# Regulatory Compliance Category > Tax Forum >  PAYE for businesses

## Chatmaster

The funniest thing has been happening the last couple of weeks. On two occasions 2 separate, very reputable training companies for which I do lecturing wanted to deduct 30%+ of our invoice for PAYE. Now if I was an individual I could understand that, but these are invoices through 2 of my CC's one is even VAT registered. So the one finance manager told me to phone SARS and take it up with them! Geeeezzzzzz

----------


## garthu

I would very interested in the response once done cause that really doesn't sound right! Sounds more like they got the wrong info... Convincing them otherwise should also be interesting

----------


## Dave A

Ask for an IRP5  :Stick Out Tongue: 

Just in case it's a cash flow dodge...

----------


## Chatmaster

I spoke to my auditor about it. CC's and Pty's do not pay PAYE for logical reasons. Their scemes are simple, they get a VAT invoice, deduct 33% of the payment for "PAYE" and then claim back the 14% VAT which cuts their expenses by half. After a while when SARS are all over the individual for outstanding PAYE, they simply state that they have no idea what we are talking about, they were invoiced by a company and are therefore not legally responsible for the deduction of the PAYE as it wasn't an individual.

Just the pure arogance makes me angry, grrrrrr

We will ask for the IRP 5, which means they will urgently need to get the individuals details because they certainly can't make it out to the CC's. Needless to say that creates a completely new problem as the invoices comes from the company and the tax and PAYE are also done through the CC's, we are going to have a couple of headaches with our books and it is peeving me to waste valuable time on their greed.

----------


## Dave A

This is going to be even sweeter if the liability was incurred in the 2009 tax year. Too late to go fiddling with EMP201 returns  :Whistling:

----------

Chatmaster (25-Mar-09)

----------


## Yvonne

Are they trying to claim that you as the training facilitator are an independant contractor.  (Which means that 80% of your income must come solely from their company before they are legally responsibile to ensure SITE is deducted?).
Site could never ever be deducted from a formal invoice.

Even if you were an "official" independant contractor, you would not issue an "invoice".
There are no invoices involved for an independant contractor as far as I know. The person goes on the payroll for a "contracted" figure.

A letter to them stating that you confirm that your income from other sources exceeds the requirement of an independant contractor, should be sufficient to sort out this problem.

I personally would completely refuse to participate in the IRP5 route! 
The full amount of the invoice must be paid, and I would proceed to treat it as a overdue invoice. 
There would never be an opportunity for them to deduct a % for taxation from the invoice on these grounds.
Advise them that as your invoice is a formal invoice from a CC or company (especially registered for Vat), the legal responsibility for taxation is your own! and that they have no grounds for deducting any taxation from the invoice. 

Yvonne

----------

Chatmaster (25-Mar-09), duncan drennan (25-Mar-09)

----------


## Dave A

Yvonne, you're right - but



> I personally would completely refuse to participate in the IRP5 route!


I've got a hunch this might flush out any mischief right quick, particularly given the timing.

And what a perfect paper trail.

They have already said "talk to SARS." Rather than butt heads, sometimes it's smarter to adopt a different angle of attack.

This example is also food for thought on the practical implications of turnover tax.

----------


## insulin

you lost me...  :Fish:  Probibly why I still only urn R3000 a month...  :Stick Out Tongue:

----------


## garthu

> very reputable training companies


 Aha!

It's amazing what people can up with times are tough. Makes sense but would NEVER have thought of something like that! However, they are playing with the devil! When SARS catches up, there'll be hell to pay  :Fence:

----------


## Yvonne

Our auditor suggested that we watch a program  on Summit Television - on Channel 415 DSTV at 5.20 TONIGHT! 

A discussion on new business regulations: he said it is a possibility that the government are going to reduce the "audit" requirements and possibly going to increase the threshold of turnover, (Higher than the present discussions of R1,000,000) - imagine the chaos if the average small business is no longer required to retain "the paper trail", and only pays a turnover tax!
Yvonne

----------

Dave A (25-Mar-09)

----------


## duncan drennan

> Yvonne, you're right - but


Dave, you lost me there. Could you explain your thinking slowly so that I can understand your point?  :Confused:

----------


## Dave A

Quite often there are different ways to overcome a challenge.

Basicly Yvonne's strategy is standing on principle. Nothing wrong with it if you don't mind confrontation. But opening the door to bigger problems can sometimes be more effective in getting the result you want. You can't go to jail for debt, but you can go to jail for fraud.

