Loadshedding: Tax Incentives for Energy Efficiency and Alternative Power

“This is a call for all South Africans to be part of the solution; to contribute in whatever way they can to ending energy scarcity in South Africa.”

President Cyril Ramaphosa

For more than a decade, local businesses have faced the huge challenge of an unreliable power supply from a state-owned monopoly that allowed very little in terms of affordable or practical alternatives.

In addition, since then Eskom’s electricity prices continued to skyrocket – increasing by more than 400%.

Source: Eskom Distribution

Just a month ago, Eskom proposed a further tariff increase of 32.7% to the National Energy Regulator of South Africa (Nersa) and is also contesting, in court, the tariff increase of 9.6% for 2022/23 Nersa allowed, which was far below the 20.5% requested. 

A national crisis

South Africa’s energy crisis has been described as the biggest risk to the country’s economy. Recently President Cyril Ramaphosa, in his address to the nation on the energy crisis, announced measures to tackle it, including scrapping the licensing threshold of 100MW, Eskom buying more electricity from existing independent power producers, importing power from Botswana and Zambia, and doubling the amount of renewable generation capacity procured through Bid Window 6. 

Of particular interest to businesses and individuals are the measures designed to enable businesses and households to invest in rooftop solar. 

“South Africa has great abundance of sun which we should use to generate electricity. There is significant potential for households and businesses to install rooftop solar and connect this power to the grid,” the President explained. “To incentivise greater uptake of rooftop solar, Eskom will develop rules and a pricing structure – known as a feed-in tariff – for all commercial and residential installations on its network. This means that those who can and have installed solar panels in their homes or businesses will be able to sell surplus power they don’t need to Eskom.” 

This certainly provides reasons for companies to re-assess the long-term viability of alternative energy sources, particularly photovoltaic (PV) solar energy projects, which are incentivised because of their low impact on the environment and our scarce water resources.

In particular, the President called on businesses to: 

  • seize the opportunities that have been created and invest in generation projects 
  • reduce consumption through greater energy efficiency.

The good news is that there are tax incentives to assist in achieving these national priorities.   

Section 12B of the Income Tax Act provides for capital expenditure deductions for assets used in the production of renewable energy and particularly incentivises the development of smaller solar PV energy projects with an accelerated capital allowance of 100% in the first year for solar PV energy of less than 1MW. 

Section 12U of the Income Tax Act provides for capital allowances for roads and fencing used in the generation of electricity.

Section 12L of the Income Tax Act is aimed at directly incentivising investments in local energy efficiency projects and provides a deduction for actual savings resulting from a reduction in energy use. 

Capital expenditure deductions (S.12B)

Section 12B provides for a 50%/30%/20% income tax deduction over three years for certain machinery or plant – which means 50% of the costs of the assets can be deducted in year one, 30% in year 2, and 20% in year 3. These assets must be owned by the taxpayer, brought into use for the first time by the taxpayer, for the generation of electricity from, amongst others, photovoltaic solar energy or concentrated solar energy. The tax deduction also applies to any improvements to the qualifying plant or machinery that are not repairs related.

The following types of renewable generation projects may benefit from the allowance:

  • wind power;
  • photovoltaic solar energy;
  • concentrated solar energy;
  • hydropower (producing less than 30 megawatts); and
  • biomass comprising organic wastes, landfill gas or plant material.

In respect of photovoltaic solar energy of less than one megawatt, a 100% income tax deduction is allowed in the first year of use.

What this means is that the cost related to a new solar power system can be deducted as a depreciation expense– reducing the income tax liability. The reduction can be carried over to the next financial year as a deferred tax asset.

In a previous binding ruling, SARS confirmed it will allow for both the capital cost of solar power units, as well as the direct cost of installation or the erection thereof.  

The capital costs that may be deducted are:

  • Photovoltaic solar panels; 
  • AC inverters; 
  • DC combiner boxes;
  • Racking; and 
  • Cables and wiring. 

In addition, related allowable costs of installation are:

  • Installation planning expenses; 
  • Panels delivery costs;
  • Installation expenses; and 
  • Installation safety officer costs.

Taxpayers installing assets used in the production of renewable energy, and particularly smaller solar PV energy projects or systems should investigate the tax benefits of Section 12B, particularly now that selling electricity back to Eskom will soon be a reality.

Capital allowances for roads and fencing (S.12U)

Section 12U provides for capital allowances for roads and fencing used in the generation of electricity greater than 5MW from wind; solar; biomass comprising organic wastes, landfill gas or plant material; and hydropower to produce more than 30MW. It is granted in full in the year of expenditure and covers improvements to the roads and fencing related to the generation project, as well as foundations or supporting structures.

Energy-efficiency incentive (S.12L)

Section 12L, read with the Regulations, allows any person or entity registered with the South African National Energy Development Institute (SANEDI) to claim a deduction for energy-efficiency savings derived from activities performed in the carrying on of any trade.

The incentive allows for a tax deduction for all energy carriers (not just electricity, but also fuel) but with the exception of renewable energy sources.

Ownership of energy-efficient machinery and equipment is not a requirement to claim a deduction under section 12L, so a lessee of the machinery or equipment can equally claim a deduction under section 12L.

The deduction is calculated at 95 cents per kilowatt hour or kilowatt hour equivalent of energy-efficiency savings and can create or increase an assessed loss. 

A taxpayer must comply with certain requirements before being eligible for this deduction, for example, taxpayers are required to register with SANEDI, and a measurement and verification professional belonging to an accredited measurement and verification body must be appointed. An energy-efficiency performance certificate must be obtained from SANEDI detailing the energy-efficiency savings generated for the year of assessment.

Examples of energy-saving measures include, for example, investing in more efficient technologies such as LED lighting; installing clear acrylic door refrigeration equipment to reduce energy consumption in retail stores; using recycled waste heat from refrigeration plants or furnaces to reduce another electrical heating load; or investing in energy saving solutions for HVAC and refrigeration. 

With this incentive, businesses can ensure their energy efficiency measures not only result in lower energy costs but also reduces their tax liability. 

When heeding the President’s call to invest in generation projects and reduce consumption through greater energy efficiency, businesses and individuals are well advised to investigate further the tax incentives and rebates available. These are complex, so seek professional advice!


How To Avoid Bad Customers

“Happy customers are your biggest advocates and can become your most successful sales team.”

Lisa Masiello

Anyone who has started a business has had those meetings. The ones where you trade a dozen emails explaining what you do and how you do it, what your rates are and why you are the best, and now your potential client has asked for a meeting. You drive to the other side of town, have a two-hour meeting explaining all the things you had explained before, and get back to the office feeling like you did everything you could, and then you wait. Perhaps for weeks there is no response from the prospect and you wonder exactly where you may have gone wrong. The problem here might not be you, but may instead lie with the potential customer, and all that time and effort you sunk into trying to win their business was perhaps always going to be wasted.

Success for a small to medium business is built on resource management. Those companies that manage to get the most return on investment are the ones that will grow the fastest and last the longest. Getting this return requires not only that you create excellent products or deliver excellent services, but that you do this with the right people – and that includes your customers. Being able to tell the difference between good customers and bad ones is a skill no one starts with, but everyone can learn. Here is a guide to recognizing a bad client before you get too committed.

Recognise what makes a good client

Being able to tell the difference between good clients and bad clients will first require you to know exactly what makes a good client. At a very basic level a good client is one that doesn’t take much of your time but is profitable. The best ones are regular customers as well.

Using your accounting software, you will very quickly be able to see which of your clients are giving you the most return for the effort being put in. While some clients you think of as “good clients” because they always take you to lunch or invite you to company golf days may not be having as much impact as you thought, the numbers will never lie.

Try to see if there are any patterns in the clients that deliver the most value to you. Are they of a particular size? Do they come from the same industry or are they from the same areas? What is it about your service or product that seems to appeal to those kinds of businesses? What are you doing for them that your competition can’t? Are there any other companies like them?

Now try to see if there are any patterns among the personalities who work for those clients and who pay for your services. What positions do they hold and do they have the power to sign purchase orders themselves or must they go further up the chain? Knowing these things will help you to avoid dealing with people who may not have the power at the end of the day to order from you and you might be better served focusing on those who can.

The first impression

In order to find good clients or customers, it’s important that your first meetings with them be as much about you examining them as it is about you selling yourself. Do not be afraid to ask the critical questions of them to gauge how much effort it’s going to take to get your first payment.

Are they simply weighing up options or do they have a project that needs completion by a certain deadline? Why are they looking for a new supplier or service? What happened to the people who used to do it? Clients who bad-mouth the previous company they worked with clearly had an acrimonious relationship and it may be time to ask yourself why.

While they may prove valuable in the long run, clients who are simply looking at options are going to be a lot more work moving forward. You may be called upon to offer advice, or chat over coffee more than you would like, and at the end of the day, the work that earns you money may never arrive. Those with project specifics and needs, on the other hand, are looking for solutions that you can provide and want to be quoted. At the end of the day they have to deliver a completed project and will need your help. These customers are much more likely to not only earn you money now but are clearly actually doing things rather than talking about them, making them far more likely to offer you work in the future too.

But even those with work that needs to be done immediately can come with warning signs. Any small business owner should automatically be aware of the clients who want you to “prove yourself” or “do a test job for free.” Filling your time with discount seekers ultimately means you can’t take on work for those companies that would actually want to pay you and anyone who asks you for free or heavily discounted first jobs may not value you or your time and should perhaps go immediately onto the bad customer pile. 

This is a good time to also be cautious of those who refuse to work with a written contract. Anyone who actively does not want to sign on the dotted line likely has a very good reason for avoiding commitment and usually, that reason is that they don’t want to pay what or when they say they will. Remember that although in our law most verbal contracts are binding, only by reducing your agreement to writing can you minimise the risks of misunderstanding and dispute. If you insist on a contract and they suggest you don’t need one, rather walk away.

Watch out for red flags in the first few weeks

You are through the initial introductions, have quoted for work and after negotiation have had your quote accepted, in writing. Now it’s time to buckle down and do the job. This might feel like the time when you just want to focus on delivering the best work you can, but it’s also a time to be wary. Watch the client’s behaviour carefully over this period because it’s at this stage that the first signs of an imminent bad relationship will start to raise their heads.

Does the customer respect your time or do they want you to be available 24/7? Are they calling you after hours, or looking for constant updates on your work? Are their deadlines reasonable or does everything need to be done yesterday? Do they micromanage you or nit-pick your work? People with high demands aren’t always problematic, but when it crosses over into your personal time, and they think nothing of calling you late at night to hash out tiny details then you know they are already becoming more effort than they are worth.

You should be equally cautious of those clients who work the other way around as well. These clients who don’t respond to your emails or take weeks to get you answers to important questions. Clients who can’t be bothered to live up to their own project timelines will also struggle to meet your payment deadlines.

The third thing to look out for is those clients who are constantly adjusting the scope of the project. Scope creep starts out with asking you for a few small unpaid favours and slowly slips into the entire project taking on a different life to what was negotiated. Clients like this are usually more disorganised or inexperienced than dishonest but as the project grows and expectations around your workload increase, so should your remuneration. Don’t be afraid to speak up and ask for an adjustment to the contract.

The final red flag is if clients come back to renegotiate your rates for a job that’s already begun. Negotiating up front is normal and healthy, but when they don’t want to accept what has already been agreed or want to fiddle with the details it’s time to reconsider. This renegotiation technique is a sure sign they can’t really afford the project and at the end of the day they’re going to be someone who is likely to leave you unpaid.

At any stage…

So far all the issues that have arisen are probably excusable or can be overcome if the compensation is good enough, but there are some signs that are just too dangerous to ignore. If any customer of yours ever does any of these things it is far better for the long-term survival of your company to immediately terminate any further partnerships or projects and rapidly move on.

The first of these is when they ask you to copy brand logos, ideas or products from a competitor. Anyone willing to ask this of you neither respects you nor your company and certainly does not respect their competition. Being dragged into tacky business projects such as this will only end in your company being made to look bad as when they are inevitably caught, they will pass the blame squarely on to you and your new brand. 

This warning goes double for any client who asks you to ignore the law or break it outright. Examples can range from the small, such as when you are in construction and they ask you to just go a little outside of the building code to the large, such as when they ask for kickbacks or offer incentives to work with specific companies. Any form of corruption or criminality will eventually not only ruin your company but could also ruin your life.

If you have been in business for any small amount of time you are bound to have come across some people who tick some of these boxes and might be reliving the trauma of projects you would rather forget. Now is the time perhaps to head over to “Clients from hell” for a wry laugh from these people who may just have had it a little worse than you.


Are You Ready for a COIDA Employer Site Visit and Audit?

“The main objective… is to provide compensation for disablement caused by occupational injuries or diseases sustained or contracted by employees, or for death resulting from injuries or diseases…”

Compensation for Occupational Injuries and Diseases Act

Most employers – and particularly smaller businesses and domestic employers – are not able to provide cost-effective medical or insurance cover for their employees, even though the vast majority would want their employees to be compensated if they are injured, become ill or die at or because of their work. 

This is the objective of the Compensation for Occupational Injuries and Diseases Act also known as COIDA: to ensure that anyone who is employed under a contract of service, whether full-time or on a casual basis, and receives wages or a salary, whether on a weekly or monthly basis, can claim compensation in terms of the Act and, where an employee is fatally injured, the dependents can claim compensation.

What are the benefits of registration?

Employers are obliged by the Act to register and to take out this insurance, because it provides a means to assist employees who are injured on duty or contract occupational diseases with medical costs and loss of earnings, and also protects against civil claims. The Compensation Fund is a no-fault system, which means there is no need to prove that an employer was at fault. 

Employees who are injured on duty or contract occupational diseases are not left destitute and unable to work but have the means to cover the necessary medical expenses and rehabilitation costs, as well as to claim compensation for the loss of earnings. Where an employee is fatally injured at or due to work, the dependents will receive a pension. The compensation awarded does not form part of the deceased employee’s estate and can also not be attached to satisfy a debt.

COIDA prevents employees from suing their employers for occupational injury or disease, instead giving them this statutory insurance cover. So the Fund will still process claims from employees whose employers have not registered with it as required. But the Fund can then recover from the unregistered employer all the compensation it pays out, plus it won’t refund the employer for any medical costs the employer has paid. In other words, if you don’t register you risk having to pay out of your own pocket the full compensation claim, in addition to fines and penalties for non-registration. The total could be substantial, incorporating medical costs and compensation for loss of earnings, permanent disablement, death and even pension payments. 

What is covered by COIDA? 

The compensation is money paid by the Compensation Fund to employees who were injured on duty, to replace loss of wages and/or to pay medical expenses. The compensation is only paid if the employee is off work for three days or more but cover for medical expenses is not limited by this provision. The Fund does not cover pain and suffering.

Medical Expenses: Immediately after incurring an injury or disease on duty, employees can get medical attention from any medical practitioner of their choice in their area. Emergency treatment does not require pre-authorisation from the Compensation Fund. Medical expenses are paid by the Fund where it has accepted liability for the claim, covering reasonable costs incurred for the first 24 months. All reasonable medication related to the employee’s injury and prescribed by the treating doctor will also be covered. 

Loss of earnings: If an employee is booked off from work for a serious injury, the employer is obliged to pay 75% of the employee’s earnings/wages (as at the time of the accident) during the time the employee is unfit for duty but limited to the first three months. This can be claimed back from the Compensation Fund. The salary/ wages of employees booked off work for more than three months must be claimed directly from the Compensation Fund.

Permanent disability: A permanent injury, such as deafness, blindness, amputation or permanent disablement, is assessed according to a percentage of disability specified in the Act. If a disability is assessed at 30% or less, an employee may qualify for a once-off lump sum payment for that injury. If the disability is assessed at more than 30%, the employee may receive a monthly pension for life, based on earnings at the time of the accident. 

Death: If an employee dies as a result of the injury or disease, the dependents may receive a pension for life. All children will qualify up to age 18 years unless still at school or attending a tertiary institution.

Should you be registered with the Compensation Fund?  

All employers who employ one or more part-time, casual, temporary or full-time employees for the purpose of a business, farming or organisational activities must register with the Compensation Fund within seven (7) days after the first employee was employed. 

Sole proprietors and partners, shareholders or “silent partners” who are only paid dividends or sharing profits, are not employees in terms of CIODA.

Following a Constitutional Court ruling that domestic workers should also have the right to access social security in terms of COIDA, all employers of domestic workers – including those employed before the ruling – must now register with and submit the necessary returns to the Compensation Fund. A “domestic worker”’ is defined as any employee who performs domestic work in the home of their employer, and includes gardeners, household drivers and care takers but not farm workers. 

Employers must also notify the Compensation Commissioner within 7 days of any change in the particulars provided when registering. 

What is required for compliance? 

An employer is regarded to be in good standing when: 

  • Registered with the Compensation Fund  
  • Records of earnings and particulars of employees are up to date and ready to be produced upon request
  • Accidents are reported timeously 
  • Annual Return of Earnings is submitted timeously
  • Assessments are paid up to date

For registration with the Compensation Fund, employers require Registration of Employer form (W.As.2); a copy of Companies and Intellectual Property Commission (CIPC) documents; and a copy of the authorised director’s ID document. (Companies with no employees who need to register to meet the requirements on tender documents, can request an exemption letter and do not have to complete the registration process.) 

Employers are also required to keep updated records of earnings and particulars of employees and must be able to produce these records on request.

Furthermore, an employer is mandated to report an injury on duty within 7 days of receiving notice or an occupational disease contracted on duty within 14 days as soon as receiving notice. Employers can register and use the online claims registration system called COMPEASY. 

The next requirement is to submit Employer Return of Earnings (ROE) forms as per the Government Gazette. These can be filed via the free online Compensation Fund ROE Online System. A penalty of 10% on the final assessment will be imposed if the ROE is submitted after the due date.

Once ROEs are submitted, assessments are raised before the financial year end on the basis of a percentage of the annual earnings of the employees. The assessment tariffs are fixed according to the class of industry, are reviewed annually and are calculated based on the risk related to a particular type of work. Annual assessments are paid by registered employers and cannot be recovered from employees.

Payment must be made within 30 days and a penalty of 10% of the assessment is charged if the account is not settled after the due date. Interest at 15% of the balance is then charged every month until the account is settled.  

Facing a site visit? 

The Department of Labour has on previous occasions encouraged employers not to be threatened by site visits or inspections, but rather to regard these as opportunities to achieve compliance, knowing that follow-up site visits may be conducted to ensure any non-compliance has been addressed.

Indeed, if the requirements for compliance as set out above are met on an ongoing basis, a site visit should be a quick and painless process. 

Facing an audit? 

The Compensation Commissioner suggests submitting the following documents if an assessment is referred for audit. 

  • Affidavit stating the reason for variance or credit assessment 
  • Signed audited or independently reviewed annual financial statement for the year under review 
  • Detailed payroll report for the assessment year under review 
  • SARS EMP 501
  • UIF Registration number
  • Manual Return of Earnings (W.As.8)
  • Power of Attorney if your company is represented by an accountant or consultant.  

If the required information is not received within by the date stated, an assessment based on estimation will be made.

Getting ready 

While these COIDA requirements may seem straightforward, small businesses may simply not have the resources to ensure continuous compliance. Failure to comply with the prescripts of COIDA constitutes an offense in terms of the legislation.

Having been pre-warned to expect site visits and audits by representatives of the Compensation Fund, you would be well-advised to seek professional assistance to ensure that the requirements for COIDA compliance are met at all times.


Recession on the Horizon: Here’s How to Survive

During recession greed dies, frugality survives.”

Amit Kalantri, Wealth of Words)

With yet another return of loadshedding in August, and major banks upgrading their forecasts to reflect an increased possibility of further economic downturns, recession feels inevitable in South Africa. A recession is simply where an economy stops growing and starts retracting. A generally held definition of recession is when the Gross Domestic Product of a country declines for two consecutive quarters, or half a year. Apart from the shrinking GDP, recessions typically come with reduced employment opportunities and incomes, and a stalling in industrial productivity, all of which then impacts all other aspects of life from retail sales to reduced travel and entertainment. To be overly simplistic, when people are scared about their futures, they stop spending, which in turn means businesses, particularly those relying on consumer spending, stop making as much money and the economy has nowhere to go but down.

