What is PAYE

What are SITE, PAYE and provisional tax?

The final income tax payable by a taxpayer can only be calculated once the total taxable income earned by the individual for the full year of assessment has been determined. This is normally only done after the end of the year of assessment, once a taxpayer’s income tax return has been processed and an assessment is issued.

However, it would be impractical to expect taxpayers to pay tax as a large lump sum once a year. As a result, the Income Tax Act has created three mechanisms to solve this problem: SITE, PAYE, and provisional tax. In this way, income tax is collected as soon as the taxpayer has earned the income and is offset against the final income tax that is due on assessment.

Employees' tax

SITE and PAYE are the two elements of employee’s tax. Employees’ tax is the tax that employers must deduct from the employment income of employees – such as salaries, wages and bonuses - and pay over to SARS monthly. It is withheld daily, weekly, or monthly, when these amounts are paid or become payable to the employees.

An employer must issue an employee with a receipt known as an employees’ tax certificate (an IRP5/IT3(a)) if SITE or PAYE have been deducted. This discloses the total employment income earned for the year of assessment and the total SITE and/or PAYE deducted and paid to SARS.

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Standard Income Tax on Employees

Standard Income Tax on Employees, or SITE, is not a separate tax. It is merely a method that means employees who earn less than a certain amount pay income tax as a full and finial liability on the information to the specific employer. SITE generally applies to individuals:

• whose net remuneration does not exceed R120 000 annually;
• who do not receive a traveling allowance; and
• who do not receive any other income.

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Pay-As-You-Earn

Pay-As-You-Earn, or PAYE, ensure that an employee’s income tax liability is settled in a continuing fashion, at the same time that the income is earned. The advantage of this is that the tax liability for the year is settled over the course of the whole year of assessment. Refer to the PAYE page for more information.

Provisional tax

Provisional tax allows taxpayers to provide for their final tax liability by paying two amounts in the course of the year of assessment. But the final liability is determined upon assessment.

Provisional tax payments - which are made six months after the beginning of a year of assessment, as well as at the end of it - represent tax on anticipated income. Provisional tax estimates and payments are made on IRP6 forms.