Perhaps more relevant in this instance, Roelof has already challenged the validity of the deduction and effectively been told to sod off.

----------

duncan drennan (25-Mar-09)

----------


## duncan drennan

Got it, thanks. Nice strategy (now that I understand).

----------


## Yvonne

Last nights program discussion was about Directors Liability, and changes in the rights of Employees in the event of liquidations or retrenchments and did not refer to the threshold of turnover which requires a full "audit" - apologies.

Although in my own opinion, the heavy emphasis on Directors and Senior Management liability is a form of forcing responsibility and liability for non disclosure, as they have done in the present situation where the auditor is "Required" by law to advise SARS of any irregularities.  
So if they do reduce the audit requirement, directors and management can be held liable if anything untoward comes to light, so a form a forced self governing. 

I had never heard of this program before, unfortunately being screened at 5.20 p.m. makes it difficult to get home in time to watch! 

Yvonne

----------


## Yvonne

Going back to our discussion, going the IRP5 route may "solve" your immediate problem, except you have "lost" 30% to your cash flow -and now the bookkeeping aspect is a total nightmare.

The entire invoice would have to be credited, the person involved in the training would have to be "paid" by the client in his personal capacity, - no company invoice! and use the IRP5 to recover the SITE deduction again in his personal capacity.
If you accepted their terms that he is an independent contractor - which he is clearly not!  
The criteria for independent contractor - is that the person is "supervised" in their duties and performance, with regular hours, and are payable at regular daily, weekly, monthly or other intervals.

So going along with something that is clearly not correct, is merely exacerbating the incompetence in my opinion. 
Who is going to "teach" them to do it correctly (assuming innocence of any attempted fraud).

There is no "facility" to recover SITE deducted from an invoice in any bookkeeping system, nor S.A.R.S. codes on your company annual return to S.A.R.S. for SITE paid to another company.

It is simply not possible to accept incompetence or potential corruption, without causing administration problems for yourself.

End result, client continues to be a problem, and you increase your own problems.

Either way, you are going to "write-off" that 30% in my opinion. 

Yvonne

----------


## Morticia

I have a sneaky suspicion that your client is defining you as a *Personal Service Provider*, in which case you are liable for PAYE, irrespective of the fact that you are trading as a CC. There are new regulations applicable from 1/3/2009.  

Before I go off on a tangent, perhaps you could check with your client if this is the case and then I can provide more detailed feedback.

----------


## Chatmaster

Morticia, you've got me there. In terms of logical sense, how on earth can a CC or Pty pay PAYE? Please help me understand.

I have finally spoken to the one company's financial manager which agreed that this was not supposed to happen and the problem is now solved with them. However, the other one is clearly still stuck to the idea of deducting PAYE. The irony is that this specific company I haven't done any work for personally but one of the trainers employed by company did work them. I am most frustrated.

----------


## Chatmaster

> Either way, you are going to "write-off" that 30% in my opinion. 
> 
> Yvonne


No way that will happen, they will pay that is a promise, I have yet to find someone that doesn't find me as very persuasive  :Big Grin:

----------


## Dave A

You just attach the IRP5 to your tax return. Really messes up provisional tax calculations, though. And with that, cash flow.

If these training companies are regularly outsourcing for trainers, you could easily find they've been slapped for *not* doing this deduction before. However, from a procedure point of view, they really should clearly establish the position of each trainer *before* they make the call to deduct PAYE.

Whatever, the bottom line is if they deduct PAYE they have to issue an IRP5. And the PAYE paid over will be credited as part of the income tax paid by your CC. You'll get the change in a tax refund in due course.

----------


## Morticia

A PSP (personal service provider) exists if:
- service is provided by a company or a trust - NOT an individual
- the service is provided via a person who is connected to the co/cc.
- the psp does not have at least 3 full-time employees who are not shareholders, members, beneficiaries or connected persons.

The requirement/possibility of a co/cc having PAYE deducted etc has been around for a number of years (cannot remember exact date..old age) and was specifically legislated to curb the abuse of taxpayers by resigning from their job, forming a co/cc, get re-employed by the same employer as "independent contractor" and claiming a myriad of fictitious expenses, avoiding monthly PAYE as employee, etc.

