Following an unprecedented 2020, the 2021 Budget Speech is likely to have some surprises, particularly around where the funding for the vaccines will come from.

Payroll departments are likely needing to prepare for some headaches following the 2021 Budget Speech if taxpayers will be required to assist in sustaining the brunt of COVID-19-related debt and the funding of vaccines through an increase in personal taxes or a once-off solidarity tax. But at this stage, it’s anyone’s guess as to how this is going to play out. 

Employee behaviour brought on by COVID-19 resulted in some unintended consequences that will greatly impact businesses and Payroll Departments in 2021. Payroll Managers will need to gear up for questions raised and issues faced by their employees.

Some potential challenges include:

• Employees working in foreign countries or those looking to emigrate. Have payroll departments adhered to the tax-exempt remuneration limits? What happens to retirement fund payouts and what are the new rules on moving these funds abroad?
• Home Office Expenses – claiming these expenses is very much on everyone’s mind, with so many employees working from home. There are, however, many compliance and statutory pitfalls to consider.
• How will South Africans pay for vaccines? We have been told that we won’t pay anything for the vaccine, but we know that indirectly we will pay for it somehow.  Over and above this how are South African going to recover from COVID-19-related debt and what is the associated impact on payroll departments?
• Did employees reduce their contributions to retirement funds and/or their Medical Aid Schemes in 2020 to stay on top of expenses and to increase take-home pay? How is this done, in a non-flexible total cost to company remuneration structure,  what are the tax consequences and how will these reductions impact employees later on in the year? 
• Were low-interest loans extended to assist employees through these troubled times, and if so were tax implications considered, particularly if the debt was written off?

The coming tax year is likely to bring further reconciliation difficulties for employers, be it navigating their way around all of the last year’s legislative changes, and then having to get in line with this year’s Budget Speech, or simply trying to stay abreast of the numerous queries and requests for help from employees at all levels.

Employers should pay particular attention to the following:  

• Contributions to the Solidarity Fund this past year.
• Donations made and received.
• Was anything missed that can impact payroll departments when doing IRP5’s?
• What happens if an employee left the company during the tax year and there is a tax shortfall which is only picked up a few months into the new tax year? 

Additional factors employers should consider and prepare for:

How many employees were “out of pocket” in 2020 and had to look at ways to increase take-home pay? What did they sacrifice to stay on top of expenses and how does this impact the payroll?

2020 saw a huge number of employees reducing contributions to their Retirement Funds and adjusting their Medical Aid Plans where possible, all in an attempt to stay afloat and make ends meet by increasing their take-home pay. When the dust settles there will be consequences to this, employers should ensure they have considered the downside and potential business impact of these unintended consequences.

These strategies have resulted in a reduction in tax benefits and an increase in take-home pay in the short term at least, but unfortunately, these strategies pose a longer-term risk. They also, however, require short and medium-term changes in the payroll.

Businesses and Payroll Managers will shortly be dealing with the fallout of this “take-home pay increase” strategy and will need to be prepared to provide assistance and correct advice to employees.

Claiming home office expenses against income is a “hot topic” for many employees who have been working from home during the lockdown period. There’s much talk about how much everyone is going to be claiming back but it’s not that simple, audits will be common practice and tax breaks may not be as considerable as everyone had hoped.

Claiming of home office expenses will bring with it plenty of admin. Employees can only claim for certain allowable expenses, SARS will probably require proof thereof and the list of claimable expenses may not quite what everyone hoped it to be.

Employers will be required to know the ins and outs and will have to differentiate between what is claimable from SARS and what is for the employer’s account for reimbursement. 

While employees will look to their accountants to maximize tax breaks, accountants will request various records from their clients to prove costs incurred. In turn, employers and payroll departments will be burdened with a plethora of admin and queries.

Some home office expense claim questions to ask:

• Can phone and data bills be claimed from SARS or is it reimbursable by employers?
• When claiming, do employees have a dedicated office for working from home, and if not is the “dining room table” deemed a suitable office by SARS, and what if the office space was shared with a spouse, who was also required to work from home?
• What percentage of the year did employees work from home and do they qualify for a claim?
• Have payroll departments handled Home Office Expenses in compliance with legislation?
• Were the potential cashflow dangers that await businesses with the envisaged upcoming “working from home” claims considered?
• What happens in the event of an employee being terminated during 2020 and their home office expenses were handled incorrectly?

In summary, the upcoming Budget Speech and employer filing season may be the toughest yet to navigate. We’re running a series of Payroll Managers Tax Year-End Virtual Seminars where we unpack the 2021 Budget in detail and aim to prepare Business Owners and Payroll Managers for the various legislative intricacies brought on by these unprecedented times.