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Tax and debt relief for companies and employees | WJvR Inc

COVID-19 tax measures for employers and employees as at 01 april 2020

Following the announcement of a national lockdown effective from midnight on 26 March 2020 until midnight on 16 April 2020, the South African Government has announced certain measures to assist small and medium enterprises (”SMEs”) financially.

Expansion of the employment tax incentive age eligibility criteria and amount claimable

The Employment Tax Incentive (ETI) programme makes provision for the employer to reduce the amount of Pay as you earn (PAYE) payable to SARS. In light of the COVID-19 pandemic, the Government made proposed changes to assist employers during this period.

Previously, only employees who are between the ages of 18 and 29 and has a monthly remuneration of less than R6 500 could claim. The maximum monthly ETI claimable per qualifying employee was limited to R1 000 in the first year of employment and R500 in the second year of employment. Additionally, the monthly ETI could only be claimed for the first 24 months of the qualifying employee’s employment.

  • The Government now proposed to expand the ETI programme for a limited period of fourth months beginning 1 April 2020 and ending on 31 July 2020 as follows:

    • Increasing the maximum amount of ETI claimable during this 4 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.

    • Permitting a monthly ETI claim in the amount of R500 during this 4 month period for employees from the ages of 18 to 29 who are no longer eligible for the ETI as the employer has claimed ETI in respect of those employees for 24 months and 30 to 65 who are not eligible for the ETI due to their age.

    • Accelerating the payment of ETI’s reimbursements from twice a year to monthly as a means of getting cash into the hands of tax compliant employers as soon as possible. The aforementioned will apply to employers that were registered with SARS as at 1 March 2020. Furthermore, the current compliance requirements for employers under sections 8 and 10(4) of the ETI Act will continue to apply.

  • A further proposal by the Government with regards to tax measures for tax compliant small – Tax compliant businesses medium sized businesses, which is deemed to come into operation on 1 April 2020 and end on 31 July 2020 is as follows:

    • Deferral of payment of 20 percent of the PAYE liability, without SARS imposing administrative penalties and interest for the late payment thereof. The deferred PAYE liability must be paid to SARS in equal instalments over the six month period commencing on 1 August 2020, subsequently, the first payment must be made on 7 September 2020.

    • A small or medium sized business as defined below will only qualify for such relief if they have submitted returns as defined in section 1 of the Tax Administration Act (TAA) on the basis required by section 25 of the TAA; and has no outstanding tax debt as defined in section 1 of the TAA.

    • Reduction of the employer and employee contribution to the UIF fund is currently being investigated and employers that are unable to pay the full salaries of the workers and have had to send them home for their health and safety due to the lockdown are encouraged to apply for the Covid-19 TERS benefit by sending an email to covid19ters@labour.gov.za.

  • In South Africa, in accordance with the provisions of the National Small Business Amendment Act 2004 a small business employ between 11 and 50 employees. The upper limit for annual turnover in a small enterprise varies from R15 million in the Catering, Accommodation and other Trade sector to R50 million in the Mining and Quarrying sector, with a maximum of R80 million in the Wholesale sector.

  • Medium-sized enterprises usually employ between 51 and 250 people and the maximum annual turnover varies from R35 million in the Agricultural sector to R210 million in the Mining and Quarrying sector and R220 million in the Wholesale sector.

  • With regards to provisional taxpayers the Government proposed the following changes for a period of 12 months, being from 1 April 2020 until 31 March 2021:

    • 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.

    • The first provisional tax payment due from 1 April 2020 to 30 September 2020 will be based on 15% 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% of the estimated total tax liability.

    • 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.

Additional schemes:

The Government has allocated three funding schemes to financially assist SMEs to alleviate the impact of the expected economic slowdown:

  • Debt Relief Fund;
  • Business Growth / Resilience Facility; and
  • The Rupert, Oppenheimer and Motsepe families’ donations of R3 billion in total.

Although no specific clarity is available on the different funds from Government Gazettes, news articles on the web and also National Television, Government is busy finalizing the format and claim procedure (which will most likely be electronically via websites and emails) but we could summarize the funds available as follows:

Debt relief fund (“DRF”):

This fund currently has a budget of R500 million but the Department is in discussions on the possibility of the fund being increased. The sole purpose of the fund is to assist small businesses that are experiencing financial challenges as a result of Covid-19 since 27 March 2020 and on-going. In other words, businesses that have been experiencing financial challenges before 27 March 2020, for any other reason(s) than Covid-19 prior to the outbreak of the pandemic will not be assisted by the DRF.

Therefore, the applicant must demonstrate a direct link of the impact or the potential impact of Covid-19 on business operations.

The Debt Relief facility will also assist entities to acquire raw material, pay labour and operational costs. All these interventions will be structured to match the patterns of the SMMEs cash flows, as well as the extent of the impact suffered.