Yes, you must insist on getting an IRP5 certificate if a supplier insisted on deducting PAYE and you will get credit for this on final assessment. You may also deduct any PAYE deductions when calculating a provisional tax payment.

----------


## Morticia

Also, both the IRP6 (provisional tax) and IT14 (tax return) provide specifically for PAYE deductions, so as long as you get IRP5, you're o.k. (apart from the timing of the cash-flow implications, obviously)

Strictly speaking the onus is on your client to ascertain your true status and not the other way round.  However, to avoid the whole thing, you need to advise the client in writing of the following (if applicable of course):

1 - you do not receive more than 80% of your income from one specific client
2 - you employ 3 or more full-time employees and they are engaged on a full-time basis in the business of your company (i.e. not "moonlighting" for you)
3 - your employees are not relatives/connected persons/shareholders/members etc to you or your company.
4 - although your duties are (presumably?) performed at the premises of your client, they have no control/supervision as to the manner of how you perform your duties.

----------


## Chatmaster

I am at this point going to cancel our agreement with the college that refuses to stop deducting the PAYE. The reason is simple. The PAYE are deducted on our employee's name and it is assumed that he earns the invoiced amount as a salary. Obviously the deducted amount are much more than he is getting paid as the invoiced amount actually is supposed to go to the CC. This means that the CC looses constantly, and we are therefore working at a straight loss. At this point this is causing much more drama for me than it is worth. Not to mention the fact that there are more than 10k outstanding on their account on my side. So my attorneys will have to send them a final warning and if they still persist I will have to make a personal visit. This is getting most irritating.

----------


## Dave A

> I am at this point going to cancel our agreement with the college that refuses to stop deducting the PAYE. The reason is simple. The PAYE are deducted on our employee's name...


This is where my "foul play" sensors start twitching. You might need to enforce your contract.

What you are going to have to watch for is the training company approaching your employee directly (or _vice versa_). It seems they have his personal information already...

----------


## Morticia

I am a bit perturbed - how are they able to pay your employee, i.e. where did they obtain his/her personal details, ID no, bank account details (they do EFT?), letter of employment/service contract? What paperwork is in place on their side?  By implication your employee is actually deemed to be their employee, so does he have access to employee benefits (UIF, pension, medical aid).

----------


## Chatmaster

When he went there the first time they made him fill in a facilitators agreement, which contained all this information. The invoice is made out by my CC and paid EFT into the CC's bank account, minus 35% "PAYE" deduction. He is not a shareholder/member but a contractor to my company.

----------


## Morticia

Perhaps the facilitator's agreement was completed incorrectly? But it really sounds as if your client has the wrong end of the stick and is acting on half-truths received from an ignoramus?? Nothing as dangerous as that!!

----------


## Morticia

http://www.sars.gov.za/home.asp?pid=333

Interpretation Note 35 (Issue 3) dated 30/3/2009 - useful insight into discussion

----------

Chatmaster (01-Feb-10), Dave A (31-Mar-09)

----------


## Ladel

Hi

Just my 2c worth, I had exactly the same situation with one of my clients, the owners of a cc. They do the the graphic designing for another international and reputable co and a few years ago they also almost had a heart attack when this company started deducting PAYE. Fortunately this company was a bit more spesific and they told my client that they were instructed to do so by their auditors, one of the big five, as they deemed my client as a personal service company. Basically I did a letter explaining why my client was in fact not a psp and all was thankfully resolved, so I'm happy to confirm that I stand 100% behind Morticia's comments...



> Also, both the IRP6 (provisional tax) and IT14 (tax return) provide specifically for PAYE deductions, so as long as you get IRP5, you're o.k. (apart from the timing of the cash-flow implications, obviously)
> 
> Strictly speaking the onus is on your client to ascertain your true status and not the other way round. However, to avoid the whole thing, you need to advise the client in writing of the following (if applicable of course):
> 
> 1 - you do not receive more than 80% of your income from one specific client
> 2 - you employ 3 or more full-time employees and they are engaged on a full-time basis in the business of your company (i.e. not "moonlighting" for you)
> 3 - your employees are not relatives/connected persons/shareholders/members etc to you or your company.
> 4 - although your duties are (presumably?) performed at the premises of your client, they have no control/supervision as to the manner of how you perform your duties.

----------

Chatmaster (01-Feb-10), Dave A (07-Apr-09), duncan drennan (07-Apr-09)

----------

