In the complex world of payroll, many employers have historically taken a head-in-the-sand approach, particularly when it comes to the taxation of employee benefits. If you are not 100% confident that every fringe benefit in your payroll is correctly taxed, now is the time to act, as the South African Revenue Service (Sars) is clamping down on all forms of tax non-compliance. 

Whether through misunderstanding, oversight, or deliberate omission, certain fringe benefits may have been left off the radar of PAYE, UIF, and Skills Development Levy (SDL) calculations for years. The uncomfortable truth is that the longer non-compliance goes unaddressed, the greater the financial and reputational risks for the employer.

Sars Is Watching and Waiting

Sars has significantly enhanced its audit capabilities in recent years, leveraging third-party data, system integrations, and AI-powered risk analysis to detect non-compliance. A once-silent oversight by employers can quickly become a red-flag trigger for a payroll audit, especially when benefits like travel allowances, fuel cards, or company cars are involved.

When Sars does come knocking, the implications are far more severe than simply “correcting an error.” Penalties of up to 200% may be imposed in cases of intentional tax evasion, along with interest accruing from the first point of non-compliance and not just from when the issue was discovered.

Voluntary Disclosure: The Only Safe Exit

Rather than wait for Sars to uncover your non-compliance during an audit, the Voluntary Disclosure Programme (VDP) is the only official mechanism available to come clean and potentially limit your exposure.

It is important to note that the VDP only applies when a taxpayer approaches Sars voluntarily. Also, this is not a DIY exercise. A VDP must be carefully prepared, fully substantiated, and submitted with precision. A weak or incomplete application may be rejected or expose you to further risk.

Misconceptions That Cost Companies Dearly

Many employers still operate under dangerous misconceptions when it comes to fixing historical payroll irregularities:

“If we correct the issue going forward, we’re safe.”
False. Sars expects a remedy from the first year of non-compliance, not just from the current tax period.

“We will just fix one wage item through a Voluntary Disclosure.”
Misguided. Your VDP submission must be complete and accurate, covering all material errors related to the relevant tax type. Piecemeal disclosures will not  be entertained and could disqualify your application.

“We can always apply for VDP again if needed.”
Not quite. You may only submit a VDP application for a particular tax type once every five years. It goes without saying then that this one shot must be accurate and thorough.

Why the VDP Approach Makes Sense

Sars explains that the purpose of the VDP is to enhance voluntary compliance in the interest of enhanced tax compliance and the best use of Sars resources. “It aims to encourage taxpayers to come forward on a voluntary basis to regularise their tax affairs with Sars and avoid the imposition of understatement penalties and administrative penalties.”

VDP relief is available in respect of all taxes administered by Sars (but excluding duties and levies charged in terms of the Customs and Excise Act, 1964). 

The benefits are clear:

• Certain penalties may be waived, especially if there was no intentional tax evasion.
• Interest charges still apply but are often more manageable than lump-sum penalty assessments.
• It demonstrates proactive behaviour and corporate accountability, which Sars views favourably.
• Personal Accountability: The Stakes Are Higher Than You Think

Another critical, often overlooked aspect is the personal liability of directors and prescribed officers. In the event of serious or repeated non-compliance, Sars may pursue personal accountability where it believes there has been gross negligence or wilful evasion.

Payroll tax is not just a company issue; it can become a personal one.

Don’t Wait to Be the Example

In the current climate, where Sars is actively seeking to increase collections and cracking down on non-compliant employers, a wait-and-see approach is not advisable.

Rather than waiting to become the subject of an audit or a public enforcement action, we strongly encourage employers to engage with qualified tax attorneys and payroll specialists who can conduct a compliance review, quantify the exposure, and facilitate a tailored VDP submission where appropriate.

Deal With It Before Sars Deals With You

Payroll non-compliance may seem invisible now, but eventually it will come to light. When it does, it is far better to be in control of the process than at the mercy of a Sars audit.

If you suspect historical payroll irregularities, do not ignore them. There is a legal, credible way to correct past mistakes and protect your business. That starts with a properly executed Voluntary Disclosure, guided by professionals.

Written by Tanya Tosen, Tax and Remuneration Specialist at Tax Consulting SA