Businesses, already on the edge from years of pandemic, are preparing themselves to take yet another battering. Managing these economically turbulent times has become an ongoing challenge. Fortunately, though we have had numerous recessions before, and unlike the pandemic, economists are better able to predict the beginning, if not the length of recessions. We also have evidence for the things you can do to make sure these economic downturns don’t close your business. 

1. Manage your cash flow

In even the best of times healthy cash flow is the key to a healthy business. This is doubly so in a recession. With recession coming it’s wise to take another look at all your expenses and cut out everything that isn’t 100% necessary, while also starting to build a healthy cash reserve. Is it possible to get a better price with another supplier while maintaining your quality? Can you renegotiate your rent? What extras can be trimmed from the budget, even if it’s just temporarily? 

Sadly, this attitude also extends to your workforce. If you can afford it and your cash flow looks healthy enough, then keeping staff on is always the best solution as rehiring and retraining when the recession is over is expensive. However, if things are looking touch-and-go it might be wise to consider just who among your staff is essential. Moving your business to a model where you hire freelancers during the good times instead of bringing on full-timers, will ultimately mean that your lean full-time staff quotient is better able to weather the tough times. Remember not to fall foul of our labour laws in the process.

It is also important to ensure your money is coming in. In tough times it may not be as easy for your clients to pay you, and you need to get ahead of these situations. This is not a time to go easy on those who may have fallen behind on payments. Every cent you can recoup now is going to make the recession easier to navigate. 

2. Take another look at your debt

When the economy is booming debt is a good tool for growing a business, but in times of recession it can be the added millstone that sinks you. Debt doesn’t go away just because your business may be experiencing a downturn, so now is the ideal time to visit your accountant and take a new look at your debts, repayment dates and deadlines and how they fit into your projected, possibly reduced, cash flow.

Paying off high-interest debt first is always a good idea. However, before things get bad it may, ironically, be a good time to renegotiate your debt agreements or even take on some added debt if you think you may struggle to meet other obligations during the recession. At the end of the day, lenders are much more likely to work with you on your repayments than see you go into default. Taking the initiative may well build trust between you and your business and lenders. 

3. Don’t stop getting out there – recessions bring opportunity as well as risk

If you are anticipating a bad time ahead, then it’s likely your competition is too and it’s wise to remember that periods of downturn can often make the perfect time to grab extra slices of the market. 

The first step is to nurture the client relationships you already have. Good relationships are going to help convince people to stay with you even if there are cheaper prices elsewhere and having strong relationships with suppliers and creditors will likely give you more wiggle room and time to pay off debts if the real problems start taking hold. Equally, there has never been a better time to market your business and start putting yourself out there for new work.

In recessions it will be tempting for your competition to slow down on advertising spend, leaving you plenty of room to be noticed. The reason for this is simple; advertising during a recession is likely to be seen by clients at just the time when they are carefully considering their current service providers and what they are receiving. By having your offering in front of them when no one else is marketing you give yourself a better chance of turning their heads in your direction. 

Breakfast cereal manufacturer Kellogg is proof of this. Under the most difficult circumstances, when the market crashed in America in 1929, Kellogg doubled its advertising budget and invested heavily in staff and expertise. By 1933 their profits had increased 30% and they had grabbed their spot at the top of America’s breakfast company food chain.

4. Diversify your offering now

Don’t wait until the recession has hit to start making panic station plans. By diversifying your offering now, you will be ready to take advantage of gaps in the market that may arise due to the struggles of your competition. By now most companies are already online and selling their services and products direct, but diversification goes well beyond your online store. If you are in an industry that struggles during recessions, then expanding into products and services that don’t take a hit during tough times is going to give your company longevity. For example, basic essentials like toothpaste, medical supplies, food, baby items and in-house entertainment are all things people will need when their budgets get tighter.

Remember also to plan creatively. For example, the pandemic-fuelled shift to online purchasing hasn’t just boosted the profits of those suppliers and retailers that switched to online sales – companies that looked beyond the obvious and invested in packaging manufacture and in delivery services have also boomed.

5. Take professional advice!

Now is the time to be ruthless with your company, your products and your marketing. Getting advice from your accountant will allow you to accurately evaluate just where money may have become unnecessarily lost and will help you to spot areas of improvement. Additionally, plans can be put in place to ensure you do not struggle with your cash flow and that ultimately, you come out the other side of the recession as strong, or potentially stronger than you were before.


Choosing Accounting Software for Your Small Business

“Creativity is great – but not in accounting.”

Charles Scott, Former governor of Kentucky

Being able to track money as it is coming in and going out is essential for small business owners. Not having proper cash flow management and a full understanding of where your money is going makes it hard to analyse where your business can improve and whether it is succeeding. Come tax season compiling your tax returns accurately becomes extremely difficult if you haven’t been keeping track of every receipt and invoice. 

Fortunately, small business owners can now use out-of-the-box software that is capable of helping them to track these important aspects and ultimately to compile their various tax returns. This software can also help when it comes to invoicing clients, reconciling transactions and generating the reports. But how do you know which software programs are right for your business and which are simply more powerful than you need? And how do you balance the features you want with the budget you have?

Ask yourself these six questions – 

1. Is it simple to use?

Perhaps this goes without saying, but any software you choose needs to be simple to use. As a new business owner you are likely not an accountant and perhaps you lack basic IT skills (which is not unusual). The more complex the system the more time it will therefore take for you to get used to it, and further, to actually complete the day’s necessary tasks. When you are already overloaded with work, the addition of an extra thirty minutes of bookkeeping a day can really add up and put strain on your other deadlines.

While reviews can be helpful to narrow down your selection, it is advisable that you try out a few accounting systems before you settle on the one you want to use. Most accounting software is offered on either a free trial or comes with a guided demo to explore the interface that is easily visible before any purchase. If the software you are looking at has neither, it is wise to stay clear. 

If there is more than one person who will be using the system involve everyone in the decision-making process. Draw up a list of essential, common uses and take the opportunity of the trial to run through generating monthly reports, sending invoices, and running payroll. Simply by testing the software you will quickly discover which is the better fit for you and your team. 

It’s very important that the software is easy enough to use straight from the get-go. Don’t make excuses for the program by blaming yourself or promising it will be easier to use once you have “played around a bit.”

2. How good is the technical support?

In this light, it’s also extremely important that whatever software you do go with has helpful and responsive support. If you do ever run into a problem, it can cost a fortune to get an independent expert to help out, so rather go with a program that comes with the support you need from the beginning.

Generally, the best way for you to gauge whether their technical support is good is by looking at the reviews. Make sure you read these carefully and look for any issues around a lack of responsiveness from their side. Believe us, if there are problems, they will all be spelt out in the review. The worst time to find out that a company you are about to work with is not helpful is just after the system has collapsed and invoices are waiting to be sent out.

3. What features do you need?

Before you commit to buying any software it is extremely important that you work out just which features you need, which you don’t and which may be nice to have. What do you need the accounting software to do? Must it be able to track accounts receivable and payable? What kind of reports do you need to generate? Do you need it to track inventory? Do you need it to include ancillary services, such as time tracking, project management and payroll? Determining these aspects is important as every feature you add will likely also add to the cost and you don’t want to be paying for features you really don’t need.

There are other features to consider too that have little to do with the actual accounting functionality of the system. There are:

Integration: How easily does this software integrate with your other systems. It’s no good buying an accounting program that only runs on Apple when you are a Windows Office user. Beyond the obvious you should ask, “Does this software integrate with your shipping system, and sales platform?” Choosing software that integrates across the board could save hundreds of hours of troubleshooting in the future.

User access: Just how many people can be authorised to use this piece of accounting software? Can you set different levels of visibility and authority for different people? Perhaps you want your sales team to be able to invoice clients, but not see all the same things your accountant can see? Is this possible? Make sure the system you buy has the user access capabilities you need.

Accessibility: How accessible is your data? Most accounting solutions these days offer cloud-based access, allowing you to check your accounts from anywhere in the world and on any device. Which services are available on the app and which are available on the core program? Which services are essential for you to be able to operate remotely?

4. What is your budget?

Every cent can make a difference to the small business and your accounting software is no different. When making your choice, it’s important to formulate a budget and stick to it. Apart from your starting costs watch out for any additional charges, which may add up. When purchasing make sure you fully understand things like setup and customisation fees, to make sure you’re not missing anything. 

5. Will you need to upgrade down the line?

When choosing an accounting system, you need to be aware, not only of your needs now, but also of your potential needs in the future. You may only need essential recording and reporting at this stage, but in the future might foresee the need to scale the system to do payroll and other valuable tasks. Carefully balance your current budget and your needs with your potential growth – how long will it take before you need to upgrade? What features will you need when you do? You may decide that you need to choose a system now that can be easily scaled at a later date, requiring you to spend a bit more money. Alternatively, it may make sense to use a simple system now with no scalable benefits and then overhaul it to a more complete system later. All of this is going to depend, not only on budget but on how much appetite you have for training and learning new systems in the future.

6. What do your accountants suggest?

Discuss your financial recording and reporting needs with your accountants. It is likely they have assisted and advised other clients on the selection and set-up of systems appropriate to various businesses’ needs. They may well have ‘war stories’ to tell of issues and systems you need to be wary of.


The Importance of a Good Credit Score

“You cannot escape the responsibility of tomorrow by evading it today.”

Abraham Lincoln

A good business credit score is a critical tool in business success as it helps your business unlock, establish and maintain relationships with lenders, suppliers and vendors. It reveals whether an organisation should lend your business money, give it credit or enter into a business relationship.

Building good business credit is, therefore, a vital aspect of running any enterprise and the sooner you embark upon developing a good credit reputation, the better. Business credit allows access to the funding you may need to expand, or get through a tough time, and can even give you better terms with suppliers and other vendors. Perhaps most importantly though, by establishing a good business credit score, you can take an important first step toward creating a dividing line between your business and personal finances, even if you’re running a sole proprietorship or partnership. 

So just how do you build this credit score and just what do you need to do to ensure you have the best score possible when the time comes to use it?

So, what is business credit?

Your business’s credit is a score that measures your history of borrowing and making repayments. In South Africa, Experian, TransUnion and XDS compile commercial credit reports and generate business credit scores using the information given to them by financial institutions such as your bank as well as any defaults that may have been recorded against you by those who may have loaned your business money or advanced it credit facilities which the business has failed to repay on time or at all.

Putting together this information will give any potential vendors and loan companies a clear picture as to just how reliable your business is when it comes time to pay back any loans or accounts. 

In South Africa, scores can range from 0 to 100 for some bureaus and 300 to 850 for others. The higher the score on the scale the safer it is to loan money to the business. For instance, any score lower than 527 on the latter scale is considered high risk, while scores above 750 are considered low risk.

Any business that records a high-risk level will therefore find it difficult to secure loans or indeed potentially even rent office space.

There are four different criteria that the bureaus look at to calculate your score. 

  • Your debt payment history, 
  • Amount of credit used or your credit utilisation ratio, 
  • Your length of credit history, and 
  • Your credit mix which looks at how you use credit and what kinds of credit are available to you.

As these reports are generated based on past behaviours, new companies may find it extremely difficult to secure loans. Without the history of past behaviour for a potential loan company to examine, your business’s risk would likely be considered fairly high.

How do you build your credit score?

So just how do you go about building your credit score? And how do you avoid falling foul of the system?

  • Pay your creditors on time: This one really goes without saying. If you contract for a service or supply, you must pay the bill for that service timeously and on the agreed upon terms and date. Failing to do so could allow that creditor to list you with the bureaus thereby damaging your credit score.
  • Use less revolving credit: Revolving credit is the kind of credit that is always available to you to use as long as you keep on making the necessary payments on the outstanding balance. Credit Cards, where a set amount of credit is extended and which can be drawn against and used as needed is an example of this type of credit. This differs from instalment credit where there is an end goal amount to be paid off and that amount may not necessarily be advanced again once a payment is received.

Revolving credit can be a good way to establish a relationship with financial institutions and help you build a credit score, but it can also be a trap. Revolving credit impacts a portion of your credit score called Credit Utilization which looks at just how much of your available credit you are using at any given time. Your Credit Utilisation is a calculation of how much of your overall credit you’re using and the amount of credit available to you at any given time. This calculation shows lenders and the credit bureaus how reliant you are on credit. Keeping it low on all your store and credit cards will positively impact your score. It will show lenders that you know how to use credit and you aren’t racking up debt that you cannot afford to pay. As a guide, you should try not to use more than 25% of your available revolving credit at any given time.

  • Fix your cash-flow errors: Missed payments don’t always happen because your company is doing badly. Quite often they can be missed because a large invoice has simply not been paid on time. Making sure you have a balance of reserve money is important to ensure you don’t miss any crucial payments as credit scores do not have an excuses column to factor in as to why you missed your repayment obligations.
  • Avoid missed payments and judgments: This takes us on to the next step, which is missed payments and their severe cousin, judgments. Missing too many payments is already bad, but worse is when a company gives up on you and files a warning with the bureaus that you are not to be trusted. Typically, defaults are listed for credit accounts overdue by 90 days or more. 

“Defaults” such as subjective classifications of consumer behaviour (delinquent, default, slow paying, absconded, not contactable and the like) typically remain on a credit record for one year, whilst classifications related to enforcement action (handed over, legal action, debt write-off etc) remain for two years.

If a court judgment is issued, that stays on your credit record for five years and remains collectable for thirty years in total.

  • Keep your suppliers in the loop: To avoid missed payments and judgments it’s highly advisable that you keep suppliers and creditors in the loop should you miss a payment or expect to miss one in the future. Explain what you have done to rectify the matter and when they can expect payment to avoid having your mistake recorded on your credit score. Of course, it is essential to then ensure the payment is made as promised.
  • Establish business credit with companies that report trades: Establishing a good credit reputation with companies such as banks that report to the bureaus is a good way to ensure you build a credit score quickly. Using credit responsibly helps establish your ability to show discipline and pay on time and in full. Other companies that may report on your behaviour include telecommunications and utilities companies.

Get your free reports

The National Credit Act states that every business is entitled to access their credit reports once a year, totally free of charge from each credit bureau. Keeping track of your credit score will allow you to see whether your business is improving or falling behind on its goals and give you a clear picture of just how others perceive you. It will also allow you to see if the information there is correct – incorrect judgments can be included on these bureaus, and checking the reports helps you correct any that may be hurting your company’s credit score.

Head to these links to get your credit score report directly from each bureau:

In conclusion, a credit score is about your relationships with those with whom you transact. If you make payments timeously, use the credit that is available to you, and keep an eye on your credit score for any inaccuracies, you should be able to build a solid credit score in about two years. 


Top Ten Tips for Maintaining a Strong Cash Flow

“Never take your eyes off the cash flow because it’s the lifeblood of business.”

Sir Richard Branson

Managing cash flow is often one of the biggest challenges business owners face and is also the reason for a concerningly large percentage of business failures. 

Cash flow can be defined as the total amount of money that comes in and then goes out of a business and – crucially – the timing between cash flowing in and cash flowing out. 

A positive cash flow means the business earns more than it spends and is a key indicator of the financial health of your business. A consistent, positive cash flow ensures there is cash on hand to cover payroll, expenses and loan repayments on time and enables business growth by ensuring cash is available for timely equipment purchases and upgrades, and investment in new opportunities that arise. 

As such, proper cash flow management is key to your short – and long-term financial success, and cash flow strategies should be a priority in your business planning. Good cash flow planning will allow you to predict when money can be expected to be received, and when it must be paid out. With this information, you can plan ahead and make smart business decisions.

Implementing the ten top tips below for maintaining a strong cash flow will ensure businesses can enjoy all these benefits in a short time and with little effort.

  1. Increase sales – More sales are obviously the preferred strategy for a business to grow the amount of cash flowing into the business, and it provides more benefits than other options such as liquidating assets or taking out a loan. 
  1. Collect client payments quickly – Late payments from clients are one of the most common reasons why businesses experience cash flow problems. Manage this proactively by invoicing clients promptly and sending monthly statements early. Verify the invoice was received, and contact late payers well in advance, reminding them to pay on time. Follow up on late payments right away, offer discounts to clients who pay early, and implement a cash-on-delivery policy for chronic late-payers. You could also consider requesting deposits when taking orders, and if you offer credit to clients, make sure to do credit checks first and maintain stringent credit policies.
  1. Adjust inventory – Inventory that doesn’t sell well will also negatively impact your cash flow. Move outdated inventory and offload less frequently purchased items for discounted prices and don’t replace this stock – rather invest more into stocking items that do sell well. 
  2. Manage and trim expenses – Cash flow reduces as and when expenses are paid, so managing your expenses better and eliminating unnecessary costs will immediately boost cash flow. Also consider other ways to conserve cash flow, such as leasing instead of buying equipment.
  1. Prioritise payments – Know exactly which payments must be made when, then order according to priority, and spread payment dates so the most important bills are paid first and the less critical account payments with more flexible payment dates are paid later. Where necessary, negotiate payment terms with your suppliers.
  1. Increase efficiencies – Take advantage of technological advances and artificial intelligence-enabled solutions, such as apps, software and equipment to streamline your business processes and increase efficiency. Also, consider identifying operations or tasks that can be cost-effectively outsourced to freelancers and third-party service providers. 
  1. Use a business credit card – A well-managed business credit card could be used to pay day-to-day expenses during the month to free up cash. This will require keeping a tight record of those expenses and being disciplined in repaying the full balance within the interest-free period. It will also allow the business to benefit from any rewards programs that can reduce expenses, such as a certain percentage of cash back on some purchases.
  1. Keep a line of credit – A business line of credit can be a saving grace for small businesses and companies impacted by seasonality. It provides quick access to funds when needed, for example, to bridge gaps between invoicing and payment, to buy equipment, to cover seasonal or unexpected expenses, or to take advantage of growth opportunities. The business will have to negotiate such a facility before cash flow problems arise. 
  1. Make your money work – At times, there may be a surplus of cash, for example, in seasonal businesses, and at these times, it is crucial to make sure this money works for the business. This can be achieved through building up a reserve fund for emergencies, which experts suggest should ideally be sufficient to cover six months of business expenses; making smart short-term investments and paying off debts faster to reduce interest and shorten loan terms. Consider investing any surplus cash, short-term or otherwise, in a money-market call account to earn interest rather than leaving it idly resting in the bank account.
  1. Use accounting expertise – Successfully monitoring and projecting cash flow often requires professional assistance. Alongside the balance sheet and income statement, the crucial cash flow statement is one of the three main types of financial statements. Generally covering three main areas: everyday business operations, investment activities, and financing, it reveals trends and allows potential cash flow problems to be identified and managed in time. 

Projecting future cash flow requires assessing the previous year’s numbers as the basis of cash flow for the following year and then adjusting these numbers for anticipated changes, such as new pricing, more staff and new funding sources. Of course, these forecasts will change continuously, so it’s important to monitor cash flow on an ongoing basis. 

Speak to your accountant about accessing cash flow reports regularly and for professional assistance in understanding what they reveal about your business, to enable more accurate and relevant business decisions.


Is Your Trust Registered and Ready for Income Tax?

“A trust is a ‘person’ for tax purposes and is therefore a taxpayer in its own right.”


SARS recently sent out a reminder confirming that in terms of the Income Tax Act, 1962 (ITA), all trusts are taxpayers and that the trustees, who are also the representative taxpayers of the trust, have a responsibility to register the trusts – whether active or dormant – for income tax purposes. 

The representative taxpayer (trustee/s), or the appointed tax practitioner, must also file an income tax return for the trust on an annual basis, and before the tax season deadlines to avoid penalties and interest.

Trusts that are required to register include all local trusts, non-resident trusts that are effectively managed in South Africa, as well as non-resident trusts that derive income from a South African source. 

Why business owners use trusts 

Trusts are used to hold, protect and ensure the continuity of ownership of personal or business assets, shares in businesses, and the right of use of assets. 

The benefits include protection of assets against creditors, for example in the case of liquidation or sequestration, and against other parties – for example an ex-spouse, or ill-intentioned family member. 

Where appropriate, a trust can be a useful tool to help ensure effective future planning; achieve continuity through efficient succession; and even managing certain tax liabilities, such as estate duty. 

A business can also be registered in a business trust, also called a “trading trust,” instead of registering as a company with the CIPC. This option, however, is only appropriate where the main aim is conducting business, and a contractual agreement will task the trustees to manage the assets of the trust for a profit.

