It’s often said that ignorance of the law is no defense, and this certainly applies to the PAYE (Pay-As-You-Earn) implications of selling assets to employees. Surprisingly, many employers, accountants, and tax practitioners are unaware that selling assets to employees triggers PAYE. This article aims to clarify this topic and help employers minimise tax exposure arising from such sales. Note that throughout this article, words in the masculine are intended to include the feminine.
Sales and PAYE
To start, many employers dispose of assets to employees once they are no longer needed. This often occurs through closed auctions, where only employees can participate, or through direct allocations, such as providing employees with laptops after a few years of use.
According to the Income Tax Act, an employee is taxed not only on monetary remuneration but also on ‘advantages’ or benefits derived from employment. Although not explicitly defined in the Act, an advantage generally refers to benefits in kind or other non-monetary benefits. For example, if an employer sells a car to an employee, the employer must determine its ‘market value’ and subtract any payment made by the employee. The difference represents the benefit to the employee. So, if an employee pays P5,000 for a car valued at P100,000, the taxable benefit is P95,000. This amount is added to the employee’s other earnings and taxed in the month the benefit is received.
While this is the ideal approach for PAYE purposes, few employers take the time to determine market values. Some even give assets away without requiring payment, which increases the employer’s tax liability. In the event of a Botswana Unified Revenue Service (BURS) audit, any unpaid tax would be the employer’s responsibility, along with monthly interest at 1.5 percent. Though the employer may later recover the tax from employees, this could lead to employee friction and potential disputes.
Misconceptions about Closed Auctions
Some employers believe closed auctions cover their tax obligations if audited by BURS. However, closed auctions don’t necessarily reflect market value, as prices are often lower than those in open auctions. Since closed auctions are limited to employees, prices may be manipulated through negotiations, resulting in inaccurate values for tax purposes. To avoid this, employers should opt for open auctions or determine the market value of assets before completing sales.
Determining Market Value
One of the main questions employers ask is how to determine the market value of assets being sold. Fortunately, this is manageable with some effort. For example, a second-hand car dealer or auctioneer can appraise used vehicles, a property valuer can assess fixed property, and a second-hand laptop dealer can value laptops. Although these services incur costs, they are preferable to the potential costs of a tax audit. After all, no one welcomes a visit from the taxman.
Conclusion
In summary, selling assets to employees has PAYE implications that employers must consider. The solution is simple: collect the PAYE from employees and remit it to BURS. This approach helps avoid future complications.
If you found this information helpful, remember to “pay Caesar what belongs to him.” For more guidance, you can join our free Tax WhatsApp group or inquire about our nine tax e-books by texting +267 7181 5836 or emailing jhore@aupracontax.co.bw. You can also explore more tax articles on our website, www.aupracontax.co.bw, under the “Tax articles” section.
