Avoid these 4 payroll mistakes to stay compliant with Sars

In a tightening economy, the South African Revenue Service (Sars) is under increasing pressure to collect every cent it can to shore up the South African fiscus.

 While many compliant businesses play by the rules, it is becoming clear that some large corporations are pushing the envelope too far—sometimes unintentionally, but often with eyes wide open.

Whether driven by cost-saving efforts, legacy practices, or poor advice, some employers are taking liberties that will not withstand the scrutiny of a Sars audit. And with Sars’ improved data matching, AI-powered risk profiling, and growing appetite for corporate audits, it is no longer a question of if, but when they come knocking.

Red flags you cannot afford to ignore

In recent engagements, we have observed several recurring compliance missteps that employers continue to make, although sometimes unknowingly. With Sars intensifying its focus on employer-provided benefits and payroll disclosures, abuse of subsistence allowances, company car fringe benefits, and fuel cards not being taxed are among areas representing significant risk to employers if not handled correctly.

1. Fuel cards not being taxed

Fuel cards remain a widely used employee benefit, either as a standalone offering or alongside a travel allowance. However, where these cards cover any personal use, like fuel, maintenance, tyres, or services for an employee’s privately owned vehicle, the full value or portion relating to personal use must be taxed via payroll as a fringe benefit.

Too often, this requirement is overlooked or intentionally ignored, exposing the company to backdated PAYE liabilities, penalties, and interest upon audit.

2. Abuse of Subsistence Allowances

Subsistence allowances are intended to reimburse modest, short-term expenses incurred while employees are away on legitimate business travel. When used correctly and within Sars-determined thresholds, these can be non-taxable.

However, we continue to see abuse, where:

• All travel-related expenses (meals, accommodation, etc.) are already covered by the employer, and
• A tax-free allowance is still paid, or
• Allowances are paid over extended, recurring periods, clearly outside the scope of what Sars deems reasonable.

This practice raises red flags and increases audit risk, with Sars viewing it as an attempt to sidestep legitimate taxation.

3. Company Cars Not Reflected on Payroll

Where an employee is allocated a company vehicle, especially one assigned for exclusive or frequent use, and there is any degree of personal use (including home-to-office travel), the appropriate fringe benefit must be taxed monthly via payroll.

Incorrect or inconsistent treatment, or total omission of the benefit, is a common audit trigger and can lead to a sizable Sars reassessment.

4. Travel Allowances Assigned by Grade or Seniority

Sars has made it clear that generic travel allowances based on job grade or seniority are no longer acceptable. Employers must be able to demonstrate that:

·        The allowance is based on actual, expected business travel by the employee on a monthly basis;

·        There is a clear condition of employment requiring the use of the employee’s private vehicle for business purposes; and

·        A Sars-compliant logbook is maintained to substantiate the deduction.

Travel allowances that are fixed arbitrarily without substantiated mileage data or business justification pose a high risk of being disallowed and reclassified as fully taxable remuneration. Employers should have a properly designed travel allowance tool with a declaration to support this action on payroll.

Tax non-compliance does not prescribe

Many employers mistakenly believe that if they have gotten away with non-compliance for a few years, the risk is behind them. This could not be further from the truth.

Tax defaults do not prescribe. Sars has the authority to reassess historical years without time limits in cases of suspected fraud, misrepresentation, or non-disclosure. That “invisible benefit” may come back to haunt you with interest, penalties, and reputational damage.

Your only way out: the Voluntary Disclosure Programme (VDP)

If you have identified or even suspect historical non-compliance in your payroll or benefits structures, the Voluntary Disclosure Programme (VDP) offers a lifeline. Through this process, companies can:

• Make a clean and structured disclosure to Sars;
• Potentially have penalties remitted or reduced; and
• Resolve historical exposure under a single tax type for all impacted years.

It is important to note that once Sars has initiated an audit or contacted you about the issue, VDP is no longer an option. Time is critical, and proactive disclosure is your only shield.

Do not bury your head in the sand

Turning a blind eye or hoping Sars will not notice is a high-risk strategy that may inevitably backfire. The smart move is to partner with a qualified and experienced tax advisor who understands the full scope of your exposure and can guide you through the clean-up process.

It is time to tighten the ship. The cost of inaction is simply too high. When Sars arrives, you want to be ready, not scrambling.

* Tosen is the tax and remuneration specialist at Tax Consulting SA.

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