While a business trust can be useful to protect assets and safeguard the business owner against certain liabilities, it also has several drawbacks and may not always be the right alternative to registering a company. 

Whether a business or personal trust, professional advice and guidance is crucial, because not only are the rules governing trusts complex, but the taxation of trusts requires specialised expertise. 

The taxation of trusts 

Whereas companies in South Africa are taxed at a flat rate of 27% for years of assessment ending after 31 March 2023, the income tax rate for trusts is currently 45%, and it is levied on any income retained in the trust. 

This is the highest income tax rate, and trusts also do not qualify for any of the rebates provided for in Section 6 of the Income Tax Act.

Trustees may allocate income and capital to multiple beneficiaries, so that the tax obligation is spread, possibly at a lower rate in some instances. This is because, depending on circumstances, income distributed may be taxable in the hands of the founder, the beneficiaries or the trustees. 

There are also special trusts, taxed at a sliding scale of 18% – 45% (the same as natural persons), and some special trusts also qualify for certain relief from Capital Gains Tax. 

How to submit a tax return for your trust

It sounds quite simple in theory: an ITR12T must be completed and submitted. 

In reality, a ITR12T trust tax return is a 31-page document, and completing it correctly is no quick or easy task. 

Firstly, a trust must be registered with SARS for the taxes for which it may be liable. In addition, the trustees of the trust – who are also the representative taxpayers of the trust – must file the return within the tax season deadline. This responsibility may be conferred to a specific trustee, or to a professional appointed by the trustee(s).  

To make it easier to comply, SARS has announced some enhancements to its system. For example, whereas one could previously only register a trust via a visit to a SARS branch, taxpayers can now register a trust for tax purposes through the SARS Online Query System and also submit any supporting documents online.

Furthermore, the ITR12T trust return form is now available on eFiling. The representative of a registered trust can request the return on eFiling and customise it by completing the questions on the Tax Wizard. Requesting the ITR12T to be posted, as was previously required, is no longer an option and trust returns received via post will be rejected. 

Taxpayers registered for eFiling are also able to complete and submit the return online. Only trusts with ten or fewer beneficiaries have the option to have the ITR12T return captured by a SARS agent at a branch, and only if an appointment has been made.

When the filing period for trusts ends, SARS will raise original estimated assessments on ITR12Ts that were not officially filed by the taxpayer.

After the estimated assessment has been raised by SARS, the taxpayer will be allowed to request an original (new) return to be submitted to SARS. The same estimated return will be issued on eFiling to be completed, with a new version number of the return. 

The taxpayer will be able to request a correction after the original return has been submitted, until one or two rejection letters have been received from SARS. Thereafter, the taxpayer will have the option to dispute the decision taken by SARS.

Bear in mind…

  • SARS introduced a number of form and system changes in respect of trusts from 24 June 2022.
  • SARS has advised trusts that all outstanding income tax returns are submitted without delay to avoid further penalties and interest.
  • SARS reminds trusts not registered for income tax purposes of the availability of the Voluntary Disclosure Programme (VDP), an option that should only be considered after obtaining professional advice. 
  • If the ITR12T return is not submitted by the relevant deadline, the trust will be liable for an administrative penalty due to non-compliance.
  • Provisional taxpayers are required to make provisional tax payments within six months after the commencement of a year of assessment and then again by the end of the year of assessment.
  • The trust is required to keep all the relevant material and supporting documents for a period of five (5) years from the date of submission of the return. SARS may, within the 5-year period, request these documents to verify the information that was declared on the ITR12T.

Keep Your Business Simple!

“Simple can be harder than complex: You have to work hard to get your thinking clean to make it simple. But it’s worth it in the end because once you get there, you can move mountains.”

Steve Jobs, co-founder of Apple

It is easy in business culture to start believing that more is more. Entrepreneurs often fall into the trap that more meetings, more employees, more products and more leads is equal to more success. Many large companies have failed because they branched out too much, lost focus and, as a result, lost their market.

Quite often the idea that bigger is better and more is more can lead to poor decision making that guides a business away from its competitive advantages, confuses the market and leads to a lack of focus internally. The flip side of this is the ability to strip back unnecessary complexity and instead focus on simplicity. 

Simplicity is defined as “the quality or condition of being easy to understand or to do” and it comes with some genuine advantages.

The advantages of simplicity

  1. Being understood

The major advantage of simplicity is that it makes it easy for everyone in your organisation to be on the same page. Having everyone understand the goals and ambitions of an organisation is easier when you are a small company, but as things develop it becomes increasingly difficult to get everyone pulling in the same direction. 

Removing jargon and chaff from company communications, and simplifying product offerings, your vision, team structures and communication will ensure that not only do your team know what they are doing day-to-day to achieve success, but also that they know how to do it. 

Once your whole company is singing from the same hymn book it’s far easier to get the world at large to understand what you are doing too, which makes defining your brand and selling your products a simpler proposition at the same time.

  1. It’s easier to operate

The more things that have to happen right for your business to succeed, the greater the risk. Keeping your business practices simple; from the number of suppliers to the levels of training needed by your staff will help you avoid the problems that complexity can bring. If you have thirty suppliers, it takes only one of them to fail to start impacting your business. 

On the other side, if you have one supplier of a common product that can be sourced somewhere else, it’s much easier to keep a handle on your production line and ensure that you always have the products you need. (Of course, you do not want to be reliant on a sole supplier without the option of other sources for your essential resources). Obviously, this is an extreme example, but it will never hurt to go through your supplier lists, staffing or any other factor of your business and look at where the number of cogs can be reduced.

Also, with a select group of suppliers, it will be easier to keep informed of their health and sustainability and ability to continue supplying your business regularly and on time. 

  1. It’s adaptable

A simple business model is much easier to adapt should the need arise. A simple business with easy-to-understand communication lines and supply chains is easier to pivot because staff can all be contacted at once and updated, while supply adjustments can be adapted as needs be on the spot.

  1. Results are easier to measure

Overly difficult strategies are harder to implement, and they also make it harder to gauge results. It is far harder to work out which staff and departments are delivering the most value in a company when you have two dozen departments with different KPIs and a hundred staff each than it is in a small company with just a handful of staff. The most successful companies have a straightforward direction, along with clear and simple measuring parameters that keep them on track. 

If, however, your operation has grown into a business with a number of divisions, apply these tips for simplification to each division to encourage their efficient and effective performance.

Tips for simplifying your business

Ironically, making a company easy to understand and operate is not necessarily an easy thing to do. Getting to grips with where changes need to be made will take some time and will require bold decision making. Here are our tips for keeping things simple in your business.

  • Outline your goals

Whether you want to reduce waste, increase employee happiness, or boost profitability, simplifying your business should always start with defining your goals. This should be a short list that allows you to more clearly understand and communicate just what is being tackled and why. Having a short list makes it much more likely that it will get completed without burdening staff further, and also allows you to easily see if the process has been successful. 

Having simple, clearly defined objectives and goals, that the whole team understand and commit to, gives the business the best possibility of success.

  • Consider the outsider’s perspective

There is no doubt, if you lead a business, that you know what it is you are offering and just how many ways you offer it. Being in this position of full understanding can, however, mean that you have lost track of what the average person, or woman, on the street thinks it is you do. Looking at your company from the perspective of an outsider is therefore important if you want to get a sense of how your company and brand are perceived. 

The easiest way to do this is simply to ask. Ask customers, ask friends, ask people at business meetings, or, if you are a larger company, hire a company to do a survey or bring in a consultant. Getting other people’s opinions will quickly show you if you have lost track of your core business. If there is confusion about what you do, or what your primary services are, then it’s a sure sign you may need to go back to basics or change the messaging around your company.

At the same time, ask your customers what they really want. The answers may surprise you and reveal areas where you have been putting in a lot of effort that doesn’t necessarily give the customers what they actually need. This is an essential exercise to determine the continuing relevance of and need for your service offering or product. Change is an ever-increasing factor and new products and services are coming to market. Keeping your business focussed and simple can enable recognition of the emerging threats and need to change, adapt or even develop new offerings.

  • Focus on outcomes

While it may be tempting to watch every move every employee makes, doing so is a hugely time intensive activity that adds layer upon layer to the complexity of a business. Instead of simply hiring someone to do the job, you are now hiring people to supervise and check up on them, and to do that requires more HR functionality to manage all their expectations. Your focus should be on performance outcomes of your key employees.

Additionally, not all rules and regulations will assist your company and these need to be looked at carefully if you want to streamline workflows and increase employee job satisfaction and retention. Look, for example, at how many people need to review and sign off on expense reports or small purchases; or how many times slide decks need to be reviewed before they are presented. 

Reducing menial tasks and making things easier to do gives employees more time to actually do their real jobs properly. The answer to all of this is to focus on outcomes and avoid micromanaging your team. Be sure to maintain an open line of communication with the understanding that the more you listen to your team, the simpler things will be and the better the entire group will work. In addition, being accessible and listening to your people will alert you earlier to emerging risks and potential opportunities in time to take action.

This is going to extend to your ability to hear bad news or have employees tell you when they think your decisions may be wrong. You are only going to find out about bad practices and unclear instructions if you are genuinely interested in fixing problems rather than protecting egos.

  • Fix your non-functioning processes

Whether it’s because you have been in operation for so long that your processes have become redundant or because you are just starting out and haven’t developed any, having non-functioning processes can hamper your workflow and cause a huge amount of unnecessary and time-consuming work. 

The first step is identifying your pain points. Start with the areas of the business where you are actively getting complaints. Break down what processes are leading to these complaints and fix them. The time you spend developing good practices will be more than paid back in the decreased amount of time you spend putting out fires and dealing with unhappy customers. Ultimately, you will want to look at all your processes to make sure they are running optimally, and that time isn’t being wasted unnecessarily dealing on a daily basis with inconvenient problems that could be solved outright. 

  • Organise administration assistance

Administration is a necessary but unfortunate consequence of doing business that can clog up all the otherwise smooth flowing systems. You did not hire those important and highly educated staff to have them sit filling in order forms. You and they should be focused on driving the business, not dealing with payment complaints. Whether you choose to use automated assistance that frees up a researcher’s time in a laboratory, an accountant to organise your finances and save you money on your taxes or someone in HR to deal with errors in pay, getting others to do the finicky work will allow your core team to focus on what they need to do to bring in the profit. Keep management of operating/production teams simple. In the long run, the time saved for everyone will turn into a smoother, and more efficient company. 

At the end of the day, simplifying a company is about getting to the core of what it is you need to do, supplying customers with exactly what they need and no more, making sure your staff are well informed and working together and not overburdened with work that isn’t their place to do.


Owe SARS a Tax Debt? Here Are Your Options…

“Tax debtors are expected to take responsibility for their tax obligations and to organise their affairs in such a way as to be able to discharge those responsibilities when required. They should give at least the same priority to tax obligations as their other responsibilities.”

SARS’ Short Guide to the Tax Administration Act

To avoid tax debt, penalties and interest, it is best to file returns and make payments timeously. However, for a range of reasons, taxpayers may not be able to meet these requirements on time, finding themselves facing a tax debt owed to SARS. 

There are different ways in which tax debt can arise, and while the taxpayers’ agreement and ability to settle this debt will determine the details of each taxpayer’s response, all tax debts should be handled the same way: promptly and with professional assistance.

If you or your company have any tax debt, take action without delay! In certain circumstances and with the right professional assistance, an agreement may be reached with SARS to defer the tax debt for later payment or for payment by instalments.

How do tax debts arise? 

Tax debts can arise from administrative penalties on late or non-submission of tax returns, failure to submit tax returns, the submission of returns without payment, partial payment of a tax liability or from a SARS audit assessment.

How would you know about a tax debt? 

Individuals and businesses should – proactively and on a regular basis – check their compliance status with SARS or obtain a statement of account on the various taxes payable, either from their accountant or via the SARS’ Contact Centre, eFiling and the SARS MobiApp, to confirm if SARS is owed any amounts. 

SARS is also required to inform taxpayers of assessments, notifications or communications issued, by also sending a message to a taxpayer’s last known number or email address. This makes it crucial to keep your contact details updated at SARS and to check your compliance status or statement of account whenever an email or SMS is received from SARS. 

No dispute, but can’t pay now? 

In many cases, a taxpayer may not dispute the existence or amount of a tax debt but is unable to meet the payment required by the stipulated date. 

In this case, there are two options that could be considered based on the unique facts of each case. 

  1. The first is a payment arrangement 

SARS provides for a deferment, or instalment payment arrangement, for the outstanding tax debt. Taxpayers can request and enter into an instalment payment arrangement with SARS that allows the outstanding debt, including applicable interest, to be paid in one sum or in instalments over time (up to 36 months). This agreement is subject to certain qualifying criteria, for example, the payment arrangement must cover the entire debt and all non-compliance must first be remedied, which means all returns and/or recons must be correctly submitted.

Until recently, taxpayers could only make payment arrangements via a debt collector who had been appointed by SARS, in person at a SARS branch, utilising the debt management regional email addresses, or on the My Compliance Profile (MCP) on eFiling.

SARS recently implemented the Enhanced Debt Management process to help taxpayers with outstanding debt initiate a request for Payment Arrangement for Personal Income Tax (PIT); Corporate Income Tax (CIT); Value-Added Tax (VAT); Pay-As-You-Earn (PAYE) and administrative penalties via eFiling. 

If granted, the repayments are loaded via eFiling to be released from the taxpayer’s bank account. Interest will continue to accrue on any unpaid debt, and any breach of the conditions will terminate the payment agreement and normal collection proceedings will resume.

  1. The second is a compromise agreement

Applying for a compromise agreement is an option of last resort when a taxpayer cannot afford to settle the tax debt owing to SARS. A SARS Debt Compromise is a process whereby a taxpayer requests that SARS permanently or temporarily “write-off” a large portion of their debt, with the balance being paid in full by the taxpayer immediately on the condition that the taxpayer complies with any conditions imposed by SARS.

It is important to note that a temporary write off is generally merely a suspension of the recovery of a debt, and the debt may still be recoverable during the prescription period which, under the Act, is 15 years. 

In deciding to grant a compromise, a senior SARS official must have regard to several factors. However, no compromise will be granted in several instances, for example, if the taxpayer’s other tax affairs are not in order or where a taxpayer recently had a previous compromise agreement with SARS. 

A compromise also cannot be considered if the taxpayer disputes the debt. If a matter is under objection or appeal, the taxpayer must withdraw the objection or appeal before a compromise can be considered. 

If you are looking for a compromise with SARS, professional assistance is crucial. 

Disputing a tax debt? 

Often, taxpayers disagree with assessments issued by SARS. While taxpayers do have the right to dispute an assessment by lodging an objection, it is vital to note that an objection or appeal lodged with SARS does not in any way suspend or postpone the payment of the tax debt. 

Aptly named the “pay-now-argue-later” principle, it applies to all tax debt. 

To prevent SARS from instituting collection proceedings on a tax debt that is to be disputed, two steps are required: 

  1. Lodge an objection in dispute of the assessment AND
  1. Submit a “Request for Suspension of Payment.”

The taxpayer is protected from all SARS collection procedures between the dates that SARS receives the request, to 10 business days after SARS issues its decision to grant or decline the Suspension of Payment request.

A Suspension of Payment request can only be granted by a senior SARS official, after taking into consideration several factors, including the compliance history of the taxpayer and whether the dispute is a result of fraud.

If a Suspension of Payment request is granted, SARS may not commence any collection proceedings for the tax debt in dispute pending the outcome of the objection or appeal. However, interest will accrue on the unpaid debt.

If SARS denies the Suspension of Payment request, the taxpayer also has the option to apply to SARS for a payment plan. A Suspension of Payment is also revoked if the dispute process is not followed. 

On the finalisation of the objection or appeal, a revised assessment will reflect the resulting tax debt and the due date for payment. Again, if the revised tax debt is not paid on time, SARS may commence collection proceedings.

Why you must act promptly and professionally

It is a criminal offense to not submit a tax return when it is due, and it can be a criminal offense not to pay.

If you cannot pay a tax debt to SARS and do not follow the correct procedures, SARS is legally allowed to exercise its wide powers of collection. However, SARS states that when deciding the most appropriate way to deal with outstanding tax obligations, it will give considerable weight to the tax debtors’ individual circumstances and compliance history of, for example, lodging correct returns and documents and paying taxes on time.

SARS’ debt collection powers extend to issuing a judgment and having a taxpayer blacklisted; obtaining a preservation order in respect of taxpayer assets; attaching and selling taxpayer assets; and bringing sequestration or liquidation proceedings against a taxpayer, even if the debt is disputed. In fact, even the money in your savings account or your income may be in jeopardy.

This is because SARS can access data in relation to every bank account registered in your name using your ID number and can also recover tax debt through third parties who hold money on your behalf, such as a bank, an employer, an insurance company or an attorney. 

Due to recent changes to the tax laws, there have been increasing reports of SARS collecting ‘outstanding tax debts’ from taxpayers’ bank accounts, without the taxpayers’ consent. While SARS can indeed do this without any judicial oversight, it is important to know that SARS is required by law to follow specific steps prescribed by the Tax Administration Act (TAA) before doing so. 

These include that the taxpayer must have received an assessment from SARS detailing how much is due and by when, as well as a final demand for payment that states available debt relief mechanisms contained in the TAA; and recovery steps that SARS may take if the tax debt is not paid. Taxpayers who can prove serious financial hardship may apply to SARS for a reduction of the amount within 5 business days of receiving the final demand or extend the period over which the amount must be paid.

Only 10 business days after delivery of the final demand, if no response has been received from the taxpayer, can a senior SARS official authorise a third party to collect the tax debt. However, if SARS does not follow the steps detailed in the TAA, collection proceedings may be regarded as illegal and in contravention of the TAA, and the taxpayer will have recourse against SARS via its Complaint Management Office (CMO), the Tax Ombud or legal action. Again, in these instances, professional assistance is strongly recommended.


Learning The Essential Art of Delegation

“The really expert riders of horses let the horse know immediately who is in control, but then guide the horse with loose reins and seldom use the spurs.”

Sandra Day O’Connor, former Supreme Court Justice

n be tempting, and even inspiring, to be seen “rolling up your sleeves” to execute tactical assignments. But as your responsibilities become more complex, the difference between an effective leader and someone who is battling to do everything themselves will become clear. While it may seem difficult, elevating your impact requires you to embrace an unavoidable leadership paradox: You need to be more essential and less involved. The trick is learning to delegate effectively – a skill you may not have expected to need to know.

To know if you are delegating well or need to still learn a few tricks, you just need to ask yourself this one simple question, “If you had to take an unexpected week off work, would your initiatives and priorities advance in your absence?” If the answer is no, or only maybe, then you need these tips for learning to delegate.

Work out what can be delegated

Step one is knowing exactly what can, and should, be delegated. It’s important you take time to analyse the work you are doing to assess which things aren’t maximizing your efforts and time to the fullest and then work out which tasks would help your teammates develop into the kinds of people the company will need in the future. For your team members to grow, you will need to offer them opportunities to prove themselves and learn new skills. The perfect tasks to delegate are those that are within an individual’s capabilities, but which push them outside of their comfort zone and force them to develop new skills or ways of thinking.

Take time to teach them how to do it

When you first delegate a task you will need to take the time you would have used actually doing that task to teach the new person just how to get it right. This period of training will achieve a few things. Firstly it will make the person who is tasked with the new responsibility capable of actually getting it right first time, but secondly it will give you the confidence to hand the task off effectively as well as develop your new and valuable skill of mentoring and training. 

During this period of training you need to stress the reasons for the task. When people lack understanding about the value of a task or why they have been chosen to do it they also lack the motivation to do it well. Giving them the context about what’s at stake, and the benefits of the opportunity, increases personal relevance and the odds of accurate follow-through. As well as reasons, you also need to clearly provide your expectations. Your employee cannot read your mind, so the need for quality and meeting the delivery date must be equally clear-cut when you pass the job over. Once clarity is established, confirm their understanding preferably face-to-face to avoid any later confusion. Often, mistakes by trusted employees can come down to poor communication on the brief.

