Uganda Adjustment of the PAYE filing Template for Secondary Employment Income

The Uganda Revenue Authority (URA) recently issued a public notice outlining changes made to the Pay as You Earn (PAYE) filing template (PAYE Return). 

Effective 04 October 2022, under Schedule 1 of the PAYE return on the URA online portal, the tax rate for computation of PAYE for employees liable to “fixed rate” has been adjusted to include 40% of the taxable secondary employment income earned by employees.  

Previously, the monthly PAYE return only provided for a fixed rate of 30% (irrespective of the amount paid to the employee) for persons who earned taxable employment income from more than one employer (Secondary employment). 

From the notice, the PAYE return has been updated to include the 40% fixed rate to be applied to monthly employment income earned from the second and the other employers that are not primary employers, in as far as it exceeds UGX 10 million. 

We note that a resident employee is entitled to one tax threshold (UGX 235,000 per month) that is not taxed and URA assumes that this has already been granted by the employee’s primary employer when accounting for PAYE. 

Based on this assumption, URA requires the second or any other employer to apply a fixed rate of tax to the employee’s chargeable income earned for the month as shown in Schedule 1 of the monthly PAYE Return.

Upon the implementation of this adjustment, the PAYE return now allows for both 30% and 40% fixed rates on taxable employment income earned from secondary employment, depending on the amount paid to the secondary employee. Where the employee’s employment income exceeds UGX 10 million, the fixed rate applicable is 40%. However, where the employee’s employment income is less than UGX 10 million, the fixed rate of 30% applies. 

The adjustment in the PAYE return neither introduces a new tax nor increases the tax rate for both primary and secondary employment income. It rather allows secondary employers to account for tax at a fixed rate of 40% on monthly employment income above UGX 10 million. 

The new change is likely to affect individuals such as directors who may serve on boards of different companies and thus have several sources of monthly emoluments. 

For URA, the new change is expected to resolve the apparent gap in tax compliance and potentially address the deemed “under-collection” of PAYE in the past by the revenue authority.

However, we note that though the secondary income is taxed at a fixed rate of either 30% or 40%, it may not mean that the fixed rate is the actual rate to be imposed on the Employee’s income earned in that year. This is because the PAYE return adjustment does not take into consideration the annualization of one-off  or irregular payments. As such, an individual earning in excess of UGX 10million for one month in a year of income may pay more tax than they ought to have paid.

We have attached a copy of the URA public notice and further guidance issued by URA for your reference

• URA public notice on changes  to PAYE and VAT returns
• URA  public notice. clarifications on changes in the PAYE return

 

What this means to you

1. As an employer, .
   • You are required to confirm whether you are the primary or secondary employer when accounting for PAYE on employment income
   • A secondary employer is required to accurately complete the PAYE return by selecting the fixed rate option for secondary employees under Schedule 1 of the PAYE return template, where the employee earns a monthly amount that exceeds UGX 10 Million.  
     
      
2.  As an employee,
   
   An employee who earns employment income from more than one employer should submit an individual return declaring all of his or her income and the tax withheld, including PAYE in order to determine the actual tax payable for the year. In case the employee paid more tax in the year by way of withholding tax, that employee will be entitled to claim that excess tax. 
   
   

KPMG Uganda is available to assist with any matters that may arise as a consequence of the above and advise further.