To access the fund, businesses are required to register on the SMME South African platform, the procedure and requirement needed is specified in the Government Gazette, a summary is available at the end of the document. Importantly to note that claims will be handled on a cases by case and

Some of the details which companies are required to share include:

  • Annual turnover;
  • Shareholders (including current BEE standing);
  • Number of employees;
  • Employee demographics;
  • Sub-sectors

Support plan

According to the President, the government will put measures in place to assist local businesses which will be negatively affected by the restrictions implemented during the lockdown. These measures will be discussed herein.

Who will benefit from Debt Relief?

Businesses which are negatively affected (directly or indirectly) due to COVID19 since 27 March 2020.

Criteria to qualify for Debt Relief:

  • The business must have been registered with CIPC by at least 28 February 2020;
  • Company must be 100% owned by South African Citizens;
  • Employees must be 70% South Africans;
  • Priority will be given to businesses owned by Women, Youth and People with Disabilities;
  • Be registered and compliant with SARS and UIF;
  • Seda will assist micro-enterprises to comply and request for assistance must be emailed to debtrelief@seda.org.za;
  • Whereas small and medium enterprises must ensure own compliance;
  • Registration on the National SMME Database – https://smmesa.gov.za
  • Proof that the business is negatively affected by COVID-19 pandemic;
  • Complete the simplified online application platform;
  • Company Statutory Documents;
  • FICA documents (e.g. Municipal accounts, letter from traditional authority);
  • Certified ID Copies of Directors;
  • 3 months Bank Statements;
  • Latest Annual Financial Statements or Latest Management Accounts not older than three months from date of application – where applicable;
  • Business Profile;
  • 6 months Cash Flow Projections – where applicable;
  • Copy of Lease Agreement or Proof ownership if applying for rental relief;
  • If applying for payroll relief, details of employees - as registered with UIF and including banking details – will be required as payroll payments will be made directly to employees;
  • SMME employers who are not compliant with UIF must register before applying for relief;
  • Facility Statements of Other Funders;
  • Detail breakdown on application of funds including salaries, rent etc.

Application Process

  • Register on: https://smmesa.gov.za/;
  • Complete online Application Form (to be released on Thursday, 02 April 2020);
  • Upload Required Supporting Documents.

Business growth / resilience facility

According to Mokwebo the difference between the DRF and the Growth / Resilience fund is that the latter is a soft loan facility, targeted at SMEs that are manufacturing what could be considered essential goods.

The same criteria as for the DRF applies and funding from this facility may also be applied for through the SMME South Africa platform.

The rupert, oppenheimer and motsepe families’ donations of R3 billion:

The funds donated by the Rupert, Oppenheimer and Motsepe families also have the purpose to assist small business operations and their employees that have been negatively impacted by Covid-19. The regulatory and administrative aspects of this fund still require to be ironed out. It will however be administered independently from other initiatives. This fund is administered by Business Partners.

Other key support measures for businesses and employees during lockdown:

  • National Disaster Benefit Fund:

    R 30 Billion has been allocated to a special National Disaster Benefit Fund, which will pay Unemployment Insurance Fund benefits for up to three months to qualifying workers whose income has been impacted by the coronavirus pandemic. This fund will address the coronavirus related job losses, support job retention, illness pay-outs and reduced time claims.

  • Temporary Employee Relief Scheme:

    A special dispensation for companies that are in distress, where employees will receive wage payment through the Temporary Employee Relief Scheme, which will enable companies to pay employees directly during this period and avoid retrenchment.

  • Banking sector:

    The Department of Trade and Industry has passed new regulations in the banking sector. The exemptions will allow banks to work together which will help small businesses, consumers and firms in distress.

  • Tax subsidy:

    A new tax subsidy of up to R500 per month for the next four months for employees earning below R 6 500 per month.

  • Employment tax incentive:

    SARS to accelerate employment tax incentive reimbursement from twice per year to monthly.

  • PAYE & Provisional corporate income tax:

    Tax compliant businesses with a turnover of less than R50 million will be allowed to delay 20% of their PAYE 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.

  • Compensation Fund:

    Employees who fall ill through exposure at their workplace will be paid through the Compensation Fund.

  • IDC:

    The Industrial Development Corporation, together with the Department of Trade, Industry and Competition has committed R3 Billion to a range of funding products in support of business to address vulnerable firms and for companies critical to fight the virus and its economic impact.

  • Tourism Relief Funding:

    The Department of Tourism has made an additional R200 million available to assist SMEs in the tourism and hospitality sector who are under particular stress due to the new travel restrictions.

