The web site is now storing only essential cookies on your computer. If you don't allow cookies, you may not be able to use certain features of the web site including but not limited to: log in, buy products, see personalized content, switch between site cultures. It is recommended that you allow all cookies.

TERS, Tax Relief and Level 4 Regulations

TERS, Tax Relief and Level 4 Regulations

Mark Hewitt

MOORE UPDATE: TERS, TAX RELIEF AND LEVEL 4 REGULATIONS
 
On 13 May 2020, President Cyril Ramaphosa re-affirmed the government’s commitment to balancing the health of the South African people and the ability of those exact people to earn a living. He commented that the positivity rate has remained low and stable, allowing for a further relaxation of the regulations under Level 4. We have already seen some of these relaxations implemented during the course of May.
 
The take away from his latest speech was that the government will immediately begin a process of consultation with relevant stakeholders on a proposal that by the end of May, most of the country be placed on Level 3, but that those parts of the country with the highest rates of infection remain on Level 4. Minister of Health, Zweli Mkhize announced that the lockdown will be assigned on a district basis and not provincial as initially speculated.
 
The full speech of the president of 13 May 2020 can be located HERE.
 
An updated version of the regulations under Level 3 has not yet been released, but we will communicate as such when more information becomes available.
 
Since our “Moore: Alert” on the Level 4 Lockdown Regulations, which can be located HERE, additional information has been released by the National Treasury, the UIF and the government on various matters.
 
In this article we communicate the latest developments with respect to UIF TERS, Tax Relief and Level 4 Lockdown Regulations in order to ensure our client base remains informed and vigilant. We request our readers to read our article in conjunction with the relevant source documents, where referred to.
 
1. Developments of the Level 4 Regulations:
 
From 1 May 2020, the government implemented Level 4, but has since then made various amendments to the original regulations and directives in order to adapt to the developing the risk-adjusted strategy that is pathing the way forward for all South Africans.
 
Some of the key amendments have been detailed below:
 
  • E-commerce has been allowed from 14 May 2020 to the extent where all goods will be available for transaction through the various e-commerce platforms with the exception of liquor and tobacco. The directive also details the relevant regulations and protocols for e-commerce employers and employees in relation to hygiene, social distancing, masks, monitoring of employees and sanitation. Full details can be found HERE.
  • Additional guidelines for the informal, micro and small business sector which are trading during Level 4 have been published. Full details can be found HERE.
  • The sale of cars and emergency automobile repairs are allowed to a certain degree. The regulations surrounding the automotive industry encompasses a phased-in approach. Full details can be found HERE.
  • Detailed guidelines have been issued in relation to the sale of clothing, footwear and bedding during Level 4. Full details can be found HERE.
  • Additional guidelines, for companies that are operational in the communications and digital technologies sector, have been issued. Full detailed can be found HERE.
  • Additional guidelines for the employees using public sector transport have been released. Full details can be found HERE and HERE.
  • Clarification on which types of charter flights and aviation maintenance are allowed during Level 4. Full details can be found HERE.
  • A directive has been issued to all holders of a learner’s license, driving license, motor vehicle license disk, temporary permit and road worthy certificates. This directive furthermore allows driving license testing centres to re-open during Level 4. All licenses that expired during the Lockdown are deemed to be valid and are extended for an additional 30 days from 4 May 2020. The directive can be found HERE.
2. Developments of the Tax Relief Measures:
 
The developments in relation to the tax relief measures must be read in conjunction with:
 
  • The Moore Tax and Compliance article – refer HERE.
  • The Moore Update on Tax Relief measures available to taxpayers – refer HERE.
  • National Treasury released the final draft of the COVID-19 Tax Relief measures on 1 May 2020 – refer HERE
2.1 Employee Tax Incentive (“ETI”) programme (1 April 2020 – 31 July 2020)

National Treasury has proposed that the amount of ETI that can be claimed for eligible employees be increased from the previous increase of R 500 per person to R 750 per person. No further changes to this relief measure has been proposed.
 
2.2 Deferral of the payment of employees’ tax liability for Small and Medium Business (1 April 2020 – 31 July 2020)

National Treasury has proposed the following amendments to the PAYE deferral tax relief measure:
 
  • The annual turnover threshold for an employer is increased, from the previous turnover threshold of R 50 million, to R 100 million; and
  • The proportion of PAYE that can be deferred is increased from 20% to 35%; and
  • The limitation that the annual turnover cannot include more than 10% of passive income such as dividends, interest, royalties and rental, has been increased to 20%. Rental is excluded from ‘passive income’ if the main trading activity of the business is the letting of property.
We remind our readers that in order to be eligible for this relief measure, the employer must be tax compliant with SARS. In order to confirm your compliance status, a tax clearance PIN can be requested from your respective tax practitioner.
 