Let them do it themselves

For people used to doing everything themselves, this may be the hardest aspect of the entire process. While monitoring them doing the job from afar will allow you to pick up any mistakes as they happen, micromanaging them will only put unnecessary pressure on them and can force mistakes. You need to get out of their way. If your hiring process has been good, you have chosen the right person to delegate to, have clearly defined the task, taken time to teach it to them and then explained your expectations, micromanaging them doing it will not be necessary. Demonstrating that you trust them to do the work will likely yield rewards. Part of delegating is learning to respect the varied and creative ways your teammates get the jobs done instead of requiring that they do it exactly the same way you would have. 

Being able to do this successfully builds confidence in the employee tasked with the job and also gives them greater job satisfaction at the end of the day when they achieve it. This in turn will make them more willing to take on other tasks and keep them happier in their workplace, meaning you are less likely to lose a now skilled employee.

Prepare accurate feedback

Once the task is complete for the first time, it’s important to have a follow-up session at which you analyse their performance with the task and offer both positive and negative feedback. This is an important step in reinforcing the lessons, building confidence and correcting any errors in technique or process before they become locked in habits. It’s as important here to recognize the things the employee did well as it is to recognize the things they did badly. Likewise, if the work differs too much from what you were looking for, take immediate and decisive corrective action. Mutually agree on a plan to return to the targeted goals and take a more active role in monitoring of the task. If the situation doesn’t improve, end the assignment and move on. 

Once you are confident the job can be done well, feedback sessions remain important, but can be conducted less often. It’s vital to ensure you continue to recognise the input of your employees and reward those who are doing well. Exceptional performance is more likely to continue if it’s noticed and rewarded. Do follow through when someone performs exceptionally and be generous with promotions, salary increases, bonuses, and a sincere and heartfelt thank-you. 


Tax Season 2022 Now Open: Beware, This Year’s Deadlines are Shorter!

“Few of us ever test our powers of deduction, except when filling out an income tax form.”

Laurence J. Peter

In this article, we look at the who, how and when of this 2022 Tax Season; highlight some issues that require special attention; and suggest practical next steps to help you avoid the last-minute rush, the risk of errors and omissions, and the cost of late submissions, penalties and audits. 

At a glance 

Tax Season 2022 opens 1 July 2022 – here is a quick overview of who must submit, how they must do so and when by:

Who is exempt from filing? 

  • Individuals receiving total annual gross income of less than R500,000 from only one source with no other allowances or benefits, and from whom PAYE has been deducted as per the prescribed tax deduction tables.
  • Individuals who are not claiming tax related deductions or rebates such as medical expenses, travel and retirement annuity contributions other than pension contributions made by their employer.
  • Individuals who only receive interest below the interest exemption thresholds; amounts from tax-free savings accounts; or dividends. 
  • Individuals who are non-residents throughout the year.

Even if you could be exempt at first glance you might still benefit from filing a return due to your particular circumstances. If there is any doubt, professional advice is essential. 

Issues requiring special attention 

This year’s tax season is substantially shorter than last year’s for provisional, non-provisional, manual and branch office submissions! 

Last year, non-provisional taxpayers had until 23 November, extended to 2 December at the last minute. This year’s deadline is a month earlier, on 24 October 2022. 

Similarly, the 23 January 2023 deadline for provisional taxpayers is a week earlier. That’s less than seven months away, including the December and January holiday periods. 

  • Home office expenses remain in the spotlight, as SARS disallowed over 60% of home office claims last year. Make sure you qualify for this deduction, and that it is correctly pro-rata calculated for allowable non-capital expenses such as rates and taxes, electricity, repairs and insurance. Deductions can’t be claimed for reimbursements or equipment provided by an employer without charge. Also be sure to understand the potential capital gains tax impact when you sell your home for which the deduction was claimed. Professional advice is essential here!
  • Last year more than three million taxpayers were auto-assessed, and significantly more individual taxpayers will be auto-assessed this year. If you are auto-assessed, SARS will send you an SMS that your tax return has been pre-populated by SARS on eFiling or the SARS MobiApp. Check with your accountant before making any decisions about your auto-assessment.
  • Be sure to check if your auto-assessment is correct as soon as you receive the SMS notification, because this year there is no need to “accept” the assessment: SARS will regard it as accepted unless changes are made as detailed below before the 24 October deadline. If an amount is due to SARS, the next step is simply to make the payment via eFiling or SARS MobiApp. If a refund is due to you, check that your banking details with SARS are correct and simply wait for the refund. 

If you don’t agree with the automated assessment, an accurate ITR12 tax return can be filed within 40 business days of the date of the auto assessment. If this return is filed after 24 October, it will be subject to normal late submission admin penalties and interest. If SARS accepts the changes, a reduced or additional assessment will be issued. If not, the normal objection and appeal options are available.

  • SARS has stated that Company Income Tax (CIT) filing compliance is currently a focus and urges companies to note that it is compulsory for registered companies that are required to file a return to do so on time and complete in all respects.
  • Non-compliance is as expensive as ever, with the same penalty rules for auto-assessments expected to apply for the 2022 filing season. The late submission admin penalty ranges from R250 to R16,000 a month for up to 35 months, depending on the assessed loss or taxable income of the taxpayer for the year prior to the year being assessed.

In addition, failure to submit the return(s) within the prescribed period could result in a summons and/or criminal prosecution, which upon conviction is subject to a fine or to imprisonment for a period of up to two years. 

Next steps 

  1. Get started immediately to avoid the last-minute rush, and to minimise the risk of errors and omissions. Diarise the key dates, allowing time to attend to any potential problems, such as finding documents, obtaining third party information or getting professional advice. 
  1. Ensure all your information is correct. Update your personal information such as banking details, address and contact details on eFiling or the SARS MobiApp, and make sure all information provided on the return is true. SARS has significantly improved its abilities to draw information from third parties, including employers, financial institutions, medical schemes, retirement annuity fund administrators and other third-party data providers, making it easier than ever before for SARS to detect incorrect or undisclosed information. 
  2. Check that you have received certificates and documents relevant in determining your tax obligations such as your IRP5/IT3(a)s and other tax certificates like medical certificates, retirement annuity fund certificate and other 3rd party data. If not, immediately contact the 3rd party data provider.
  3. Keep accurate records of all the calculations and source documents used as SARS may ask for these documents to be verified and/or for the calculations to be justified. 
  1. Consider professional assistance to ensure all exemptions, rebates and deductions for businesses and individuals are included and that the many terms and conditions, dictating when and how these may be claimed, have been met. Last year, SARS refunded more than R17 billion to taxpayers.
  1. Plan ahead financially to meet the tax liability that will be due along with the submission deadline. 

How to Prepare for and Manage a Business Crisis

“When written in Chinese, the word ‘crisis’ is composed of two characters. One represents danger and the other represents opportunity.”

John F. Kennedy, 35th U.S. President

When people hear the term “crisis management” they immediately picture a PR team in front of the media defending a company from an unpredictable disaster, but crises that close down businesses are seldom unpredictable and even those that come out of the blue don’t need to close a company down. Here are 6 things you will need to do if you want to avoid a crisis from closing your business.

Be Prepared! Set up a crisis management plan

The first step to handling any crisis is being prepared to accept that a crisis is possible and having a plan in place for how you will handle it. This plan should attempt to anticipate any future crises and should look at the best possible way to resolve them. Throw the net wide and try to come to terms with all the things that could potentially go wrong and then develop step-by-step plans for overcoming those things. 

The plan should include important aspects such as budgeting for costs and employee time should a crisis arise. This will allow you to at least have the resources available to handle the crisis correctly, something which is even more important should your company be small or relatively new.

If for instance you are releasing a new product in the near future, have your accountants run the numbers on recalls vs repairs and the costs of PR and marketing around potential problems. This will help you to make quick decisions should something actually go wrong.

The other important aspect of a crisis management plan is determining which of your employees will make up the crisis management team. The primary role of your crisis management team is to assess the situation and implement your plan. Strategic thinkers are especially useful in this situation, as is an empathetic team leader with a proven ability to communicate effectively. If the budget allows, consider hiring a crisis management leader whose experience can guide the team in times of crisis. If none of this is within your scope, ask your accountant to assist or recommend a consultancy to do so and start to develop a relationship with them, so they are on hand if the worst does happen.

Regularly review your business plans and systems

Many crises, particularly those of a financial nature, arise because companies have become complacent in their business practices and plans. Going back and looking at the way you are doing things is an important part of avoiding future errors. Just because something has worked in the past, doesn’t mean it still works. 

These reviews should specifically look at where your company stands using simple financial, cashflow and product quality milestones and then compare your company with its competitors. Are you getting ahead or sliding behind? What changes have occurred in the industry or in technology, which may assist you to do things in a more streamlined fashion? 

How does your business plan describe your business? Is it still relevant in today’s environment or are new products, services or the convergence of technologies threatening to make your operations and products obsolete? Think of Polaroid, telex and then fax machines and so on. 

If you find you are stagnating or falling behind your competition then that’s a strong sign that your plans or systems may be obsolete and in need a bit of a shakeup. The best way to avoid going bankrupt in a crisis is to stop yourself from having one entirely.

Lean on others

With your plan in place, once a crisis does hit it’s important you follow the plan. This will often mean leaving things in the hands of your crisis management team, or the company you have agreed to bring in for the crisis. As CEO or company founder it can be tempting to take control yourself but getting through a crisis will require all hands on deck, working together collaboratively. Your role is then not to do everything yourself, but to rather help co-ordinate the important people and get them working together. 

This may be easier than it sounds though. Making sure your team is willing and ready to do whatever is necessary in a crisis begins long before the crisis itself. The crisis is just where you cash in on all the goodwill you have built up with your employees over time. If you have looked after your employees, treated them fairly and built a reputation as a trustworthy and fair leader then there is no doubt they will be ready to help you in your time of crisis.

Communicate clearly

Communication with all stakeholders is going to be one of the most important pillars when it comes to getting you out of your crisis. Being able to clearly define what is happening and the path to fixing it to your employees, customers and other interested parties such as the media is critical if you hope to undo, or at least mitigate, the damage that has been done. The last thing a company needs in a crisis is leadership that goes silent.

If you discover that a crisis is imminent it’s important that you face it head on, and immediately send out communication that acknowledges the crisis and explains that you are working on solutions and workarounds. This will show nervous clients and employees that you are in charge of the situation and are taking care of it, giving everyone a sense of important calm. This gives the public a sense of trust in you and your company, which will be important to weathering this storm.

If you are required to make a statement, keep that statement simple. There is no point flooding the market with information or excuses. Always focus on acknowledging the problem, apologising for it, if appropriate, and then on what is being done to fix it. This gives a sense that the worst is behind you and the problem is being actively addressed. 

Be decisive

In times of crisis people look to those in charge for leadership. This will require making hard decisions and doing so quickly. This is partly where your crisis management plan comes in, as it allows you to make these decisions with the most important information on hand. It’s far easier to explain where the company will find the money it needs if the money is already set aside and your accountants have analysed exactly which aspects of the business are most likely to survive cutbacks.

If one particular person was responsible for the crisis (say by slandering clients in the media) decisive action needs to be taken to remove that person from their position. Leaders cannot allow sentiment and emotion to dictate their actions at this stage. This is most important in the early days of the crisis when the public, essentially your customers, clients, financiers and suppliers, may demand to see that you are doing something positive to manage the situation. 

Be prepared to change everything

While planning is extremely important, no plan can cover all contingencies. Your plan should identify potential actions, but it should not make those actions prescriptive. Allowing your team to adapt the plan as opportunities and good ideas arise will make the plan fit better to the crisis you are in and strengthen the outcome. At the end of the day, every organisation and every crisis is different, but historically the companies that fare the best are the ones that have a plan and the right people backing it.


Estate Planning: Act Now to Protect Your Family and Business After You Are Gone

“The golden rule of all estate planning is: don’t wait.”


Just 20% of South Africans have a valid will (“Last Will and Testament”), resulting in countless heart-breaking stories of grief-stricken surviving spouses and children with no income or access to funds as bank accounts have been closed, floundering in confusion with no idea where the deceased’s will or important documents are kept, what assets and debts there are, how to access password-protected devices or who to contact for help.  

To avoid this sad scenario everyone, regardless of age, health or financial position, should have their own estate plan ready, including a valid and properly executed “Last Will and Testament.”

If you are a business owner, estate planning is even more important, especially if your business is your family’s only income. Without proper estate planning, your passing may leave them at a most difficult time without any money and possibly trying to manage a business with no experience.

Implement the six steps below as a matter of urgency to ensure that when you pass away, the legacy you leave behind is maximised and structured, and protects those important to you when you are no longer around to protect them yourself. 

Act now!

Not one of us is assured of tomorrow and the consequences of dying without estate planning and a will are dire. 

Act today! Allocate time right now to attend to this most urgent and important responsibility, or contact a trusted professional to help you get the process started. 

If you already have an estate plan and will, schedule time to review and update them immediately, and diarise regular reviews – at least quarterly and definitely no later than annually. It is essential to ensure an always up-to-date estate plan to account for any ongoing changes in personal circumstances, business circumstances, financial structures, laws and taxes. 

Call in the experts 

Your legacy depends on the quality of your planning, involving a combination of financial planning, wealth planning and estate planning, and therefore requires the expertise of qualified professional advisors such as your accountants. 

The issues at stake are too complex and the consequences of mistakes, omissions or oversights too dire to risk going it alone – there is just no substitute for specialised expertise and professional advice specific to your circumstances. 

For example, a professional should draw up or check your will, which must be properly formatted and worded to reflect your wishes correctly and clearly, and it must be validly executed. 

Similarly, specialised advice may be required where there are minor children, or if you have assets in another country. 

If one of your assets is an operating business, or an interest in a business, you will need professional advice to ensure the best outcome for your loved ones, business partners, employees, investors and other stakeholders.  

Draw up a will 

The absence of a will; or an invalid will; or a will containing areas of uncertainty or dispute, will almost certainly result in animosity and long delays in winding up your estate.

If you pass away without a valid will: 

  • You put your grieving loved ones at risk of financial and emotional hardship;
  • You forfeit your right to choose who inherits what from you, instead leaving assets to be distributed according to the laws of “intestate succession”; and
  • You forfeit your right to nominate someone you trust to administer your deceased estate.

A valid and updated “Last Will and Testament” is the core and foundation of your plan to protect the people you care for. It should communicate precisely your expectations to all concerned and be valid and accurate in every respect. 

Proper estate planning 

Estate planning means arranging your financial affairs in such a way that you leave behind a legacy that is as large and as well-structured as possible. 

Without a proper estate plan, the assets you have accumulated over a lifetime may be decimated by costs and taxes and the business you worked so hard to build could be lost.

Proper estate planning doesn’t have to be overly complicated or expensive, but must:

  • Maximise the assets in the estate, including business assets, 
  • Reduce estate costs and taxes, and 
  • Streamline the process of winding up your estate. 

For business owners, a well-conceived estate plan will include consideration for the owner’s specific intent, for example, that the business continues to provide income as an ongoing concern; or becomes a source of capital for the surviving family. This may involve handing over to the next generation, or an employee, or an outside buyer. A business might be sold to family or staff, and this often requires special planning, for example, staggered payments or a slower transition where the cash is not available upfront. 

If you have business partners, a buy-and-sell agreement should be drafted in advance and measures put in place to ensure co-shareholders are financially able to take over your share of the business when you pass away, and vice versa. A shareholder’s agreement is also necessary to deal with potential conflict and shareholders selling their shares.

Provide liquidity   

To protect your family from financial distress, it is essential to provide money for ongoing financial needs during the lengthy winding up of the estate. 

As soon as the bank learns of your death, all your bank accounts will be frozen. Pensions and insurance policies will take time to pay out, and your assets will generally be tied up in the estate, inaccessible to your loved ones. This means you need to find other ways to provide your family with immediate funds to live on after you pass on. 

Separate bank accounts and investments, businesses held in entities unaffected by your death, and family trusts are some options, while nominating beneficiaries for life policies, annuities and tax-free investments can ensure payout directly to the chosen recipients. 

In addition, your family will need funds to cover significant ‘final expenses’ such as existing debts, medical bills and funeral costs, income taxes and capital gains taxes, estate duties and executor fees. 

Similarly, if you have a business, you may need to provide operating capital or liquidity through, for example, key person insurance, life insurance for partners and contingency policies. 

If there isn’t enough money in the estate to meet the various costs and taxes of winding it up, heirs will have to use their own funds or the executor will have to sell an asset, such as the family home or the business, to cover the liabilities. 

Create an “Important Information” file

All the relevant parties will require documents and information to settle your affairs quickly and easily. 

Create a file for your loved ones that contains all the information they might need, for example, details of funds they can access while the estate is being wound up; the location of your will and important documents such IDs, passports, and power of attorney; bank account numbers, card numbers and PIN numbers; and details and passwords for devices, apps and social media accounts. 

The executor will also require a file of documents and details, for all assets, all income and all accounts, insurance policies, loans, agreements, business assets and interests, as well as personal documents, along with the required access codes, PINs and passwords. 

Business owners will also have to prepare and keep updated documents such as statutory documents; the succession plan; a power of attorney so business affairs can be taken care of by a nominated person; and professionally drafted buy-sell agreements for partnerships or where there is more than one owner. 

Taking these six steps without delay will ensure you have structured a full estate plan that will protect those you care about from unnecessary uncertainty, worry and risk, at the time they most need your protection.


Five Financial Reports for Informed Decision-Making

“What gets measured, gets managed.”

Peter Drucker 

Financial reports, such as a balance sheet, income statement, cash flow statement, debtors reports and actual spend vs budget reports, provide an understanding of where your business stands financially at a certain point in time. They detail the business’s financial performance over a period and also raise red flags, reveal opportunities and highlight changes that need to be made to meet business goals in the future.

Especially in trying and uncertain times like these, keeping a finger on the pulse of the organisation’s financial position and regularly reviewing its financial performance provides a range of benefits. 

What the right financial reports reveal

  • The financial position of the business – past and present – provide invaluable insights for informed decisions about the future, for example, forecasting future cash flow requirements or identifying financing needs timeously.
  • Business financial performance can be assessed and analysed with the right reports, for example, evaluating marketing efforts or projecting inventory needs, which allow for improvements to be implemented and tracked.
  • Important indicators of financial health – such as liquidity ratios, efficiency ratios, profitability ratios and solvency ratios – can be calculated based on accurate and timeous reports. 
  • How to better manage costs – costs that are unnecessary, duplicated, over budget, or rapidly increasing are often only managed, reduced or eliminated once categorised and identified in the financial reports. 
  • Trends – financial reports provide a means to compare financial trends in the business from one reporting period to another, as well as to benchmark company trends against industry trends.
  • Where the opportunities are – financial reports reveal opportunities and are essential to review before making big spending decisions or considering ways to grow the business. For example, financial reports may reveal where outsourcing or automation are viable options, or where changes to employment structures, operating systems or processes are required; or where there are opportunities to grow and expand into new locations or product lines.
  • Tax liabilities, challenges and deductions – reviewing financial reports can help manage ongoing tax liabilities, flag potential tax challenges, and reveal possible tax deductions. 
  • Financial irregularities or risks – regularly reviewing financial reports ensures that potential areas of concern regarding irregularities, risks or even fraud are picked up timeously and can be quickly addressed.
  • Viability for third parties – financial institutions, creditors and potential investors will request financial reports to consider credit lines, loans or investments in the company. 

The 5 financial reports to understand

To enjoy these business benefits, there are five financial reports to understand – and review regularly – at least on a quarterly basis, but ideally on a monthly basis. This will provide a finger on the business’s financial pulse and enable more accurate and relevant business decisions.

  1. Profit and loss (P&L) statement

The profit and loss statement, also called an income statement, summarises the profit or loss over a certain period by reporting on three components: 

  • total income (or the total sales less costs of goods sold);
  • total expenses including operating costs, taxes, utilities, insurance and interest on loans; and
  • net profit or loss, calculated as total income less total expenses.

This report reveals whether the business made a profit or a loss during the specific period, and also allows the calculation of profit margins, operating profit margins and operating ratios. This allows profitability to be evaluated and enables investors or creditors to assess the level of risk in the business.

To be profitable, the income in the business should exceed the expenses. However, companies may show a net loss at times, and the reason should be evident in the reports, for example, slow business periods or times when extraordinary expenses are covered. Where the net profit is continuously lower over more than one period or expenses regularly exceed income, these may be red flags of financial trouble. 

