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Tax Break Incentives for Skills Development in South Africa

If you are an employer in South Africa who wants to invest in skills development for your employees, you may be eligible for some tax break incentives from the government. These incentives are designed to encourage employers to provide training and education opportunities for their workers and to support the National Skills Development Strategy.

What are the tax break incentives for skills development?

There are two main tax break incentives for skills development that employers can benefit from:

  • The skills development levy (SDL) deduction: This is a deduction that employers can claim from their income tax for paying the SDL. The SDL is a levy that is calculated as 1% of the total amount that employers pay in salaries to their employees every month. The SDL is paid to the South African Revenue Services (SARS) and is used to fund various skills development initiatives in the country. Employers can claim up to 20% of their leviable amount (the amount subject to SDL) as a deduction from their income tax if they submit a workplace skills plan and an annual training report to their Sector Education and Training Authority (SETA). A SETA is an organisation that manages and administers the skills development funds in different sectors of the economy and provides training programmes and grants for employers and employees.
  • The learnership allowance: This is an allowance that employers can claim from their income tax for entering into registered learnership agreements with their employees or unemployed persons. A learnership is a work-based learning programme that leads to a recognised qualification registered on the National Qualifications Framework (NQF). A learnership agreement is a contract between an employer, a learner and a training provider that regulates the terms and conditions of the learnership. Employers can claim two types of allowances for each learnership agreement:

A commencement allowance: This is an allowance that employers can claim in the year that they enter into a learnership agreement. The amount of the allowance depends on whether the learner has a disability or not and whether the NQF level of the learnership is above or below level 7. The current amounts of the commencement allowance (as of 28 July 2021) are as follows:

  • R40 000 for each learner without a disability on a learnership with an NQF level above 7
  • R20 000 for each learner without a disability on a learnership with an NQF level below 7
  • R60 000 for each learner with a disability on a learnership with an NQF level above 7
  • R50 000 for each learner with a disability on a learnership with an NQF level below 7

A completion allowance: This is an allowance that employers can claim in the year that the learner successfully completes the learnership. The amount of the allowance is equal to the commencement allowance.

How do you qualify for the tax break incentives for skills development?

To qualify for the SDL deduction, you must meet the following requirements:

  • You must be registered with SARS as an employer and pay SDL
  • You must have a leviable amount (the amount subject to SDL) of more than R500 000 per year
  • You must submit a workplace skills plan and an annual training report to your SETA

To qualify for the learnership allowance, you must meet the following requirements:

  • You must enter into a registered learnership agreement with your employee or an unemployed person
  • The learnership agreement must be registered with your SETA
  • The learner must not be related to you or connected to you in terms of section 1 of the Income Tax Act

Why should you apply for the tax break incentives for skills development?

Applying for the tax break incentives for skills development can have several benefits for your business and your employees, such as:

  • Reducing your income tax liability and increasing your cash flow
  • Improving your skills development scorecard rating under the Broad-Based Black Economic Empowerment (B-BBEE) Act
  • Enhancing your corporate social responsibility and reputation
  • Developing a skilled and competent workforce that can meet the demands and opportunities of the changing economy
  • Increasing your productivity, performance and profitability

How do you apply for the tax break incentives for skills development?

To apply for the SDL deduction, you must complete and submit the following forms to SARS:

  • The Monthly Employer Declaration (EMP201) form: This is a form that you must submit every month to declare your total payment together with the allocations for PAYE, SDL, UIF and/or Employment Tax Incentive (ETI). You must indicate the amount of SDL that you paid and the amount of SDL deduction that you claimed on this form.
  • The Employer Reconciliation Declaration (EMP501) form: This is a form that you must submit twice a year to reconcile your total payments and allocations for PAYE, SDL, UIF and/or ETI for a six-month period. You must also indicate the amount of SDL deduction that you claimed on this form.

To apply for the learnership allowance, you must complete and submit the following forms to SARS:

  • The Learnership Agreement (IRP 170) form: This is a form that you must complete and sign together with the learner and the training provider to enter into a learnership agreement. You must submit this form to your SETA for registration and keep a copy for your records.
  • The Learnership Allowance Claim (IRP 30) form: This is a form that you must complete and submit to SARS to claim the learnership allowance. You must attach a copy of the registered learnership agreement and proof of completion of the learnership to this form. You must also indicate the amount of learnership allowance that you claimed on your income tax return.