2.3 Deferral of the payment of provisional tax liability for Small and Medium Business (1 April 2020 – 31 March 2021)

National Treasury has proposed the following amendments to the Provisional Tax deferral relief measure:
 
  • The annual turnover threshold for a taxpayer is increased, from the previous turnover threshold of R 50 million, to R 100 million; and
  • The limitation that the annual turnover cannot include more than 10% of passive income such as dividends, interest, royalties and rental, has been increased to 20%. Rental is excluded from ‘passive income’ if the main trading activity of the business is the letting of property.
We remind our readers that in order to be eligible for this relief measure, the taxpayer must be tax compliant with SARS. In order to confirm your compliance status, a tax clearance PIN can be requested from your tax practitioner.
 
2.4 NEW SDL payment holiday (1 May 2020 – 31 August 2020)

National Treasury has proposed changes to the Skill Development Act and Skill Development Levies Act on 1 May 2020. These pieces of legislation mandate the Skill Development Levy ("SDL") payable by each employer who has an annual payroll of more than R 500,000.
 
National Treasury has proposed that no SDL will be payable by any employer for the following four months of payroll: 1 May 2020 - 31 August 2020
 
How will this work practically?
 
SARS has indicated that the SDL column on the EMP201 will be greyed out for the following periods and that no figures will need to be submitted in the SDL column. The periods have been detailed below:
 
1 May 2020 - 31 May 2020 (i.e. the EMP201 due on 7 June will have no SDL payable)
1 June 2020 - 30 June 2020 (i.e. the EMP201 due on 7 July will have no SDL payable)
1 July 2020 - 31 July 2020 (i.e. the EMP201 due on 7 August will have no SDL payable)
1 August 2020 - 31 August 2020 (i.e. the EMP201 due on 7 September will have no SDL payable)  
 
Requirements:
 
There are no requirements, such as tax compliance or turnover in order to be eligible for this tax relief measure. All employers who pay SDL on a monthly basis will be eligible for this relief.
 
2.5 Businesses with an annual turnover of more than R 100 million can apply directly to SARS on a case-by-case basis for deferrals of their tax payments.
 
In order for SARS to grant the instalment payment arrangement (“IPA”), the following requirements must be met:
 
  • A taxpayer must have serious financial hardship which must be attributable to the effects of the COVID-19 disaster;
  • The effects must be substantial and material; and
  • The taxpayer must prove to SARS that an IPA is required because of the impact of COVID-19 and if taxpayer succeeds in proving this, then the remittance of the penalty will be considered.
We urge our clients to carefully assess whether or not the above criteria has truly been met as the application process is rigorous and is subject to stringent repayment terms. To prove serious financial hardship is a difficult and subjective process. SARS has clarified that serious financial hardship entails:
 
“Hardship relates to whether your business has suffered negative cash flow impact as a result of Covid-19 and the business is not able to pay all the tax liability when such becomes due.”
 
If you believe you are eligible to apply for an IPA, then an email, with the requested documents, must be sent to the following email addresses:
 
  • Taxpayers with more than R100 million turnover - COVID19IPAaboveR100m@sars.gov.za.
  • Taxpayers with less than R100 million turnover - COVID19IPAbelowR100m@sars.gov.za.
The documents required to be attached with the email are detailed below:
              
  • A letter requesting deferred arrangements, stating the reasons for the request and the specific tax periods;
  • Latest Annual Financial statements and latest management accounts;
  • A list of debtors and creditors; and
  • Cash flow projections for the next three months.
2.6 Fast Tracking VAT refunds
 
SARS has clarified that only Category A and B VAT vendors will benefit from this proposed tax relief measure. It is proposed that Category A and B vendors will be able to file their VAT returns monthly, in order to assist with cash flow where these vendors are in a VAT refund position.
 
Category A vendors will be permitted to file monthly returns for the April and May tax periods and June and July 2020 tax periods, should such vendor choose to do so.
 
Category B vendors will be permitted to file monthly returns for the May and June tax periods and July 2020 tax period, should such vendor choose to do so. Should a Category B vendor choose to file a monthly return for July 2020, a monthly return for August 2020 will be required to return the vendor to the normal bi-monthly return cycle.
 
This tax relief measure is effective from 1 May 2020, and relates to the tax periods 1 April 2020 until 31 July 2020.
 
2.7 Deferral of the first Carbon Tax Payment and Filing
 
The first submission and payment of Carbon Tax will be deferred from 31 July 2020 to 31 October 2020.
 
2.8 Other
 
Specialised tax relief measures has also been made available for:
 
  • Donations made to the Solidarity Fund (for donations from the employee and/or employer);
  • Deferral of payment of excise duties an alcoholic beverages and tobacco products;
  • Streamlined Special Tax dispensation for funds established to assist with COVID-19 Relief Efforts; and
  • Expanding access to living annuity funds.
The above measures are too client specific to discuss in this article and we suggest our clients make contact with the nearest Moore Office for assistance or alternatively read the applicable legislation HERE.
 
