started working and would like to know what their obligations now are regarding their tax affairs. Below is a mail we received recently.
I have recently started to work (01/01/2015). What is this refund story I keep hearing about. How do I know if I qualify for a refund from SARS? Where do I get an IRP5 certificate? I am confused about these SARS things. Can you assist?
When you start working, your employer is legally obligated to register you as a taxpayer at SARS. SARS issues you with a tax number. A tax number is sort of like an ID number. It identifies you uniquely at SARS, and will most likely be the same throughout your lifetime.
Every month your employer is obligated to deduct an amount of tax or PAYE (Depending on whether you earn an amount which exceeds the tax threshold of that specific year) from your salary and pay it over to SARS as part-payment of the tax you should be paying in a full tax year of assessment.
If you’re wondering what PAYE is, it’s an acronym for Pay As You Earn. It is self-explanatory. As you earn monthly, you pay monthly tax.
The “tax threshold” is determined as an amount of money, earned by a taxpayer in a year of assessment, where earnings below this amount are tax free. For the 2015 tax year (01/03/2014 to 28/02/2015), the tax threshold is R70 700. This amount changes yearly.
So if you earn R70 700 and below for the period 28/02/2014-28/02/2015, you will pay no tax on this earnings. In monthly terms if you have earned R5891 (70700/12) and below in any month from March 2014 to February 2015, no tax would be deducted from your pay-cheque.
To explain tax years of assessment. The same way we speak of calendar years running from the 1st of January to 31st of December, a tax year of assessment runs from the 1st of March of one year to the 28th of February of the next year.
The reason SARS basically deducts tax from your salary every month, is so that at the end of the tax year, once your income is added up, and assume your tax on that income is R10 000, SARS doesn’t have to now run after you looking for the tax you owe. Instead, you pre-pay it monthly, and at the end of the year if you are owed a refund, they will rather pay you back what you’ve overpaid.
This is basically what you need to know about PAYE as a first time taxpayer. It can become quite involved though. We have written an article titled “How much refund will i get from SARS?” covering how the tax system works, if you would like more info about how the tax PAYE system in SA works in more detail.
Coming back to the query we received. This is the reply we issued:
Once you start working, you need to do nothing. Between March 2015 and June 2015, your employer will provide you with a reconciliation of your earnings for the 2015 tax year. This reconciliation is a document called an IRP5 certificate. Send us this document when you receive it, and we will help you file it at SARS. Whether you receive a refund, or will have to pay-in to SARS, is dependent on deductions you may be eligible to receive, other earnings (apart from whats stated on your IRP5) that you may have earned, and whether your employer has deducted enough PAYE for you during the tax year.