  1. Balance sheet

A balance sheet provides a summary of the company’s financial position at a specific point in time by summarising total assets and total liabilities, as well as shareholders’ equity, or investments and retained earnings. 

The assets, or what the business owns, can include cash and investments, equipment and property, stock and accounts receivable. Liabilities, or what the business owes, include loans, accounts payable, wages, rent, taxes and utilities. 

It is used to calculate factors such as the current ratio of assets to liabilities, a measure of a company’s liquidity or ability to pay short-term liabilities. This is a particularly crucial consideration when borrowing money from a financial institution or requesting credit from a supplier. A declining current ratio could also indicate financial problems. 

  1. Cash flow statement

A steady cash flow is one of the most crucial success factors for business, especially smaller business, and this makes regularly reviewing the business’s cash flow statement vitally important. 

Summarising the expected cash inflows and outflows over a period, the purpose of this statement is to reveal which areas of the business are generating and using the most cash; enable informed budgeting and spending decisions; as well as to allow potential cash flow problems to be identified and managed in time. 

A cash flow statement will also show how readily a company can meet its debt and interest payments; and how much money was distributed to owners or investors as dividends.

  1. Debtors’ reports

Cash flow problems are often a result of poor management of debtors. An aged debtor’s report enables current and overdue invoices to be tracked and proactively managed to ensure payment is received on time. Lenders and investors will also look at this report to better understand a company’s creditworthiness.

  1. Budget vs actual income and expense reports

Comparing actual revenue/sales against the budgeted figures for a period indicates how well or otherwise the business is trading.

These reports allow a comparison of actual spending as recorded primarily in the income statement, against the amounts budgeted for the period, to assess how well spending matches financial forecasting projections and where there are areas that are over or under budget.

The percentage of costs of goods sold to sales for a period indicates how sales pricing and control over the costs of goods sold are being managed.

Speak to your accountant about accessing these reports on a regular basis and for professional assistance in understanding what the reports reveal about your business. Regularly reviewing your company’s financial reports will unlock many business benefits, provide a finger on the financial pulse of your business and enable more accurate and relevant business decisions. 


The Simple Solution to Hassle-Free EMP501 Final Recons

“The employer in collaborating with SARS plays a critical coalition towards adherence and compliance of tax principles and laws.”

SARS External Guide – A Guide to The Employer Reconciliation Process

By law, employers must deduct or withhold employees’ tax from remuneration and pay this to SARS monthly on or before the 7th of the following month with the EMP201 declarations; and must also reconcile employees’ tax during the interim reconciliation (due end October) and the annual reconciliation (due end May) when tax certificates (IRP5s/IT3(a)s) must also be issued to employees. 

What the EMP501 achieves

The Employer Reconciliation Declaration (EMP501) is effectively a summary of all the monthly Employer Declarations (EMP201s) for the filing period or tax year, and as with the EMP201, also contains information regarding the ETI (Employment Tax Incentive), where applicable. 

The EMP501 matches the payroll information regarding the employees’ tax deducted or withheld from remuneration – the PAYE, UIF and SDL (Skills Development Levy) liability – as well as ETI, with the payments made to SARS and the information on the employees’ tax certificates.

As such an EMP501 reconciliation requires:

  • the monthly EMP201 employer declarations for the period detailing the payroll taxes liabilities (PAYE, SDL, UIF), as well as ETI 
  • all employees’ updated details and correct values on their (IRP5s/IT3(a)) tax certificates 
  • actual payroll tax payments made to SARS.  

The values on the EMP201 declarations and the tax certificates should balance with actual payments made to SARS.  

An accurate and correct EMP501 reconciliation is important because SARS uses the IRP5/IT3(a) certificate information submitted by employers through the annual reconciliation process to prepopulate the employees’ annual income tax returns (ITR12). Employees cannot change this information, so any incorrect information will influence the employee’s personal tax assessment.   

The reconciliation process also allows employers to review the monthly EMP201 declarations and if any discrepancies are identified, these must be corrected before submitting the EMP501.  

Furthermore, ETI refunds (unused ETI amounts) can only be claimed by submitting interim and annual reconciliations (EMP501s). Failure to do so will result in an ETI refund being forfeited.  

The solution to a hassle-free EMP501 submission

In theory, if all the employees’ details are correct and updated, and each EMP201 for the period was correctly completed, submitted and paid, the EMP501 reconciliation should be quite simple. 

In reality, it seldom is. 

Here are a few of the most common examples where the recalculated (actual) monthly liabilities could differ from the original liability amount declared on the EMP201s:

  • A delay in implementing the correct tax tables resulting in an over/under-deduction of tax.
  • Any administrative timing difference in updating your payroll records with updated employee information.
  • Differences arising due to fluctuations in monthly remuneration.  
  • An over/under-deduction where, for example, an employer spreads an employee’s 13th cheque tax over a year and the employee resigns before the bonus is due. 

Any differences must be reconciled and corrected before the EMP501 can be submitted. 

In addition, verified and updated employer and employee information is required to successfully submit the EMP501 reconciliation. 

This all adds up to a potentially time-consuming and frustrating process. Of course, the simple solution is to ensure that at all times, the employer and employee information is updated and correct, and that each month, the correct EMP201 declarations and payments are made and that any discrepancies are corrected promptly. 

Given the complex nature of employee taxes, a recognised payroll system with automatic updates when tax and other changes are made, is a crucial tool to achieve updated and correct payrolls month after month, and as a result, hassle-free EMP501 reconciliations.

Running out of time? 

With the next deadline for this year’s final EMP501 reconciliation around the corner, some companies may realise that they are running out of time. 

Before the end of May, all employees’ information must be verified and updated – including valid ID/passport numbers, employee income tax numbers, residential and postal addresses, payment methods and bank account details, and employee classifications. It is not possible to submit the EMP501 reconciliation unless all the mandatory fields for each employee are correctly completed.   

The employees’ tax certificates must also reflect all the income, deductions, benefits and contributions pertaining to each employee for the period, recorded under the relevant codes.

Keep in mind that this information is legally required, and you may be subject to penalties for missing information.  

If there are any errors, the certificates must be rectified and the EMP501 reconciliation resubmitted. This is costly in time and resources and may result in penalties.

Offences and penalties

An employer who, ‘wilfully or negligently’, amongst others fails to submit monthly declarations; interim and annual reconciliations and/or the annual IRP5/IT3(a)’s is guilty of an offence and is liable, upon conviction, to either imprisonment for up to two years or both imprisonment and a fine.  

Non-compliance also includes wilful or negligent failure to deliver an IRP5 to an employee or former employee, deducting or withholding employees’ tax from employees without paying it to SARS, or failure to keep the correct employee certificates, EMP201 and relevant documentation for audit purposes.

The final reconciliation and submission of employee tax certificates to SARS must take place by the end of May. Not doing so will result in a PAYE admin penalty being imposed on the EMP501 return reconciliation for non-compliance. The penalties are levied in 1% increments over a period of 10 months and are based on the employer’s liability for that year of assessment (12 month period). Depending on the number of months outstanding, the penalty is up to 10% of the total employees’ tax liability. 

Given all these obligations to be met, as well as the penalties that may apply, companies are well-advised to seek assistance from a professional with the necessary knowledge, experience and resources to assist in completing the process in the few short weeks ahead, as well as to ensure hassle-free EMP501 recons in future. 


The 7 Signs It’s Time to Move Your Business Out of The Garage

“One doesn’t discover new lands without consenting to lose sight, for a very long time, of the shore.”

Andre Gide

All of the largest businesses in the world started small. Apple, Google, and Amazon were all famously founded in garages. Now these giant multi-billion-dollar companies occupy multiple office blocks that dwarf football stadiums. This happened because at one time their founders moved them out of the garage and into the office. Moving away from a comfort zone can be frightening, but knowing when to move a business into its own space may be one of the most important decisions a company owner can ever make. How do you know it’s time to take the plunge and get your business its own space? Here are the signs.

  1. You need more employees than home can handle

This may seem like an obvious sign. Your business is doing so well that it’s time to take on new staff, but you have not done it yet, because you have no idea where you would put their desks. Staff are the lifeblood of any venture and opting not to move your company in this situation would directly and immediately impact its potential for growth.

This is the simplest scenario to recognise and also the one that needs the quickest attention. It will be better to find the new office space and then hire staff, than to hire them now and find that once you have moved, your business is no longer situated in a convenient location for your staff. 

  1. You need more space

While finding a home for staff may not be your issue, finding storage or workspace may be. If your business keeps a lot of inventory on hand or needs large work areas then it’s better to find a dedicated space to grow than it is to try and fit it all in your home. While it may be feasible to work surrounded by boxes piled on top of boxes and supplies crammed in the spare bathroom for a while, eventually it’s going to become unmanageable and lead to unhappiness in your home and your personal life. Workplaces where everyone needs to work on top of everyone else also cause employees to become unproductive and unhappy, which in turn leads to disappointed customers, and a decrease in business. If you don’t find a new space to fit the business, you will soon find the business decreases to fit the space.

  1. You want to create a brand identity

Your brand is about more than simply the service or product you produce. Think about Google’s offices and what they say about the company, the image they project, the culture they are able to create among employees and the impression it gives to customers. Working from your home may fit your own personal brand, but it becomes difficult to establish a corporate culture and image when the office itself does not reflect what you stand for. 

Moving into a separate workspace allows a business to tailor that area perfectly to reflect what it is all about, and the needs of its employees and customers, better reflecting the brand you are trying to build. Even if you are happy with your employees working from home, having a small space where they can have meetings with clients, share concerns with HR or attend company functions, helps them to feel a part of something that’s bigger than simply your couch at home, and lets them feel like the brand is strong, reliable and somewhere they can easily stake their long-term futures. 

  1. The industry is changing

When starting your business you may have had ideas of just who your customers are and what their needs might be. A few years down the line you might be servicing an entirely different customer bracket than expected, selling products you didn’t even think of initially or catering to a market that isn’t even in your city. Depending on the kind of business you run, the changing demands of your customers can dictate exactly where you should be located and what your office needs to look like.

Maybe you are losing out on retail opportunities and need to move closer to customer businesses to better service their needs? Perhaps your suppliers will give you cheaper delivery costs if you are located in a different area? Maybe your customers have all semi-grated away from your city? Or perhaps employees with a particular set of skills can’t be found in the town where you live?

Understanding the needs of your business and your industry will help you to determine where to best situate your company and if that place isn’t near your home, it’s time to consider moving.

  1. Home distractions

Working on a new business from home comes with a number of benefits. It allows a founder to easily fit their lives in around the needs of a new company. There will come a time, however, where that personal life and the needs of the family, will become a distraction to the optimal operations of the company. When the demands of family life, including children, start keeping you from achieving what needs to be done then it is definitely time to move your company into its own space. Being able to establish a good work/life balance will be important if you want to both grow a successful business and have the kind of happy, healthy family life that supports the energy it takes to be an entrepreneur. 

  1. Money

At the end of the day, money and affordability are going to play the largest part in deciding whether you need your own office space. Perhaps you aren’t being taken seriously by the larger brands or need to scale up quickly if you are to grow? Maybe you want to move, but can’t quite afford it? Carefully considering the pros and cons of moving will ultimately give you the real answer as to whether it’s time to move out of home. The needs of the business and the potential for growth will have to be balanced with the costs of renting and establishing a company space before you can truly determine whether it’s time to move out of the garage.

When you move you must know that the benefits of moving will outweigh the costs of buying office furniture and signing a multi-year lease. You will need to take into consideration, whether you want to own or lease the new space each of which comes with different cost and tax implications, the projected growth of the company over the long term and which employees absolutely need desk space and which can work from their homes. Carefully analysing your budget and balancing it against your needs and projected earnings will give you a clear idea of whether you should move, and if that works out in your favour, and you can 100% afford to pay the bills of the new space, then it would be absolutely foolish not to.

  1. Balancing the possible tax benefits

Running a business from home can allow you some tax benefits dependent on a number of factors including how much of the house is used for the business and what exactly that space is used for. Moving into your own space may, however, provide additional tax relief that can sometimes ameliorate the costs of moving out. 

Ask a professional to help you with a careful analysis of the costing and to advise you on whether you stand to benefit in this regard.


Companies: How Will the Reduced Tax Rate and Assessed Loss Rules Affect You?

What the government gives it must first take away.”

John S. Coleman

It certainly seemed like a win for taxpayers when Finance Minister Enoch Godongwana announced in his February Budget Speech that the corporate income tax (CIT) rate has been reduced from 28% to 27% for companies with a tax year ending on or after 31 March 2023. 

But as we are reminded by John Coleman’s quote: “What the government gives it must first take away.” 

In this particular instance, to give a 1% reduction in the corporate tax rate, government limited the tax relief corporate taxpayers have enjoyed in the past in terms of assessed losses and interest deductions. 

According to Treasury, South Africa is following an international trend evident over the past few years to restrict the use of assessed losses and reduce the corporate income tax rate.

What’s the link to the corporate tax rate reduction? 

The 1% reduction in the corporate tax rate is expected to cost the fiscus R2.6 billion -in the year of assessment commencing on or after 1 April 2022. To ‘neutralise’ this – and thus achieve a revenue-neutral reduction in the corporate tax rate – two further changes to corporate tax rules have been made.

The first is further limitation of corporate interest deductions, specifically on multinationals; and the second is restrictions on the use of assessed losses to reduce future corporate tax liabilities. 

The first involves changes to, amongst others, the scope and thresholds of the interest deduction limitation, achieved by fixing and limiting the interest deduction limitation ratio to 30% of a taxpayer’s “adjusted taxable income”, instead of the earlier flexible percentage (adjusted upwards and downwards based on the average repo rate) capped at 60%.

What are the new assessed losses rules?  

Assessed loss rules were originally created to smooth the tax burden for:
– businesses that require a significant upfront capital outlay, causing assessed losses to accumulate before any profit is realised;
– cyclical businesses that realise losses in some years and profits in others, such as farming operations, and
– companies that suffer temporary setbacks and losses before recovering to become profitable again.

As a result companies could previously offset the full balance of any assessed loss carried forward from a previous tax year against all its taxable income for the current year. In addition, companies could carry over any assessed loss balance remaining to future years indefinitely subject only to the requirement that the company continues to carry on a trade. In effect, it meant that a company would only become liable for income tax once it earned a taxable profit and the balance of the assessed loss was exhausted. 

Under the new rules, assessed losses brought forward from a previous year of assessment – regardless of the amount – can only be offset against the higher of R1 million or a maximum of 80% of taxable income for the current year. 

This means that income tax will now always be levied on 20% of the taxable income for the year where the taxable income in the current year exceeds the R1 million threshold, no matter what the assessed loss balance carried forward from previous years may be. This will have adverse tax cash flow implications for some companies. 

Small companies unaffected, and losses are not forfeited, unless…

Smaller companies with a taxable income below R1 million will not be affected by the new rules.

Further good news is that companies will not forfeit the balance of the assessed loss that could not be utilised. The balance can be carried forward to the next tax year, provided that the company earns income from trade in the succeeding year of assessment.

However, beware: if a company does not trade for a full year of assessment and no income is earned from such trade, the assessed loss will be lost. 

When do the new rules apply, and which companies are affected?

The new rules apply to any year of assessment that ends on or after 31 March 2023, which, in more practical terms, means years of assessment that begin from 1 April 2022 onwards. 

It is also important to note that the new limitation will apply to assessed losses generated prior to the effective date, as well as those arising after 1 April 2022.

Some companies will not be affected immediately, for example, companies with no assessed loss balance, or those with a taxable loss. 

The cash flow implications, with examples

For those companies affected, the changes will have tax cash flow implications, best illustrated by the way of examples –


When, Why and Whose Jobs You Should Be Outsourcing

“If you deprive yourself of outsourcing and your competitors do not, you’re putting yourself out of business.”

Lee Kuan Yew, Former Prime Minister of Singapore

Launching a business requires the small business owner to wear many hats. From marketing, to accounting and HR the small business owner needs to learn any number of skills to get their venture off the ground. Eventually though there comes a point where doing everything yourself as owner is hurting the company more than helping it and knowing when to bring help on board can be the difference between success and failure.

If you aren’t quite ready to hire employees or if you just need a few hours of help a week as opposed to full time, outsourcing work can become the solution you are looking for. With many professionals working freelance it is easier now than it has ever been to find the right people to pick up the slack and give you a few extra hours in your day to focus on the core of your business.

When is it time to outsource?

Knowing when to outsource is critical. Bringing people on board at the right time can free up hours a week and give you the opportunity to win new clients or refine your product offering. So what are the signs you should be considering outsourcing?

  1. You find you don’t have time to do all the work

Having plenty of work is a blessing but having too much can mean repeated late nights or missed deadlines. Making sure you keep on delivering at your best means you can’t afford to be tired, rushing jobs or worse, simply turning work away. If this is a problem that’s happening every month then it’s definitely time to consider bringing someone on board.

  1. You want to turn away new work

Turning away work is always a bad idea. Once turned away those clients may never come back whereas getting what they need done could build additional income for life. Whether it’s simply helping them with your core services or taking on new growth areas for your company, always rather outsource some of the work and make sure you can make it work for these new customers.

  1. You get hired for irregular or once off projects

If you find the work is regularly outstripping your capabilities and capacity it might be time to bring on permanent employees, but when your business is getting once-off projects or work that will only last a short while it can be much safer to outsource work to freelancers or agencies. This way you can meet your needs for those projects and not worry about paying people in the months where you don’t have as much work.

  1. There are tasks you hate doing

You may be surprised to see this on the list, after all surely you have become used to telling yourself to get over it and just plough through? The truth is, work you hate is work you are likely doing badly. Save yourself the time and the pain of doing a bad job by giving it to someone who specialises in that field and is going to get it done well.

The best jobs to outsource

Outsourcing doesn’t just refer to those jobs that are directly related to your business. Sometimes it can actually help you to hire a domestic, an au pair or a personal assistant at home to free up a few more hours you can dedicate to the business. Outsourcing business functions though is much more likely to be the right choice when it comes to getting yourself some valuable time as these jobs can generally be trickier, better done by professionals and may, in fact, lead to long term growth of your business as well as simply giving you some breathing room.

  1. Accounting, bookkeeping and payroll

For those unused to finance, tracking income and expenditure, invoicing clients and filing tax returns can be extremely time consuming. Given that you are running a small business it might be cost-effective to outsource bookkeeping and payroll because you can then pay a set amount that changes as the company grows, rather than paying an employee full time and having the hours vary. This bookkeeper can also be in charge of extra tasks such as document scanning to help keep your receipts and bank statements in order. 

At the end of the year handing your taxes over to an accountant is invaluable. Not only will it take an important task off your plate but can often get you a percentage of that spend back in tax savings. Outsourcing some decision-making to an accountant may help as well, as they will be able to run the numbers and advise on whether a new venture, expansion or client is viable. They can also help you work out whether outsourcing or bringing someone in-house is the right solution for you.

  1. Human Resources

Human Resources isn’t quite as simple as hiring and firing. There are so many rules and regulations involved in the running of good HR, not to mention submission of PAYE, UIF, pension contributions and returns etc., that doing it yourself may end in bitter acrimony and high costs. 

Hiring a company that specializes in human resources laws and regulations will not only help you stay compliant and up to date but can also streamline the onboarding process of new employees and the hiring process in general. A good HR company or freelancer will additionally handle details such as retirement plans, group health insurance, and other benefits that you offer, saving a huge amount of effort and time.

  1. Marketing and content creation

Almost everyone believes they can write well enough for a website, blog or LinkedIn update, but there is a lot more that goes into these things than simply filling a page. With SEO, and content tailored for the outlet it’s being used on, creating content can be a time-consuming job for those who aren’t experts. Developing strategy and deploying it correctly takes a professional and handing this task over to an outsourced freelancer will often pay for itself in the success of your digital marketing. 

This is all also true for PR and other marketing. It may seem simple to send off an email detailing your recent projects and successes, but professional PR people will ensure it’s read by the right people. With a PR professional you aren’t hiring a writer, you are hiring a network of important contacts. 

Finally, no business can succeed without advertising and bringing marketing people on board will be essential if you don’t want your extremely useful product or service to vanish unnoticed by the public. The good news is that provided you hire the right people, what you spend on advertising will almost certainly come walking back through your door at a later stage in the form of customers. 