3. Further development in relation to the UIF TERS:
 
The Department of Employment and Labour (“DEL”) have yet again made another substantial change to the UIF TERS application process and payment calculation method. On 4 May 2020 a further amendment to the directive was made together with a correction of previous amendments made on 8 April and 16 April respectively. The developments discussed below must read in conjunction with our previous UIF TERS article - our article can be found HERE.
 
The UIF TERS amendments made on 4 May can be found HERE.
 
The UIF has released a consolidated directive which is more practical as opposed to reading the original directive with the three amendment gazettes. The consolidated version can be found HERE.
 
The key amendments that have been gazetted are as follows:
 
  • Employees who are/were required to take annual leave by their employer during the lockdown in terms of section 20(01)(b) of the Basic Conditions of Employment Act, No 75 of 1997 are now eligible for a TERS claim.
  • The employer has the right to set off any amount received from the UIF in respect of the employees’ TERS Benefits against the amount paid to the employee in respect of annual leave provided the employee is credited with the proportionate entitlement to paid annual leave in the future. The effect is essentially that the employee “buys-back” the annual leave that was paid out to him/her by the employer.
  • There is, however, a remaining “grey area” within the current UIF interpretation of annual leave and the UIF TERS claims process. A person on forced annual leave may apply for TERS Benefits from the UIF, but it has not been clarified whether or not the value of the annual leave paid out must be ignored when completing the “remuneration during lockdown” column. It seems to be only logical that the value of annual leave paid out to an employee must be excluded from the TERS claim process, as otherwise the employee will not get a benefit as the system will note that the employee received (possibly) a full salary for the month. We believe this to be an oversight by the UIF, which will be corrected in due course.
  • The employer now has the right to pay the employee UIF TERS Benefits in advance and once the UIF pays out to the employer, to retain those funds limited to what was advanced to the employee. Any remaining funds must be paid to the employee as usual. This was already ‘general practice’, but has now been formalised as part of the UIF TERS regulations.
During the end of April and the start of May, it became apparent that the UIF had changed their method of calculating the UIF TERS Benefits to employees. We suspect that calls from various tax institutions to the UIF to amend their Benefit calculation method to align to the published directive, finally reached the correct people within the UIF.
 
The calculation has now become clearer and is detailed below. Please refresh on the previous TERS article by Moore, in order to better understand the below condensed explanation.
 
The UIF has also released an updated FAQ document, which contains accurate examples - refer HERE.
 
The contributor’s entitlement is calculated according to the following formula:
 
Daily Benefit = Daily Income x IRR
 
Note that the employee’s remuneration, when calculating the “Daily Income” will be capped at a maximum amount of R17 712 per month (i.e. the maximum Daily Income is R 17 712 * 12/ 365 = R 582. 31 per day).
 
The IRR is calculated using the following formula:
 
IRR = 29.2 + (7173.92 / (232.92+Daily Income))
 
Note that the maximum IRR is currently set at 60% and the minimum IRR is currently set at 38%.
 
TERS Benefit Payment Value = Daily Benefit * Number of days during Lockdown period
 
Note that the UIF TERS Benefit will be the minimum wage of R 3 500 per month, but the UIF will pay less if the remuneration that the employee received during the lockdown period together with the UIF TERS Benefits is more than his/her normal monthly remuneration.
 
4. Developments in relation to the government backed loan scheme:
 
National Treasury has released guidelines in relation to how these government backed loans will practically work. The explanatory documents can be found HERE and HERE.
 
This cash flow relief measure is available for businesses that have an annual turnover of less than R 300 million, are in good standing with their respective bank, registered with SARS and which need additional funding to cover operational expenditure (i.e. are financially distressed as a result of COVID-19).
 
The following banks are currently participating in this relief measure with the South African Reserve Bank and National Treasury:
 
  • Absa
  • Mercantile Bank
  • First National Bank
  • Investec
  • Nedbank
  • Standard Bank
From 12 May 2020, the banks have been accepting applications for these loans. The loans are provided at prime rate (currently 7.75%). The loan term is detailed below:
 
  • For the first three months the loan approved value is paid to the applicant in three equal instalments;
  • Thereafter a period of three months is provided where no repayment is required, but interest will accrue; and
  • Thereafter the loan is then repaid over the remaining period of five years.
If you would like to apply, please make contact with your respective banker.
 
What’s Next?
 
Look out for our next COVID-19 Article as our team of experts provide an update on the latest developments of government and private sector relief initiatives.
 
Author: Mark Hewitt from Moore Cape Town’s specialist Tax and Advisory Department