Whether you’re an employer or self-employed, structuring the way salaries are paid is essential from a taxation point of view. With the right salary structure, you will pay the tax you are required to law (PAYE) while avoiding over-taxation and making provision for pension or provident fund contributions, medical aid, and other benefits. Here is some advice on salary structuring:
Striking the Tax Balance
Many employers and employees believe that any reduction in tax could be seen by SARS as tax avoidance, and have an understandable fear of landing up on the wrong side of the taxman. However, there are legal methods of PAYE structuring that allow employees to receive the best possible deal from a taxation point of view.
Employers should note that the tax laws do not allow tax avoidance in any form, even if it results in a better take-home salary for employees. Finding the balance between PAYE structuring and compliance with the law will be a lot easier if you have the following in place:
- A specific remuneration policy
- Employment agreements
- Payment Advices
- All supporting documentation – recorded and stored on your premises.
Before You Accept Your Salary Structure…
If you are employee, you should ensure that you are making use of your medical expense and retirement fund benefits – these are deductions that SARS allows and encourages taxpayers to claim. If you drive a lot in the course of doing your work, you should have a vehicle allowance – remember to keep a detailed log book for taxation purposes.
Self-employed people should remember that any expenses related to the production of income can be claimed as deductions. These include vehicle expenses, meals, magazine subscriptions, and professional services.
By paying less tax, you’ll have extra money each month to save and invest for your financial goals. If you’d like detailed advice on salary structuring, contact me for a consultation and I will guide you through the process.