South African businesses often scramble to validate tax data before South African Revenue Service (SARS) deadlines, which may have happened again in February. To avoid this stressful scenario in the future, companies must stay on top of their tax reconciliation procedures throughout the year.
“The success of a stress-free tax reconciliation process is based on tracking every piece of new information added to the business’s payroll,” says Shani Cloete, national HR and payroll support manager at Times 3 Technologies (T3T).
“If an earning, benefit, or deduction exists, use the right codes and load the employee data correctly. If you do it seamlessly daily, weekly, and monthly, the stress is greatly reduced by the time you need to reconcile a year’s data.”
Cloete’s colleague, T3T National HR & Payroll Manager Riona Maharaj, adds that extra care needs to be taken when dealing with the payroll system.
She says every interaction with the system is critical, whether adding or removing an employee or erroneously adding extra dashes or spaces.
“The system will not reconcile correctly if not done properly. It’s not just about ensuring recon; it’s about getting the basics right from the beginning.”
The annual reconciliation declaration (EMP501) requires employers to reconcile and submit their tax data from March to February from 1 April to 31 May. Though the process’s primary objective is to reconcile and balance PAYE, UIF, and SDL, it also creates a standstill point in reviewing employee data.
Payroll systems should always start their validation processes in March. Data is exported to the IRP5 file during the reconciliation process, and various reports are generated to validate the data. Any anomalies that prevent the successful creation of the IRP5 file will be printed and require the user to review and correct the data.
One of the big challenges many businesses face is that the data that needs to be added or removed from the payroll system often does not occur in the same department. Many companies have segregated duties: The HR department is responsible for onboarding and terminating employees, but the payroll department must add employee information to the payroll system.
For this reason, interdepartmental communication is critical, Cloete says.
The T3T experts also point out that reconciliation applies not only to year-end tax submissions but also to mid-year submissions. “The only difference is that we don’t issue an IRP5 every six months.”
Maharaj advises automating much reporting when volumes are high and running a scheduled report for each department.
“People in a business pushing out volumes weekly don’t have the time to do this,” she says.
Cloete also recommends that businesses familiarise themselves with the SARS Business Requirements Specification. This specification details everything related to IRP5 files, from IRP5 codes to the data format for each field, including which special characters are accommodated and which are alphanumeric.