Can SARS recover PAYE from an employee if his employer never paid it?
15 April 2015
Posted by: Author: SAIT Technical
Author: SAIT Technical
Q: Who is liable
for employees’ tax when an employee has PAYE deducted but the company (now in
liquidation) fails to pay over to SARS?
The taxpayer was under the impression his tax was being paid
to SARS as he received net amount. The company director has died and it has
since been discovered no taxes were paid to SARS for the past 5 months. The
taxpayer is worried SARS will recover the tax from them and not try and recover
it as a creditor of the company.
A: I agree with
you. There are a number of provisions to consider; beginning with:
Para 4 of the 4th Schedule to the Income Tax Act,
"Any amount required to be deducted or withheld in terms of
paragraph 2 shall be a debt due to the State and the employer concerned
shall save as otherwise provided be absolutely liable for the due payment
thereof to the Commissioner.” (own emphasis)
Furthermore, para 5(1A) states:
"The liability of the employer as contemplated in paragraph
2 must be deemed to have been discharged if the employer made payment of the
outstanding employees’ tax”
The employer in your case deducted the employees’ tax but
never paid it to SARS. Because it was withheld, he is absolutely liable for
that tax debt. If he would not have withheld it from the employee’s salary,
SARS would be empowered to recover it from the employee by virtue of applying
para 5(2), which states:
"Where the employer has failed to deduct or withhold
employees’ tax in terms of paragraph 2 and the Commissioner is satisfied
that the failure was not due to an intent to postpone payment of the tax or to
evade the employer’s obligations under this Schedule, the Commissioner may, if
he is satisfied that there is a reasonable prospect of ultimately recovering
the tax from the employee, absolve the employer from his liability under
sub-paragraph (1) of this paragraph.”
But this is not the case since the withholding was in fact
made by the employer. The tax liability thus remains with the employer.
Para 28(3) provides further insight:
"If the Commissioner is satisfied that the amount or any
portion of the amount of employees’ tax shown in any employees’ tax certificate
has not been deducted or withheld by the … the employer and the employee shall
be jointly and severally liable to pay to the Commissioner the amount which
should not have been so applied and such amount shall be recoverable under this
Act as if it were a tax.”
You will notice that the employee and employer are jointly
and severally liable only if there was no withholding by the employee; which
was clearly not the case.
We therefore agree with your interpretation of the law.
Disclaimer: Nothing in this query and answer should be construed as
constituting tax advice or a tax opinion. An expert should be consulted for
advice based on the facts and circumstances of each transaction/case. Even
though great care has been taken to ensure the accuracy of the answer, SAIT do
not accept any responsibility for consequences of decisions taken based on this
query and answer. It remains your own responsibility to consult the relevant
primary resources when taking a decision.