  1. Graphic design and presentation construction

Your last job required you to put together a few PowerPoints so now you sit and laboriously put together your pitches and presentations yourself. The truth is, unless you’re a skilled designer yourself, your digital presentations could definitely use a boost, so instead of wasting your time on PowerPoint animations and choosing fonts rather spend a little money to make your pitch look extra good and use the time you’ve just saved to rehearse your presentation.

Is outsourcing “the future of work”?

Outsourcing is increasingly being touted as “the future of work”, and certainly the truth is that it is here to stay. Those who refuse to put the work they can’t do perfectly out to the new wave of freelancers and outsourcing agencies are ultimately only hurting their business. 

Of course, the ultimate question is whether outsourcing makes commercial sense for your business, given your particular financial situation and business structure. Chat to your us at Emma Pardoe Chartered Accountant (SA) to see where it may be right for you.


Planning to Cease Being a South African Tax Resident? What You Should Know Before Approaching SARS

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According to some estimates, as many as 1,900 millionaires have left South Africa over the last few years. A New World Wealth Africa report indicates that 4,200 high net-worth individuals left the country over the last 10 years.  

Whether due to choice or circumstances, a taxpayer ceasing to be a tax resident of South Africa must declare the change to SARS.

As the number of wealthy and skilled South Africans who are emigrating increases, SARS recently announced that another channel has been made available to taxpayers to inform SARS as above.

You can now also inform SARS through the Registration, Amendments and Verification Form (RAV01) available on eFiling or at a SARS branch, by capturing the date on which you ceased to be a tax resident.   

Alternatively, you can inform SARS by capturing the date on the ITR12 tax return, as before.

Informing SARS via any channel could trigger unintended consequences. In addition, to qualify the taxpayer will have to substantiate how the qualifying criteria are met.

Many intricacies 

It is not as simple as filling in a form. Numerous factors are taken into account to determine whether a taxpayer has ceased to be a tax resident of South Africa.

There are three bases for qualification for individuals:

  1. Cease to be ordinarily resident
  1. Cease by way of the physical presence test
  1. Cease due to application of a Double Tax Agreement (DTA).

Whether an individual ceases to be a tax resident in South Africa is based on the manner in which such individual has been a tax resident. If the taxpayer has been ordinarily tax resident, the intention to cease will be supported by various objective factors. If a person has ceased to be ordinarily tax resident, it will be from the day such person ceased residence.

An individual, who is resident by virtue of the physical presence test, ceases to be a tax resident when that person has been physically outside the Republic for a continuous period of at least 330 full days. The individual will be deemed to have ceased to be a tax resident from the day such person left South Africa.

An individual who has become a tax resident of another country through the application of a double tax agreement will also cease to be a resident for tax purposes in South Africa.


A company is deemed to be South African tax resident either if it was incorporated here or if its place of effective management is located locally.

A company’s place of effective management may no longer be located in South Africa, for example, when the majority of a company’s board of directors move offshore on a permanent basis. 

If a company becomes a tax resident of a jurisdiction with which South Africa has a double tax agreement, the company would normally cease to be South Africa tax resident. 

Beware the unintended consequences

The intended outcome of informing SARS of breaking tax residency is that the taxpayer is no longer taxed in South Africa on worldwide income, but only on South African sourced income. 

It may also have unintended outcomes. Informing SARS via any channel will trigger a case number as well as a request for various documents and substantiations, which taxpayers are obliged by law to provide.  

If the declaration is made via the RAV01 form on eFiling, the completed declaration form must be submitted with the relevant supporting documentation. If the declaration is made on the income tax return (ITR12), the supporting documents and information requested will depend on the basis on which you have ceased to be a tax resident. 

In many instances, advising SARS that you or your company intend to cease to be a tax resident will trigger an audit. 

Potential tax liability 

For individuals, ceasing to be a tax resident triggers a deemed disposal of worldwide assets, and exposes the taxpayer to possible capital gains tax. 

Depending on the type of assets held and where they are located at the time when an individual breaks tax residence, a deemed disposal for capital gains tax purposes will take place when the person’s local tax residency ceased. The individual will be deemed to have disposed of worldwide assets at market value to a South African tax resident, with some exceptions such as certain personal-use assets and immovable property situated in South Africa.

Where a company ceases to be a South African tax resident, a capital gains tax may be triggered, and an additional dividends tax may also arise, among other possible unintended consequences.  Given the complexity of the provisions and potential tax liability, it is recommended that taxpayers rely on professional advice covering not only their South African tax position, but also their tax position in their new country of residence, well before approaching SARS. 


A Guide to Accessing Funds That Can Help Your Small Business

“Since the unemployment rate in the Republic is of concern to Government; and since Government recognises the need to All company bosses want a policy on corporate social responsibility. The positive effect is hard to quantify, but the negative consequences of a disaster are enormous”

English economist and academic, Noreena Hertz

Stimulating the SME sector is considered as one of the quicker ways to rejuvenating the economy. According to a 2020 survey by McKinsey & Company, SMEs make up over 98% of South African businesses, and employ between 50% and 60% of the workforce. 

However, it takes money to run a business and there is a need for assisting and guiding SME owners to secure more funding, particularly given the devastating impact of the Covid-19 pandemic over the past two years. 

There are varying reasons why these small businesses need additional capital, determined by differing requirements in the business value chain – including the scope of production, workforce and the nature of the business, among other factors. 

Some – but not all – of the funds available in the market are allocated according to specific trades, departments in the production process and demographics of the directorship – usually according to age, race, location and gender. 

Here are some examples of the grants and funds available, along with a brief overview of the funding models

  • Equipment related financial support. The Department of Trade and Industry’s (DTI) Small Enterprise Development Agency (SEDA) Technology Program, provides both “financial and non-financial technology support” – meaning either funds or equipment support for small enterprises.
  • Staff training. The DTI’s Black Business Supplier Development Program offers grants in a cost-sharing scheme to black-owned businesses for the purpose of business skills training. 
  • Female directors can take advantage of gender-empowerment funding programs like the Business Partners Women in Business Fund, which is aimed at increasing access to finance for female entrepreneurs for them to start, expand or purchase existing businesses. 
  • A more narrowed down version of this model of funding is the I’M IN Accelerator Fund, which is for black South African women who have founded technology start-ups. They can apply to be part of this 10-month long acceleration program and possibly access up to R1,5 million in pre-seed capital, mentorship, marketing support and follow-on investment. The business has to be 51% black- and-women owned to qualify. 
  • The National Empowerment Fund (NEF) is a black economic empowered driver and funds businesses with a black majority ownership. 
  • The DTI funding model is usually segmented according to factors like industry, marketing channels and/or the age of the directorship. However, qualifying small businesses can currently obtain the following loans and grants:
  • The Export Marketing and Investment Assistance Scheme (EMIA) is designed to support the export market and stimulate new foreign direct investment into South Africa. This is closely linked to the Sector Specific Assistance Scheme (SSAS), which is a repayable cost-sharing grant that supports stakeholders in the export market for South African goods. This scheme comprises three sub-programs, namely: Generic Funding, Project Funding, and Project Funding for the Emerging Exporters. 
  • The Umsobomvu Youth Fund: A Government initiative aimed at creating opportunities for South African youth in entrepreneurship and job creation, helping youth setup, expand and develop their businesses by teaching them essential business skills. Umsobomvu is a Voucher Program not a loan program. The Voucher Program provides support services to both new and existing youth owned businesses
  • The Agro-Processing Support Scheme (APSS) is a R1-billion cost-sharing grant fund aimed at boosting SME investments in the agricultural space. Minimum qualifying investment size, including competitiveness improvement cost, will be at least R1 million.
  • The Aquaculture Development and Enhancement Program (ADEP) is a cost-sharing incentive program for projects in primary, secondary and ancillary aquaculture (activities in both marine and freshwater).
  • The Support Program for Industrial Innovation (SPII) is aimed at funding the innovation and development of technological products in South Africa.
  • R&D Tax Incentive is supported by the Treasury and offers a deduction of 150 percent in respect of expenditure on eligible scientific or technological Research and Development (R&D) undertaken by companies in South Africa. In his 2022 Budget Speech, the Minister of Finance announced that the R&D Incentive is under review but that it will be extended in its current form until 31 December 2023.
  • The De Beers Fund: At a more localised level, a large diamond mining company also awards grants, for small businesses located in its operating areas. These areas are Kimberley and surrounding areas in the Northern Cape, Viljoenskroon and surrounding areas in the Free State, Musina, as well as the Blouberg Local Municipalities in Limpopo.
  • Tshikululu Social Investments: Tshikululu is South Africa’s leading social investment fund manager and advisor, working alongside investors and other development partners to achieve sustainable social impact. The organisation manages other companies’ CSI funds.

Over the years, the organisation has managed the likes of the De Beers Fund, Rand Merchant Bank Fund, among others. 

  • SA SME Fund:  Established by members of the CEO Initiative as a collaboration between government, labour and business to address some of the most pressing challenges to the country’s economic growth – as an avenue of support for the SME sector. The SA SME Fund invests in repayable funds that support and develop entrepreneurs, typically with an enterprise value of less than a R100m.
  • Financiers: These are licensed lenders with their own products and terms of trading, being that they are private entities. However, the terms have to be agreeable with trade regulations, including Fair Practice – which protects the borrower’s interests.

If you need an urgent loan, private financiers might be an alternative to the grants and cost-sharing schemes mentioned above. There are several types of loans that small business owners can apply for, depending on the individual needs of their businesses. The following are the repayable financing products available to SMEs:

  • Purchase order finance is used by a business to complete an existing order.
  • Working capital finance is an option that can boost a small business with much needed cash flow.
  • Bridging finance is a short-term loan that can be used by small businesses to finance their working capital. An example of this is Lula-lend, which positions itself as a good option if your business requires a loan provider and you need urgent funds of between R10 000 and R5 000 000. The company can have the funds in your account within days and repayment is over 3-12 months. 
  • Credit cards can be handy for entrepreneurs; however, they require discipline as their interest charges and repayment rates are normally higher.
  • Inventory loans can help your small business keep enough stock in the inventory. It is more suitable for small businesses with tangible products to sell. 

Because of the varying types of funds, SME owners are encouraged to consult with financial advisers in order to make the right decisions for their individual businesses’ needs, the amount required and the right funding model.

Don’t miss out, ask for professional advice about grants and take advantage of the opportunities they afford small businesses.


What The New Employment Tax Incentive Limits Mean for Your Business

“Since the unemployment rate in the Republic is of concern to Government; and since Government recognises the need to share the costs of expanding job opportunities with the private sector…”

Preamble to the Employment Tax Incentive Act 26 of 2013 [ETI Act]

During Finance Minister Enoch Godongwana’s 2022 Budget Speech, a substantial 50% increase in the limits for the Employment Tax Incentive (ETI) was announced, effective from 1 March 2022. This will increase the amount of tax relief employers can claim when employing young people. 

ETI fast facts 

  • An incentive encouraging employers to hire young work seekers aged between 18 and 29 years.
  • Reduces the employer’s cost of hiring young people through a cost-sharing mechanism with government.
  • Can be claimed for a 24 month period for all employees who qualify. 
  • Came into effect on 1 January 2014 and will end on 28 February 2029.
  • ETI is claimed by reducing the amount of Pay-As-You-Earn (PAYE) due by the company, leaving the wage received by the employee unaffected. 

The new limits 


As the monthly remuneration increases, the amount of the rebate reduces: at the upper limit with a monthly remuneration of R6 400, the monthly rebate is R750. 

Even so, especially for companies with many employees, these rebates will add up on a monthly basis, and stack up over two years. There is no limit to the number of qualifying employees that you can hire.

Pitfalls to be aware of 

  • Beware the qualifying criteria 
  • Employers must meet the qualifying criteria on an ongoing basis, including being registered for Employees’ Tax (PAYE) and being tax compliant. 
  • Employees must meet the qualifying criteria on an ongoing basis, including having a valid South African ID or permit; be between 18 and 29 years old; earning between minimum wage or R2 000 and R6 500 for a 160-hour month; and who is not a domestic worker or a “connected person” to the employer.
  • Beware the continuous changes 
  • The value of the ETI is not static but depends on the value of the monthly remuneration paid to the qualifying employee, and must be calculated each month for each qualifying employee. In addition, if a qualifying employee worked less than 160 hours in the month, the value of the ETI must be calculated proportionally. 
  • The ETI is constantly being refined, expanded and tightened – including a series of amendments to the ETI Act with effect from 1 March 2022, so employers claiming ETI must stay updated to ensure they remain within the bounds of the ETI Act.  
  • Beware the deadlines 
  • If all the allowable ETI wasn’t used at the end of each six-month reconciliation period (1 March – 31 August and 1 September – 28 February), employers may be refunded the amount, if they are fully tax compliant. 
  • A non-compliant employer will have until the end of the next reconciliation cycle to correct any non-compliance and be able to receive the ETI refund. If the employer doesn’t become compliant by the end of the next six-month reconciliation period, the ETI refund will be forfeited.
  • Beware the possible penalties 
  • Penalties equal to 100% of the ETI claimed will apply when an employer claims the ETI for any employee who does not qualify.  
  • Penalties imposed will result in under-payment of employees’ tax, which could result in possible interest and penalties in terms of the Tax Administration Act.
  • A penalty of R30 000 will be levied for each employee displaced to employ an employee who qualifies.
  • It has been proposed that the ETI Act be amended to impose understatement penalties on reimbursements that are improperly claimed.
  • Beware the potential of audits 
  • A number of taxpayers have faced time-consuming and costly verifications and audits of their ETI claims.
  • Additional assessments issued by SARS may reverse the ETI initially claimed by employers.
  • Recordkeeping is required by the ETI Act.
  • Beware of potential scams
  • Employers should exercise vigilance regarding tax abusive ETI schemes and scams offered by third parties, as the employer would carry all the risk in respect of the tax and labour obligations.  

Seek professional assistance to ensure you can navigate all these potential pitfalls and claim this ETI incentive, so you can employ more young people while sharing the cost with government. 


Multiple Income Streams? The PAYE Dangers and a New Option for Pensioners

“Every advantage has its tax.”

Ralph Waldo Emerson

An unfortunate reality for many non-provisional taxpayers with multiple income streams is a large and unexpected tax liability following a year-end tax assessment – even though PAYE was paid each month on their income streams. 

Taxable income streams include salaries and wages, allowances, pensions and retirement annuities, rental income and investment income. Many taxpayers have multiple income streams: a common example is a pensioner receiving two pensions paid by two different administrators; or receiving both a pension and a retirement annuity. Other examples would include a person holding two part-time positions, or receiving both a pension and a salary, such as a widow who is employed but also receives a deceased spouse’s pension. 

In all of these and other cases where taxpayers who receive income from more than one source of employment, pension, or annuity, the employees’ tax (PAYE) deducted by the respective employers or retirement funds may not be enough to cover their final annual tax liability assessed at the end of the year. 

How can the PAYE deductions not be enough? 

Because SARS calculates tax liability annually on assessment, a taxpayer could well face an unexpected and large tax liability, even after having paid PAYE every month on various income streams.

This is because the South African tax system requires adding together all sources of income of a taxpayer into a single total sum, which then determines the tax rate which applies to all the income combined. 

So, the more the total income from all sources, the higher the tax rate and the more tax due. 

By deducting PAYE every month, employers or retirement funds assist taxpayers to pay their tax liability in advance over the year. When only one employer or retirement fund is involved, the total PAYE deducted monthly should be equal to the tax liability on assessment, leaving no extra tax due on assessment.

However, where more than one employer or retirement fund is involved, each will deduct the correct amount of PAYE on only the salary or pension/annuity they each pay. In addition, each will also independently apply the rebates the taxpayer is entitled to.

When all the sources of income are added together during the year-end assessment, and any rebates are applied only once, the total income often pushes the taxpayer into a higher tax bracket. Applying this correct and higher tax rate on the full amount then results in an additional amount of tax to be paid on assessment.

In practice 

The “pension plus salary” example below illustrates just how much more the tax payable on the total combined income assessed at the end of the year could be than the PAYE paid on each separate income stream during the year.

Source: SARS

The taxpayer in the example will face an additional R40,570.00 tax liability on assessment, because although a total tax of R22,270.00 had already been deducted by way of PAYE paid during the year, it was too little to cover the full annual tax liability of R62,840.00.

Large, unexpected tax debts such as this often lead to delayed payments and therefore penalties, further burdening the taxpayer.

How to avoid the problem 

Taxpayers with multiple income streams, who are at risk of a large tax liability when the annual income tax return is assessed at the end of the tax year, need to have more accurate monthly amounts of PAYE deducted.

Fortunately, the Income Tax Act allows these taxpayers to make additional voluntary tax payments by making a written request to their employers, insurance companies and/or retirement fund administrators to deduct additional monthly PAYE. 

To voluntarily pay more PAYE, you have two options –

  1. The first option involves applying a single percentage at which PAYE should be deducted by all employers and retirement funds that pay a salary or pension/annuity to you. 
  1. The second option is to increase the amount of PAYE deducted by one or more employers or retirement funds but is more complex to calculate. 

Either way, professional assistance is highly recommended. Ensuring that more appropriate amounts of PAYE tax is deducted during the year will eliminate surprises and ease the financial burden when submitting annual tax returns at the end of the tax year. 

Pensioners – a new option for you from 1 March

Not many pensioners are currently making use of this option but, fortunately, recently introduced legislation has enabled SARS to provide them with a new service from 1 March. Using the latest data available to it, SARS will determine a more accurate PAYE deduction amount for pensioners with multiple income streams, and then automatically provide their retirement fund administrators with this new PAYE deduction percentage. This will allow a more accurate amount of PAYE to be deducted from pensions or annuities payable from March 2022. The rate will be valid for the entire tax year unless the taxpayers’ circumstances change. However, you can request retirement fund administrators to rather use the normal PAYE deduction rate, or to deduct PAYE at an even higher rate than the increased rate provided by SARS.


SARS Makes SMME Tax Compliance Easier

Tax complexity itself is a kind of tax.”

Max Baucus

NOTE: Bear in mind that although many of the resources mentioned below are addressed by SARS to you as a private taxpayer, there is just no substitute for professional advice and assistance when it comes to matters of tax. Contact us at ep@emmapardoe.co.za for assistance.

“SMME Connect # 1”, the January issue of a new SARS newsletter for SMMEs available here, has focused on the issues around tax compliance in the sector. In the letter SARS acknowledges problems around the pandemic that lead to increased difficulty for SMMEs attempting to meet their tax obligations saying, “We acknowledge that the COVID-19 pandemic has impaired our ability to be physically ‘At Your Service’ as we had to limit the number of taxpayer visits at SARS branches and promote digital channels”. It adds, however, that the bulk of the problem comes from the fact that business owners in the sector either find their obligations difficult to understand, or are not aware of their obligations, and just what is required of them. 

In acknowledging the problem SARS has also stated that its direct aim is to make the processes simpler, increase knowledge around requirements and ultimately to bring all SMMEs up to date on their tax compliance. This is what the letter, aligned with a new initiative called Vision 2024, sets out to correct.

Aligned with “Vision 2024”?

In March 2020 SARS introduced their new Vision 2024, which they said was an attempt to update the goals and services of SARS in order to improve efficiency and their ability to collect owed taxes. 

“Our Vision 2024 is to build a smart modern SARS with unquestionable integrity admired by Government and public and our international peers. We proceed from the base that all taxpayers are honest and if we make it easy and seamless, compliance will increase simultaneously,” SARS said in a statement at the time.

In line with this, SARS’ new newsletter endeavours to not place blame for past non-compliance. The issue in fact begins with a number of startling stats on the SMME sector in the time of the pandemic. SARS says “95% of SMMEs reported a decrease in revenue attributed to the consumers’ inability to earn income” and that “90% of SMMEs are either struggling or temporarily closed”. The purpose of these stats is for SARS to say, “We understand your plight and aren’t out to get you.” It goes on to state that “When you comply with your tax obligations, you place your business at an advantage by eliminating the potential cost of non-compliance and administrative penalties.”   

What are the changes?

In order to simplify the system and make it easier for SMMEs to meet their tax obligations SARS has introduced a number of new measures, initiatives and system upgrades.

The first step is to confirm your “tax compliance status.” This can be done by acquiring a tax compliance pin. The process for doing this is illustrated on a simple YouTube video. The pin can then be used by your accountant over the next 12 months to verify your compliance status.