  • Solidarity Response Fund:

    This was setup to help deal with the fallout of the coronavirus, and measures to slow its spread. Individuals and businesses can contribute to this fund. Johann Rupert and Nicky Oppenheimer have donated R 1 billion each into this newly established Solidarity Fund.

  • Possible temporary reductions:

    Possible temporary reductions of employer and employee contributions to the Unemployment Insurance Fund and possible temporary reduction of employer contributions to the Skill Development Fund.

The COVID-19 temporary employer / employee relief scheme 2020 (ters)

  • What are TERS and UIF?

    TERS - Where paying of salaries is not economically possible for Employers during the COVID-19 Lockdown, the government has created a special benefit under the Unemployment Insurance Fund (UIF) called the COVID-19 TEMPORARY RELIEF SCHEME 2020, to assist Employers to meet their Salary obligations.

    UIF - To establish the Unemployment Insurance Fund, to provide for the payment unemployment benefits to certain employees, and for the payment of illness, maternity, adoption and dependant’s benefits related to the unemployment of an employees.

  • How do TERS and UIF differ?

    TERS is an Emergency fund created especially for the COVID-19 pandemic that has forced the country into a national lockdown resulting in Employers having to suspend their business for a period of time and send their Employees home which constitutes a temporary lay-off in some cases

    UIF Is the permanent unemployment insurance fund that aids certain Employees in certain circumstances when they are not able to work or perform their duties because of any reason.

  • When will TERS and UIF be applicable?

    TERS will only be applicable for the duration set out in the COVID-19 Temporary Employer / Employee Relief Scheme 2020 Directive, starting from 26 March 2020 for three months or if the Directive is uplifted by the Minister of Labour.

    UIF will be applicable at all times if the Employer and Employee are registered with UIF.

    The COVID-19 Temporary Relief Fund does not apply retrospectively and is only applicable from the commencement date of 26 March 2020 for three months if the Directive is uplifted by the Minister of Labour. Employers will not be able to claim in terms of the COVID-19 Relief fund for the period before the 26th of March 2020. A claim for benefits prior the 26th of March will be normal benefit claims as stated by UIF. It is unclear what happens in a situation where the Employer has not been paid for service rendered during March 2020 as a number of Companies have issued force majeure notices.

  • In what circumstances will TERS and UIF be applicable?

    TERS will apply when an Employer close its operations or where the company shuts down for a certain period of time or implements Reduced or Short Time for a (3) three month or lesser period and suffers financial loss because of the Covid-19 pandemic, the company shall then qualify for a Covid-19 Temporary Relief benefit.

    UIF will be applicable to any Employee in the result that the Employee cannot work because of illness, maternity, adoption, incapacity etc. as the Unemployment Insurance Act determines.

  • What Effect will TERS have on UIF?

    TERS will have no effect on an Employee’s UIF benefits. The Relief benefit shall be DE-LINKED from the UIF’s normal benefits and therefore the normal rule that for every 4 days worked the Employee accumulated 1 credit day and maximum credit days payable is 365 for every 4 completed years will not apply. An Employee will not lose their normal UIF benefits when they apply for the TERS benefits.

  • How will the TERS benefits be payed and how much can an Employee claim for?

    The benefits will only pay for the cost of Salary for the Employees during the temporary closure of the business operations because of Covid-19. An Employee will be paid in terms of the income replacement rate sliding scale (38% - 60%) as provided in the UI Act.

    The minimum payment for all TERS relief will be R3 500,00 which is the determination of R20,76 per day or R3 500,00 per month as is determined by the minimum wage increase that came into affect on 1 March 2020. Please note that the payment is available to all employees even if they have started their employment on the 1st of March 2020.

    The maximum payment for TERS relief will be R17 712,00, as is the maximum amount payed by the UIF in terms of the Government Gazette 40691 of 17 March 2020.

    Where the company shuts down for a certain period of time or implements Reduced or Short Time. Benefits payable will be the difference between what the Employer pays and normal salary

    UIF benefits payable should an Employee lose employment.

  • How do you apply for TERS?

    The Employer who wishes to apply for the relief may report their company closure to Covid19ters@labour.gov.za, there will be an automatic reply outlining the application process. The Employer shall be required to provide the UIF with a;

    • Letter of Authority from the Company, and
    • A signed Memorandum of Agreement from the Employer or Bargaining Council with the UIF.

    The Department of Labour has also provided an easy-aid guide for Employers to better understand the TERS fund;

    https://www.gov.za/sites/default/files/gcis_documents/corona-uif.pdf

    Kindly note that the above is not intended to serve as legal advice. It is an opinion based on the current legislation (including regulations) as at the date of publication hereof. The legislation and the practical implementation thereof changes regularly and may impact on what is stated above. Each case must therefore be dealt with on its own merits.

Centurion Office

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Email: info@wjvrlaw.co.za