Why a client's tax status can block its ETI

A South African employer with a non-compliant tax status cannot offset ETI against PAYE and can forfeit unused ETI. What bureaus should check first.

By Achekam · 11 October 2026 · 4 min read · For Accountants & audit firms in South Africa

The payroll was right. The ETI calculation was right. The EMP201 was prepared on time. And yet the client's PAYE payment for the month came out higher than expected, because the Employment Tax Incentive did not reduce it. The cause turned out to be an income tax return, long overdue, in a different part of the client's tax affairs, which nobody in the payroll team had ever looked at.

For a payroll bureau, this is one of the more frustrating ways to lose a client's trust: the bureau did its job, but the benefit the client counted on did not arrive. This article explains the link SARS makes between tax compliance status and ETI, and how to catch the problem before month-end rather than after.

The check happens when the EMP201 is requested

SARS says that when an original EMP201 is requested, its system checks the employer's tax compliance status, and a non-compliant employer cannot offset ETI against its PAYE liability.

The check is not about payroll alone. It looks at the employer's tax compliance as a whole. A client whose PAYE affairs are spotless can still fail it because of a VAT return or an income tax return that is outstanding.

The practical effect is that the employer pays the full PAYE that month, without the ETI reduction it expected. For a client with many qualifying employees, that can be a cash-flow surprise, and it lands in the same week the client expected to pay less.

Unused ETI can be forfeited

The consequences can go further than one month. SARS says employers with unused ETI forfeit it if they do not submit their reconciliation or have a non-compliant status.

So a compliance problem left unresolved is not just a delay. ETI that could not be used while the status was non-compliant may not be recoverable later. The longer the problem runs, the more is at stake. What to do about a month where ETI was missed for other reasons is covered in when an ETI month is missed.

What makes an employer compliant

SARS says that to be tax compliant, a taxpayer must have:

• no outstanding returns;
• no outstanding tax debt, unless a payment arrangement or suspension has been agreed;
• registration for every tax it is liable for;
• up-to-date registered particulars.

Every item on that list sits outside a payroll bureau's usual view. The bureau sees the PAYE number. It does not necessarily see whether the client's income tax return was filed, whether a VAT debt is under a payment arrangement, or whether the registered address on SARS's system is still current. Unless someone deliberately looks, the first sign of trouble is the EMP201 itself.

Checking the status before month-end

SARS says a tax compliance status is not static: it changes with the taxpayer's continued compliance, and taxpayers can view it through My Compliance Profile on eFiling.

That gives the bureau a simple control. Before preparing the EMP201 for each ETI-claiming client, someone looks at the client's compliance profile. If the status is non-compliant, the bureau has a few days to tell the client what is outstanding and, where possible, fix it before the EMP201 is requested.

A routine that works for most bureaus:

1. List every client that claims ETI.
2. Agree with each client who will check the compliance profile each month, the client or the bureau, and with what access.
3. Check it before the month's EMP201 is requested.
4. If non-compliant, write to the client the same day with the reason shown on the profile.
5. Record the status and any action taken in the client's payroll file.

Because the cause often lies in the client's wider tax affairs, the person who handles the client's income tax and VAT should be told as well. A firm-wide approach to watching every client's status, not only payroll clients, is in keeping track of clients' tax compliance status.

Entering ETI only when the client can claim

In Achekam, a firm sets up its own staff and each client whose payroll it runs as separate employers, each with its own employees, earnings, deductions and pay settings. That separation matters here, because compliance status belongs to each employer, not to the bureau.

Achekam prepares the monthly EMP201 figures and PDF, and the IRP5 and IT3(a) certificates, from approved runs; a person files them on SARS eFiling and records the reference in Achekam. ETI is claimed only after the firm enters the ETI figures.

That design gives the bureau a natural checkpoint. Make the compliance check a condition of entering the month's ETI figures for each employer:

The third row is the important one. A client who knows in advance is far less upset than one who finds out from the payment.

Where SARS explains it

SARS's Pay-As-You-Earn page covers employers' PAYE obligations, including what happens to unused ETI when the reconciliation is missing or the status is non-compliant. Send the relevant part to each ETI client with a note asking who will watch their compliance profile each month, and settle that before the next EMP201 is due.

General guidance only, not advice on your own circumstances. Tax and payroll rules change: check the current position with the authority or your adviser.