In addition, SARS has also introduced an online query system designed at assisting taxpayers to raise queries with SARS without going into a SARS branch or calling the contact centre. The query system allows taxpayers to fill in a form and, amongst other things, request a tax number, submit supporting documents, submit a payment allocation, report new estate cases, register a tax representative, make tax compliance status requests and verify tax compliance status.

SARS has also introduced a new “Enhanced Debt Management” process, which will allow taxpayers to arrange debt repayments directly through eFiling for four separate tax types: Personal Income Tax, Corporate Income Tax, Value-Added Tax and Pay-As-You-Earn (PAYE). Previously, taxpayers could only make payment arrangements via a debt collector who had been appointed by SARS, in person at a SARS branch, utilising the debt management regional email addresses, or on the My Compliance Profile (MCP) on eFiling. 

The new Enhanced Debt Management Process easily allows individuals and companies to catch up on outstanding administrative penalties and taxes from a number of different pages on the site and gives them the ability to: 

  1. Initiate and simulate a payment arrangement, with an instalment plan of up to 36 months,
  1. Supply the reason for the request and preferred method of payment,
  1. Attach mandatory supporting documents where required,
  1. Submit the request if they meet qualifying criteria.

These new facilities come with a reminder for business owners to also submit their own income taxes, which are a requirement in law that can affect the business’ compliance status.

Communication and social media

Finally, SARS has also updated their communications generally, with the newsletter only being one of three communication tools to educate people on their obligations. While the best solution remains conferring with a professional for all possible tax solutions, SARS’ new YouTube channel, which covers such diverse topics as, Understanding Tax Compliance Status, Illicit Trade and Counterfeit Procedures, Value-Added-Tax, Turnover Tax, Registration, Licencing and Accreditation and more, will certainly help the modern SMME owner to better understand their responsibilities when it comes to taxes.

SARS has also encouraged SMME owners to follow the service on social media through the following channels: Facebook, Twitter, LinkedIn and YouTube.


Six Tips for Creating a Distraction-Free Home Office

“Out of clutter, find simplicity. From discord, find harmony. In the middle of difficulty lies opportunity.”

Albert Einstein

To many people the idea of working from home can seem like a dream. Just avoiding the daily commute makes it worthwhile for many, but add in the benefits that arise from being present for your family, and being able to work the hours that suit you, and suddenly it’s an extremely attractive proposition. 

While it definitely does depend on the individual, working from home can present a number of new challenges when it comes to getting work done. Laundry is building up, the home needs cleaning from the weekend, and your TV and fridge are also always on hand. 

Luckily there are some small changes anyone can make to ensure their home office is at least as good as a corporate office for concentration, and potentially even better for productivity.

1. A dedicated workspace

While not everyone has the ability to turn one room of the house into an office, it is wise to try and create a dedicated workspace for when you are “at the office”. Even just pushing a desk into the corner of your lounge and working from there will put you in the right state-of-mind for getting your business done, and at the end of the day you can log off and go back to your family life. Sitting in bed to work may be fun for one day, but long term blurring of the lines between the spaces for work and those for play can mean you can never really get away from your job.

For the same reason it may be wise to have a “work computer” and one for social media and recreation. Use the work computer the same way you would the one at any corporate office. When you turn it on there will be no non-work apps to distract you, and you should immediately be able to get into a work state of mind.

Ideally your work desk should face out a window, or failing that, towards a wall so you aren’t constantly looking at the distracting build-up of dishes, or the temptation of the television. Put up some work-related art, keep the table organised and you will find that when you sit down you are already thinking of working.

2. Noise is a distraction too

It’s not just visual things that can be distracting. The noises of a home can also take you out of that important work mindset. If you live alone this will be a lot easier, but if you have a family around, their activities can break your train of thought as easily as if they were tugging on your shoulder.

You don’t need to go overboard but finding ways to mute the external noises will help you to concentrate. Consider changing your office door from a hollow one to a solid wood one. Adding weather-stripping or a door sweep along the bottom of the door can also cut down on the amount of sound pollution that seeps in. If you use a corner of a common room for your office, consider investing in a pair of noise-cancelling headphones to ensure your thoughts remain entirely undisturbed.

3. Get an office chair

By now you will no doubt have spent a day working from a dining room chair, or on a couch and will know that this is not an effective way to do it. There is a reason offices splash out on their chairs. Dining room chairs are intended for short stays whereas an adjustable office chair will enable you to set your ideal height and maintain good posture throughout a full workday. No one’s watching to see whether you’re sitting up or slumping, but your back will let you know if there’s been any cop-out. 

Giving yourself a sore back or painful legs is a great way to ensure you get no work done, so apart from getting a good chair, make sure you take scheduled breaks away from your computer. Be sure to look away from the screen every 20 minutes and don’t be afraid to get up and walk around the house from time to time. A study conducted a few years ago by DeskTime indicated that the most productive interval was 52 minutes of work interrupted by 17 minutes of break. Just don’t allow yourself to get caught up in home chores.

4. Keep it tidy

A cluttered desk may make you look busy, but it isn’t doing you any favours when it comes to focus. You might be surprised by just how much paper can build up doing an average job and often this is something you need to keep under control. Getting decent paper storage is therefore an important thing to consider when building a distraction-free office. 

If your job is particularly paper-heavy you may want to invest in a filing cabinet, but for most a couple of desk drawers or shelves should be fine. Set aside a designated place for incoming mail or work on the to-do list, another for projects in process, and a third storage area for completed projects or paid bills. Organising your computer files in a similar way, to keep upcoming work and work in progress in a designated accessible area and finished projects stowed away in a cloud database, may help you stay on top of the jobs you need to do.

5. Be Work Ready

When you sit down to work you want to be able to do just that. In order to make sure you will be at your most efficient your workspace needs to be work-ready. You don’t want to have to interrupt your flow with a trip to the shops to get printer paper for example. Invest in your workspace so that it’s the same as you would find in any corporate building. 

Make sure you have the stationery and things you need to get the job done, and this includes having a good internet connection. How easy is it to get to your router if you need to reset something? Do you have enough bandwidth for online meetings? What is behind your desk? What will your colleagues and clients see when they get you on camera?

Have everything on hand that you need, and make sure it’s up to date and in working order, because trying to make things work with the wrong equipment, or dealing with problematic old technology, are real distractions. As an added benefit, the investments you make in your home office, and the equipment you use, may be tax deductible (but there are many factors at play here so professional advice is essential before you claim!).

6. Have a plan for your family and pets

Children and pets are probably going to be the biggest distractions to your day, so make a plan to ensure neither interrupt you. Children must understand that while you are working only emergencies are worth interruptions. 

Pets may be a little simpler – replace their squeaky play toys with chew sticks, and move their beds close to you so they feel comfortable lying quietly with you even though you aren’t being attentive. Good luck by the way with persuading your cat not to sit on your keyboard – this  article may help but all bets are off!

Make sure you plan to take time out to spend with both the children and your pets, so they know that you are not ignoring them, just busy when you are at your desk. Taking your dog on a lunchtime walk, or playing with your children for an hour on a sleepy summer’s afternoon can really invigorate you for the rest of the day, and are the absolute perks of working from home as well. You might as well enjoy it.


Budget 2022: Your Tax Tables and Tax Calculator

Individuals, special trusts, companies and small business corporations will see some relief from the Budget 2022 proposals, and to help you quantify that, and as a convenient reminder of the various other taxes that remain unchanged, we share both the official SARS Tax Tables and a link to Fin 24’s Budget Calculator (just follow the four-step process to do your own calculation).

The Tax Tables cover Individuals, Special Trusts and Trusts, Companies, Small Business Corporations, Turnover Tax for Micro Businesses and Transfer Duty. 

Click on the links below each Table for the full SARS “Budget Tax Guide 2022”.

How much will you be paying in income tax, petrol and sin taxes? Use Fin 24’s four-step Budget Calculator here to find out.

Have a look at the tax tables below for the new Individual and Special Trust income tax brackets, and for a convenient reminder of the various other taxes that remain unchanged – 

Source: SARS
Source: SARS
Source: SARS

If you require assistance with filing your tax returns or have any tax queries, contact us at ep@emmapardoe.co.za for assistance.


Budget 2022: Your Share of Billions in Tax Relief and Business Support

“Now is not the time to increase taxes and put the recovery at risk! Accordingly, we have decided to keep money in the pockets of South Africans.”

Finance Minister Enoch Godongwana

The 2022 Budget Speech brought some good news and welcome tax relief to personal and business taxpayers, 

This is possible thanks to tax revenue collection estimates that exceed the 2021 Budget estimate by R182 billion. Given the improvement in revenue collections, government proposes R5.2 billion tax relief to help support the economic recovery, provide some respite from fuel tax increases and boost incentives for youth employment.

Tax changes for individuals 

  • Personal income tax brackets and rebates will be adjusted downwards by 4.5% to prevent taxpayers moving into higher brackets due to inflation, resulting in tax relief of an estimated R13.5 billion.
  • The income tax threshold (under 65) has increased to R91,259 per year. 
  • Medical tax credits will increase from R332 to R347 per month for the first two members, and from R224 to R234 per month for additional members.

Tax changes for companies 

Reduction in company income tax rate from 28% to 27% from 1 April 2022 (i.e. for tax years ending on or after 31 March 2023). 

Support for small businesses 

To support businesses in distress owing to the Covid-19 pandemic, a new business bounce-back scheme was announced; a new version of the R200 billion loan guarantee scheme that was part of the R500 billion stimulus package announced at the onset of the Covid-19 pandemic in 2020. 

It will be implemented using two mechanisms which will be introduced in sequence:

  • Small business loan guarantees of R15 billion will be launched next month provided through participating banks and development finance institutions, with Government underwriting the first 20% of loan losses.
  • Treasury wants to introduce a business equity-linked loan guarantee support mechanism by April this year.

Some other issues to be aware of 

  • The Minister cautioned that while VAT and other taxes have not been increased, this may change in the future, saying that if there are permanent expenditure increases in coming years, there would be no choice but to revisit this.
  • Amendments are proposed to provisions relating to the taxation of variable remuneration to ensure wider application of these rules – particularly to the informal sector (‘Variable remuneration’ includes overtime pay, bonuses or commission; an allowance or advance paid for transport expenses; an amount the employee becomes entitled to as a result of unused leave; any night shift or standby allowance; or any amount paid or granted for a reimbursement as contemplated in the Act).  In effect this income will only be taxed on receipt.
  • Provisional tax: Government has proposed a review of the provisional tax system on the basis of international developments. 
  • Corporate tax reduction will be funded by limiting the interest deduction and assessed losses. Assessed losses brought forward will be limited to 80% of taxable income. Smaller companies with a taxable income below R1 million will be exempt.
  • To address abuse of such incentives such as the Employment Tax Incentive, government proposes to impose understatement penalties on reimbursements that are improperly claimed in terms of this incentive. 
  • The Minister urged all companies that have not already done so to develop plans to progressively reduce their carbon emissions, to avoid facing steep taxes. Exporters will also face overseas border taxes for carbon-intensive goods such as iron and steel, which will reduce their competitiveness. 
  • SARS will be reviewing the processes surrounding the issue of tax clearances as well the declaration of the returns in order to curb tax compliance status abuse in which taxpayers may file an inaccurate return in order to obtain a tax clearance.
  • To assist with the detection of non-compliance or fraud through the existence of unexplained wealth, all provisional taxpayers with assets above R50 million will be required to declare specified assets and liabilities at market values in their 2023 tax returns. 
  • Other future tax proposals include plans for a new personal income tax regime for remote work, a review of the exemption of foreign retirement benefits in domestic tax legislation, a review of depreciation and investment allowances.
  • SARS says it focused on deliberate work audits of large business, which has generated an additional revenue in excess of R4 billion. It will focus on a number of revenue-generating priorities, which amongst others include the expansion of the use of data and intelligence; increasing capability to maximise debt collections; implementing the Davis Tax Committee recommendations for the corporate and High Wealth Individual compliance landscape; accelerate criminal investigations and counter illicit practices; and shaping the policy on the informal economy.

Seven Crucial Tax and Other Issues to Address When an Employee Dies

“Employees are the key to your success… Treat them well!”

Ron Kaufman

The death of an employee can be a difficult situation in any company, but particularly so in smaller businesses where employees work more closely together and often consider each other more than just co-workers. 

In addition to handling the emotional aspect of such an event, companies must also keep the business running and take care of various compliance and tax issues. 

Here are seven crucial issues to address swiftly after the death of an employee. 

  1. Contact with the employee’s family 

Obtain the name and contact details of a person from the deceased’s family with whom the company can communicate about a range of matters, including funeral details, collecting company property such as keys, equipment, (company cars, computers and the like) and credit cards, finalising employee benefits procedures, and the return of the deceased’s personal belongings.

It is also helpful to have the details of the executor of the deceased employee’s estate, who is also the ‘representative taxpayer’ for the deceased and responsible for finalising the deceased’s financial and tax affairs.  

  1. Inform employees and establish internal processes

Notify other employees with respect, tact and care, providing as much information as possible. Nominate a company representative to answer employees’ questions; to accept flowers, communications and donations on behalf of the deceased’s family; and to make appropriate plans for memorials, tributes or gestures.

Realise that some people are better able to deal with such an event than others. Encourage employees to seek the help of lay therapists or religious advisors, and to provide mutual support to each other. Also consider arranging grief counselling and providing time off as needed, as well as for attending the funeral, preferably on a paid basis.

  1. Keep the business running

Update business roles and functions and reassign space and equipment to reflect the employee’s death in a respectful and compassionate manner. 

To minimise disruption to the business, assign the deceased’s tasks, functions and responsibilities to other team members, and redirect phone, voicemail, email and mail communications as soon as possible. Collect company property and address security issues as per the company’s established termination procedures. 

Inform clients, suppliers and other stakeholders who are affected of the change, while beginning the process of finding a suitable replacement. 

Compensate for those employees who find it difficult to focus or make more mistakes, especially where this presents a safety issue, for example, in manufacturing or production environments.  

  1. Calculate the final remuneration and benefits

In calculating the deceased employee’s final renumeration, the normal procedures for terminating employment must be followed: all hours worked until the date of death must be compensated, any outstanding leave must be paid out and, if the employee had any savings or loans with the company, these need to be finalised. Depending on the circumstances, payment will be made to the executor of the deceased estate, to the family or to a beneficiary.

At the same time, finalise employment benefits, such as medical aid and pension or provident fund membership, ensuring that all compliance issues are promptly attended to, so the family does not experience delays caused by the company when claiming benefits. 

  1. Take care of tax issues

Whether the deceased was registered with SARS or not, and whether there is estate duty payable or not, SARS must be notified of the death of the person. This must be done by the executor of the deceased employee’s estate or by a tax practitioner acting on behalf of the deceased or the company. 

The employer must provide the executor acting as the representative taxpayer of the deceased employee with the employees’ tax certificate within 14 days after the employee passed away. The provisions that state that employees’ tax certificates may not be delivered until the EMP501 reconciliation has been submitted does not apply.

Once the deceased employee has been coded as such by SARS, all outstanding tax returns should be submitted up to the date of death by the executor of the deceased’s estate. This applies to all tax types – income tax, VAT, PAYE, SDL, UIF and estate duty. As soon as all the tax liabilities have been paid in full, a Deceased Estate Compliance (DEC) letter is issued for all taxes except estate duty and an ED clearance letter for estate duty. Any refund due will only be released if all other taxes are up to date, all accounts have zero balances and all outstanding returns have been submitted and processed.

  1. Take care of UIF matters

Following the death of an employee who contributed to the Unemployment Insurance Fund (UIF), the dependants – a spouse or life partner, children under the age of 21 or a guardian of dependent children – can claim benefits from the UIF. The death benefit is the amount that the employee could have claimed if he/she was unemployed and it is paid out in one payment.

The dependants must apply within six months of the date of death by going to a Labour Centre to complete and submit Form UF126 (for a spouse or life partner) or Form UF127 (for a child). 

The dependants will also need the following from the deceased’s employer: 

  • Copies of the deceased’s last six payslips; 
  • The employer’s details on form UI19; and
  • A service certificate from the employer. 

They will then receive another document, Form UF128, which needs to be filled in by the deceased’s last employer and then submitted at the Labour Centre. 

  1. Take care of Compensation Fund issues

The surviving spouse or dependants of a deceased employee may be able to claim from the Compensation Fund if the employee died while working or as a result of a work-related accident, injury or disease. The Compensation Fund covers most employees.

By law, anyone who employs one or more part- or full-time workers must register with the Compensation Fund and pay annual assessment fees, based on the employee’s earnings and the risks of the type of work. Workmen’s compensation is a no-fault system, which means there is no need to prove that an employer was at fault. The compensation awarded does not form part of the deceased employee’s estate and can also not be attached to satisfy a debt. 

Assisting the deceased’s family in these matters reflects well on the reputation on the company/employer.


Small Businesses That Survived 2021 – How They Made It

“At the heart of the strategy is a strong belief…that systemic problems require systemic solutions 

MIT Sloan associate deans, Fiona Muray and Ray Reagans

Businesses usually spend the last quarter of the year reflecting on how they have done and using the lessons learned in planning for the year ahead, while also keeping a keen eye on government’s financial plans as revealed in the budget – which will be tabled this month.

The 2021 calendar year has been tougher on the private sector than any other time in memory due to the global pandemic. A study by Wits University on accounting and governance in the context of covid-19  suggests that the danger of the covid-19 pandemic and resultant restrictions on businesses is the knock-on effects and  the negative impact in the short-to-medium term and short-to-long term, rather than the immediate impact.

The knock from 2020, when the pandemic was first declared, was apparent in the first half of 2021 – with record breaking rates in demand for capital and liquidations.

So how did the businesses who made it through 2021 do it?

1. Proactive accounting and governance

Good quality accounting and governance with qualified finance professionals helped these companies navigate through the storm. Particularly in addressing the necessary extra expenses involved in setting up remote working and communication systems and equipment for their staff and even, in some situations, the costs of Personal Protective Equipment.

2. Loans 

The South African Reserve Bank reported that “Year-on-year growth in total loans and advances extended by monetary institutions to the domestic private sector accelerated slightly between March and October 2021, after slowing markedly since the onset of the national lockdown. The gradual lifting of lockdown restrictions boosted the demand for loans by companies in particular, although growth remained subdued.”

3. Good saving habits

Reducing spending on anything but necessities was essential during the pandemic, and it is interesting to note that South African saving trends were at an 11-year high by the end of the Second Quarter of 2021. This was amid fears of an uncertain future due to the ongoing covid-19 pandemic and the rate remained high towards the end of last year. The South African Reserve Bank said that the high rate was driven up by higher savings by companies and households.

4. Embracing digital 

Businesses that survived and even, in some circumstances, flourished during the global slowdown, used the opportunity as a means to be innovative and embrace digital, and where appropriate and possible, they developed or expanded their online offerings. This included keeping their essential staff busy by investing in systems to enable them to work remotely.

The CEO of IBM, Arvind Krishna famously said,When we look at the usage of AI and cloud, I think it is especially going to accelerate also not just us, but how our clients are going to go on their digital transformations. And I believe this crisis is only going to accelerate that as we go over the next few months.”

Ask a professional for tips on how to use these lessons effectively as the pandemic continues.


Financial Year End Reporting: Challenges to Manage, Opportunities for Benefit

“Any remedy is going to depend on having financial statements that are reliable”

Tom Foley

On the last day of February each year, many companies face their end of financial year or “EOFY”.  Whether it’s referred to as the EOFY, Close of the Financial Period, Financial Year End or FYE, or simply ‘Year End’, this important time is just around the corner for many companies on the 28th of February. It is often a stressful time as the financial loose ends from the last 12 months are tied up, various reports and registers are produced, crucial decisions are made, and the accounts for the last year are closed off. All necessary to present an accurate and up-to-date overview of the financial performance over the period, enabling proactive tax planning, ensuring audit-readiness and providing key information for business owners to strategise for the future, plan, structure, invest and grow. 

Why a specified financial year end? 

The financial year of a company is its annual accounting period and can be any 12-month period the company uses for accounting purposes. 

A financial year is a legal requirement. The Companies Act stipulates that a company must have a financial year, with a start and end date. The financial year end date must be set out in the Company’s Notice of Incorporation.

