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Can SARS recover PAYE from an employee if his employer never paid it?

Wednesday, 15 April 2015   (0 Comments)
Posted by: Author: SAIT Technical
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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, which states:

"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.



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