We all have that dreadful feeling once someone starts throwing out acronyms mid-conversation and we have no clue what they mean. So, let’s talk about some of the most important acronyms when it comes to compliance as well as when they apply to your company:
PAYE – Pay As You Earn
This is a personal income tax that is retained from your employee’s salary on a monthly basis if the employee meets a certain threshold. You, as the employer will deduct the PAYE from the employee’s salary and pay it to SARS on their behalf.
When is it applicable: PAYE is only applicable to individuals below the age of 65, earning a salary of more than R91,250 per year (R7,605 monthly). This is called a tax threshold. For individuals earning more than the tax threshold, please see SARS website for the yearly tax tables applicable to different taxable income groups.
UIF – Unemployment Insurance Fund
Both employers and employees contribute to the fund. All employees who employ any person where a remuneration is being paid (either in cash or any other kind) and working for more than 24 hours a month must register for UIF.
How is it calculated: The employer and employee both contribute 1% of the gross salary, but is capped at R177.12 monthly for the 2023 financial year.
SDL – Skills Development Levy
SDL is a levy imposed to encourage learning and development (upskilling) in South Africa. It is determined by the employer’s annual salary bill or salary expense. It is only required to register for SDL if your total salaries bill/expense for the year exceeds R500,000. Even though directors’ remuneration is also subject to the SDL, what should not be forgotten though is that directors’ remuneration is excluded from determining whether the threshold amount of R500,000 has been reached. Therefore, although the directors’ remuneration will be subject to SDL once the company is registered, it is ignored for purposes of determining whether a taxpayer is liable.
How is it calculated: 1% of the total amount paid in salaries to employees (including wages, overtime payments, leave pay, bonuses, fees, commission earned and lump sum payments).
VAT – Value Added Tax
VAT is an indirect tax on the consumption of goods and services in the South African economy. We have two types of VAT; VAT output, paid on revenue, and VAT input, claimed on valid vatable expenses. You can voluntarily register for VAT if your turnover for the year exceeds R50,000 but it is compulsory to register for VAT if your annual turnover exceeds R1,000,000.
How is it calculated: If you are registered for VAT, 15% of your sales will have to be paid to SARS. We call this your VAT Output portion. Vatable expenses (expenses you paid VAT on and has a valid VAT invoice) can be deducted from your VAT output, which is called VAT input.
When is it due: Once you are registered for VAT, you will need to submit VAT returns every two months (VAT period). The return is a summary of your VAT Output (Sales) less the VAT Input (Expenses) and thereafter an amount payable or claimable (refund) will be calculated. A vendor is required to submit VAT returns and make payments of the VAT liabilities (or claim a VAT refund) on or before the 25th day or the last business day of the month following the month in which the vendor’s tax period ends.
