PAYROLL – it’s the area of business that most often gives you a headache! And it’s one of the first areas of your business that the SARS auditors will scrutinise.

1.   Payments made to directors and shareholders

Here’s what the tax auditors look for when they check your directors / shareholders’ remuneration:

• The director / shareholder’s salary can be verified to financial statements and minutes of meetings.
• Any amount that may constitute remuneration to directors / shareholders has been included in their taxable income.
• Both the cashbook and cheques paid to the director / shareholder have been posted to the correct accounts.
• All fringe benefits to directors / shareholders have been correctly calculated.
• PAYE deductions are accurate.

Checklist 1:  Use the payroll compliance checklist to ensure you allocate payments to directors and shareholders correctly.

2.   Structure your employees’ salaries legally and tax efficiently.

Answer these 5 salary structuring questions before you submit your returns

Salary structuring is always under the tax spotlight. Who isn’t looking for ways to maximise the tax allowances, without increasing their taxes!

But there’s a very thin line separating tax avoidance and tax evasion … SARS will ignore your salary structuring, if it can prove it’s a scheme to avoid or reduce tax.  It’ll simply calculate what you actually owe in taxes and add some extra tax and interest to this if the deadline for tax has passed.

But before it can do this, SARS must be able to prove that:

• An arrangement (e.g. salary structuring) results in a tax benefit;
• Its sole or main purpose was to get a tax benefit; and
• It lacks commercial substance or it results in the misuse of the rights and obligations set out by the Income Tax Act.

In other words, if it’s a deliberate attempt to shrink your tax bill, in an under-handed way, then SARS will see it as tax evasion. And you’ll face penalties, audits and assessments.

Carrie-Anne Diniz

Cents Accountability

Source: Tax Bulletin – For more tax and VAT tips from some of SA’s top tax experts.

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