For many companies this date is the end of February each year, although some companies have a financial year end on a different date. A company can change its financial year end by filing a notice of change with the Companies and Intellectual Property Commission (CIPC).  

Why is a financial year end so important?

A company’s financial year is not only a statutory requirement, but also – crucially – the period on which its tax liability is assessed. It also determines when the tax payments are due. 

Annual income tax returns must be submitted within one year from the end of the company’s tax year. Payments are made with provisional returns filed at six-month intervals from the tax year end based on an estimate of taxable income for the year. 

Interest is charged on any underpayment outstanding for more than six months after the tax year end, except in the case of February year ends, in which case it is seven months. Any balance with interest is then paid following assessment.

Furthermore, the company’s financial year also determines when the annual financial statements are due. These annual financial statements are used for compliance purposes, as well as by investors and other stakeholders, such as banks and other creditors, to understand business operations and to assess a company’s performance.  

But perhaps most importantly, financial year end is the crucial time for business owners and managers to thoroughly analyse business performance and make important decisions. This is made possible by an accurate and timely financial year end that produces accurate and reliable financial statements. 

So how can your company best prepare for the looming financial year end?

Tips for financial year end success

  • Identify the important deadlines and the activities that must be completed by each date, such as data processing and reporting deadlines, the tax return and payment dates, and the annual financial statements submission dates. 
  • The difference between a successful year end close and a stressful one is accurately managing the accounts all year, keeping the bookkeeping up-to-date and correctly and timeously completing each month-end. 
  • During year end closing, accounts must be checked carefully for discrepancies, omissions and human errors as these can be costly in consequences. Every rand must be accounted for and all supporting documentation available for a possible tax audit. 
  • Thorough and accurate inventory checks to determine stock levels, consumables and assets on hand will produce up-to-date asset registers for accurate balance sheets, and that will inform asset purchase decisions, depreciation expense claims and capital gains tax calculations. 
  • Current accounts payable reports will allow accurate budgeting for accounts to be settled before financial year end; while up-to-date accounts receivable reports allow payments to be chased and income due to be collected within the current financial year. 
  • Tax planning involves structuring the company’s finances to ensure the company pays only the tax that is legally required to be paid. This might involve accelerating transactions into the current year or delaying transactions into the next financial year to better manage tax liabilities. For example, a company might make asset purchases, pay annual subscriptions earlier, make donations before year end, delay issuing invoices where permissible, or consider writing off debtors or assets before the year end. Any such measures must be lawful, consistent in application and able to pass a possible tax audit, so professional advice is essential. 
  • There are tax changes each year and these could include new or amended deductions or concessions for small business, so be sure to speak to your accounting and tax advisor to ensure all possible tax breaks are considered before finalising the financial statements. 
  • Backup and store business information – including registrations, financial information and customer data – in a secure off-site location. 

Reap the maximum benefits of an accurate and successful financial year end

An accurate and successful financial year end will produce reliable and timely financial records and reports that provide a holistic view of the financial health of the company, enable proactive tax planning, and ensure tax audit readiness. 

The annual financial reports detail the company’s assets and liabilities, profit and expenses, and cash flow. Reviewing annual financial statements will reveal if adjustments are required, such as more sales or fewer expenses, as well as where adjustments must be made and how much adjustment is required in the year(s) ahead. 

As such, financial statements are key tools for business owners to strategise for the future, plan, structure, invest and grow, and are often required by stakeholders such as banks and other creditors, potential investors and business partners to obtain an overview of the company’s financial performance and opportunities for growth and improvement. 

In addition, accurate and reliable annual financial statements produced over the years provide an essential record for any potential investor or buyer of the company in the future and also ensure the appropriate value of the entity from the owner’s perspective.


Small Businesses That Survived 2021 – How They Made It

“At the heart of the strategy is a strong belief…that systemic problems require systemic solutions

Fiona Muray and Ray Reagans, MIT Sloan associate deans

Businesses usually spend the last quarter of the year reflecting on how they have done and using the lessons learned in planning for the year ahead, while also keeping a keen eye on government’s financial plans as revealed in the budget – which will be tabled this month.

The 2021 calendar year has been tougher on the private sector than any other time in memory due to the global pandemic. A study by Wits University on accounting and governance in the context of covid-19  suggests that the danger of the covid-19 pandemic and resultant restrictions on businesses is the knock-on effects and  the negative impact in the short-to-medium term and short-to-long term, rather than the immediate impact.

The knock from 2020, when the pandemic was first declared, was apparent in the first half of 2021 – with record breaking rates in demand for capital and liquidations.

So how did the businesses who made it through 2021 do it?

  1. Proactive accounting and governance

Good quality accounting and governance with qualified finance professionals helped these companies navigate through the storm. Particularly in addressing the necessary extra expenses involved in setting up remote working and communication systems and equipment for their staff and even, in some situations, the costs of Personal Protective Equipment.

  1. Loans 

The South African Reserve Bank reported that “Year-on-year growth in total loans and advances extended by monetary institutions to the domestic private sector accelerated slightly between March and October 2021, after slowing markedly since the onset of the national lockdown. The gradual lifting of lockdown restrictions boosted the demand for loans by companies in particular, although growth remained subdued.”

  1. Good saving habits

Reducing spending on anything but necessities was essential during the pandemic, and it is interesting to note that South African saving trends were at an 11-year high by the end of the Second Quarter of 2021. This was amid fears of an uncertain future due to the ongoing covid-19 pandemic and the rate remained high towards the end of last year. The South African Reserve Bank said that the high rate was driven up by higher savings by companies and households.

  1. Embracing digital 

Businesses that survived and even, in some circumstances, flourished during the global slowdown, used the opportunity as a means to be innovative and embrace digital, and where appropriate and possible, they developed or expanded their online offerings. This included keeping their essential staff busy by investing in systems to enable them to work remotely.

The CEO of IBM, Arvind Krishna famously said,When we look at the usage of AI and cloud, I think it is especially going to accelerate also not just us, but how our clients are going to go on their digital transformations. And I believe this crisis is only going to accelerate that as we go over the next few months.”

Ask a professional for tips on how to use these lessons effectively as the pandemic continues.


Five Tips for Improving Your Workforce Management

“It is equally important to know if we have a happy and engaged workforce as it is to have a profitable bottom line.”

Vern Dosch, Wired Differently

Managing any workforce, but particularly a large one across many units, sometimes in multiple countries, is far from easy. From your staffing levels and scheduling to making sure your labour costs are within budget and your forecasts are accurate, there are a number of elements involved in ensuring your workforce management is streamlined. There are however fewer areas of a business which are more important to get right if you hope to keep your workforce happy and ensure profitability. Here are 5 tips for efficiently managing your employees.

  1. Streamline Scheduling

Even if you have managed to hire a top team they can’t operate at their best if they aren’t in the right place at the right time. Scheduling where an employee should be, and when, is critical if processes are to be streamlined, costs reduced, and service maintained at the highest levels. Just as bad rotas will cost you money, a good schedule will empower employees and deliver business intelligence. This is not an area in which one should skimp on using technology and it is highly recommended that any modern company invest in good scheduling software.

Although you might be used to spreadsheet scheduling, modern employee scheduling software can save you time, and ultimately money, in your day-to-day operations. These tools allow managers to create schedules with intuitive drag-and-drop interfaces, send push notifications to employees, and update schedules in real time. By creating stability, it also delivers a more pleasant experience for managers and employees alike, which keeps morale high and work moving smoothly. 

Further, two-way communication is key. You should not be afraid to engage your staff on scheduling difficulties. Often, being on the floor can give them insights into just where things are bottlenecking. You may also be surprised at how willing staff can be to assist when there is a problem. Simply communicating the business needs to staff and encouraging their input into scheduling preferences can help identify and cover the gaps you are facing. It is also empowering for them.

  1. Codify your company policies

Rules are necessary for the functioning of any business or organisation, but having rules that aren’t written down and made abundantly clear may ironically make it difficult to maintain order and can lead to employees claiming they have been treated unfairly or even discriminated against.

To avoid these issues, it’s crucial that you clearly put all your policies and procedures in writing along with the related consequences for breaking them. This will ensure there aren’t any misunderstandings within your team, and new employees will immediately know what they’re getting themselves into. The stability and clarity brought about by doing this will also take pressure off employees who may feel additional stress if the boundaries are not clearly demarcated.

  1. Pay employees fairly and timeously

Nothing leads to more unhappiness in a business than poor pay or delayed salaries. Whether an employee is full-time or freelance it’s extremely important to make paying them a priority if you want to keep them happy and working at the best of their abilities. Being casual with when you pay your employees will only lead to resentment and underpaying them in terms of your industry will only see you experiencing high employee turnover.

Many companies with payroll issues experience them simply because the people responsible are not experienced, or don’t have the correct tools at hand. Delays can be caused when commissions are miscalculated, tax deductions are incorrect, or hours are input erroneously. The best solution is to bring on a trained and certified accountant or bookkeeper to handle these issues and to give them the right software to ensure the job is done correctly and accurately – your employees can’t focus if they are worried their bills won’t be paid.

Interestingly, recent studies have shown that what an employee earns is not as important for happiness as the benefits they get with that salary. For full-time employees, their salary is only part of their total compensation. The rest is what’s referred to as the benefits package, which typically includes health insurance, paid time off, and sometimes education opportunities. A recent survey conducted by The Harris Poll for the American Institute of CPAs (AICPA), found that 80 percent of respondents would choose a job with benefits over an identical job with 30 percent more salary but no benefits. 

If you want to attract top talent and retain your employees, it’s important to put together a benefits package that will bring candidates to your business over your competitors’. In fact, it’s so important that the Willis Towers Watson survey reported that more than two-thirds of employers surveyed (69%) “plan to differentiate and customise their benefit programs over the next two years.”

  1. Better Forecasting

Great forecasting is one of the key ingredients in your recipe for better workforce planning and management. You already know what your staffing levels should be based upon historic customer demand, but being able to accurately know what they will be in future is even more useful.  Building up accurate forecasts will help you to understand when your peak times of business will be, and whether the company will need more staff in future. Having staff trained and on hand to help when demand increases will mean you are better equipped to keep client service at the proper levels, and that your workforce is not overworked and unhappy. Plus, knowing you may experience a downturn can save money on future retrenchments by not hiring in the first place. 

Forecasting for workforce management should look at the number of sales broken down per hour and per employee, the percentage of salary cost compared to sales, your payroll costs and other more nuanced data such as your absence percentage, which encompasses sick leave and holidays, as well as the amount of time it takes to train staff, how large your on-call freelance staff contingent is, and how many part-time workers you have that could be bumped up to full time in a crisis.

When you balance your planned costs against your results, you create the most profitable resource plan. Better forecasting goes hand in hand with smarter scheduling and gives you the data you need to make sure you always have the right people in the right place at the right time. 

  1. Stronger Communication

Communicating with your employees is going to be the best way to ensure your company runs smoothly. Good WFM requires that all expectations, deadlines, and work requirements are adequately and clearly explained to avoid confusion and missed opportunities. With an increasing number of staff working remotely this has never been more important. 

A 2020 report on “The State of the Deskless Workforce” shows that 80% of the remote workforce are contacted by their employer outside of work hours. The report also found the majority of global workers were contacted by their employer via SMS, instant messenger or phone call, which is an easy form of contact, but disrupts employees’ personal lives and makes it harder for them to achieve a work life balance. 

Ultimately, it’s important to find a solution that works for you and your teams that allows you to effectively communicate requirements without crossing boundaries and causing friction. Many large corporates have turned to Zoom, or Teams for meeting purposes as email chains can cause information to become lost. Don’t be afraid to set up a work WhatsApp group or a Slack channel but undertake not to use them out of office hours. 


Top 10 Complaints Against SARS: What You Can Do to Protect Your Rights

“… the OTO commits to continue doing everything possible to ensure that taxpayers are not forced to pay a cent more than what is required.”

Judge Bernard Makgabo Ngoepe, the Tax Ombud

The list of the top 10 complaints made against SARS over the last eight years to the Office of the Tax Ombud (OTO), published in its recent newsletter, makes for interesting reading, and highlights the areas where taxpayers are most likely to encounter pitfalls in their dealings with SARS. 

The Top 10 complaints made against SARS

  1. SARS placing unwarranted stoppers on taxpayers’ accounts for refunds not to be paid, significantly impacting the taxpayer’s cash flow. 
  1. Delays in finalising verifications result in delays in releasing refunds due; even when taxpayers have submitted all the requested information.
  1. Non-adherence by SARS in finalising dispute resolution within the dispute resolution timelines – already an identified systemic issue. 
  1. Incorrect allocation of payments, often first covering administrative penalties before principal debt and ignoring taxpayers’ letters to SARS about how to allocate the payments.
  1. Taxpayers do not receive outcomes of their objections, and in some instances, SARS could not prove that they had sent the outcomes to the taxpayer.
  2. Recalled refunds where SARS pays refunds into taxpayers’ bank accounts and then recalls these refunds, in some instances taking more than six months to resolve the issues.
  1. E-filing profile problems for tax practitioners, resulting in them not being able to add or remove clients from their profiles. 
  1. SARS deducting more money from taxpayers’ bank accounts than it should, prejudicing the taxpayer financially.   
  1. Banking details of taxpayers have been updated, but the refunds are still not released. 
  2. SARS Complaints Management Office (CMO) incorrectly rejects taxpayers’ complaints lodged with it.

Source: OTO Fair Play Issue 22

The Ombud has also launched a new taxpayer rights awareness campaign, #TaxpayersRightsMatter, to help improve taxpayers’ understanding of their rights and the recourse available if their rights are not upheld by SARS.

What are your rights as a taxpayer? 

Issues with refunds feature quite prominently on the list of complaints, as do delays and ignored requests or complaints. These certainly constitute infringements of taxpayers’ rights, when considering the brief overview below of the rights related to these complaints.    

The interaction between SARS and taxpayers is governed by the TAA (Tax Administration Act), and SARS’ Service Charter also stipulates service levels and time frames.  

The TAA, like all laws in South Africa, is also subject to the Constitution and the Rule of Law. Conduct inconsistent with the Constitution is invalid and illegal. 

Some key features and principles of the Constitution are included in other Acts such as the TAA, PAIA (Promotion of Access to Information Act) and PAJA (Promotion of Administrative Justice Act). 

  • Taxpayers’ Constitutional Rights 
  • The right to privacy includes the right not to have your person, home or property searched; your possessions seized; or the privacy of your communications infringed. SARS cannot search or seize in violation of this Constitutional right. 
  • The right not to incriminate yourself – there are Constitutional restrictions on the information SARS can use to determine your taxes and potential penalties. 
  • The right to a high standard of professional ethics as well as rational and accountable actions from SARS; services provided impartially, fairly, equitably and without bias; transparency; and accessible and accurate information. 
  • Taxpayers’ Legal Rights 
  • The TAA details many taxpayers’ rights including, for example, SARS must keep taxpayers informed at all times, including providing a Letter of Findings before issuing a revised assessment. 
  • PAIA provides the right of access to information, detailing rules regarding how SARS is allowed to obtain information and ensuring taxpayers can find out what information SARS has accessed.
  • PAJA protects the right to just administrative action, requiring that any action by SARS must be lawful, reasonable and procedurally fair. 
  • Taxpayers’ Rights as per SARS’ Service Charter 
  • Where a current year’s refund is due to a taxpayer and no other debt is due; all obligations have been met; SARS administrative control processes are adhered to; and no inspection, verification or audit is required or has been initiated; SARS will endeavour to pay the current filing period refunds within 7 business days of finalising the final assessment. 
  • SARS endeavours to provide reasons for an assessment within 45 business days; to consider objections within 60 business days; and to respond to service complaints within 21 business days.

 How to protect your personal and business rights  

  • Careful compliance and excellent record-keeping are always the first line of defense when it comes to dealing with SARS. An annual tax audit by a professional will help ensure that you have the correct processes in place to ensure both. 
  • SARS’ Service Charter stipulates service levels and time frames with regards to returns and declarations; inspections, audits and verifications; refunds; payments; debt and disputes; and provides official channels for complaints. Understanding these can help you protect your rights as a taxpayer.  
  • Private and business taxpayers have free and independent recourse against SARS through the OTO. However, the powers of the OTO are very limited. It can only deal with complaints against SARS that relate to a service, administrative or procedural issue and only after all avenues of recourse within SARS have been exhausted, except where there are compelling circumstances or the matter is a systemic issue. For example, the Tax Ombud has no control over how long SARS will take to implement its recommendations, which are also not binding on either SARS or the taxpayer.
  • Access to an expert who can defend you or your business in the event of a tax dispute is essential.  
  • If taxpayers are uncertain of their rights or if their rights are being infringed, they must seek expert advice to protect their Constitutional and legal rights.
  • A long list of High Court cases against SARS reveals a growing trend of taxpayers seeking legal recourse against procedurally unfair conduct by SARS or administrative decisions by SARS that prejudice the taxpayer’s rights. The cost of legal defense is often prohibitive, making tax risk insurance worth considering to ensure access to experts in constitutional and tax law when required.

SMEs – Why You Should Consider Employee Benefit Packages

“Human resources isn’t a thing we do, it’s the thing that runs our business”

Steve Wynne, American real estate developer

An effective employee benefit strategy is more of an advantage to an employer than may at first meet the eye. Although providing benefits naturally comes at a price, it also comes with substantial benefits, plus you stand to regain a portion of your investment from SARS in tax deductions.

Moreover, providing benefits that employees can’t readily access on their own could position you as an employer of choice in your industry, affording you the best pick of available talent. This leads to better products and service, meaning your business wins. 

The year-old Africa Insights from the 2019/2020 Benefit Trends Survey shows that employers are getting more creative concerning the mental and physical wellbeing of their staff, as these companies are more aware of the benefits of a healthier staff. 

A report by Johannesburg based HR firm, Willis Towers Watson states “A third of African employers are planning/considering stress or resilience management programs. A quarter is planning/considering mental health or substance abuse programs. 23% is planning/considering health coaching.”

Employee benefit packages are not forced by law on business policy; however the World Health Organisation (WHO) has drawn a link between employee benefits and a physically and mentally healthier workforce. The organisation’s Healthy Workplace Framework and Model, which is a guideline to creating a healthier working environment, says “the mind and body are one, and what affects one, inevitably affects the other.” 

The document also advises that “If the insurance costs for health benefits in your enterprise keep increasing, even after implementing healthy workplace programmes, that does not necessarily mean the programmes have failed. Look at industry benchmarks for comparison. If health insurance costs have increased by 20% in similar industries, yet have only increased by 5% in your enterprise, that is an indicator of success.”

Five major reasons why SMEs should consider employee benefits 

  1. The tax advantages via tax deduction of contributions.
  1. Health insurance as an employment benefit translates to a healthier workforce, which translates to improved quality of production and efficiency.
  1. Improved employee retention, which is key in certain industries where employees have to maintain relationships with specific clients, who may view continuity as a vital consideration.
  1. It improves the work culture between employees and employer.
  1. Improved staff recruitment, as the employer would be better positioned in the job market.

Changing or initiating an employee benefits strategy involves new financial responsibilities so take professional advice on the best way to go about it.


Interest Rate Hikes: How to Buffer Your Business in 2022 and Beyond

“The implied policy rate path of the Quarterly Projection Model indicates an increase of 25 basis points in the fourth quarter of 2021 and further increases in each quarter of 2022, 2023 and 2024.”

Lesetja Kganyago, SARB Governor

After cutting interest rates by 275 basis points to record lows in response to the economic crisis brought about by the COVID-19 lockdowns, the South African Reserve Bank (SARB) recently announced the first interest rate hike in three years. The vote was split 3-2, indicating conflicting sentiments within SARB as it looks to address inflation fears while supporting a recovery.

At its November 2021 Monetary Policy Committee (MPC) meeting, the SARB hiked its main repo rate from a record low of 3.50% by 25 basis points to 3.75%, citing growing concerns about upside inflation risks. 

The repo rate hike came earlier than many economists had expected, and certainly earlier than consumers and business had anticipated. 

It also signals a turn in the interest rate cycle, with further increases forecast by SARB for each quarter over the next three years. While such a normalisation in rates is to be expected, its early arrival and likely extent surprised many.

Some economists estimate hikes of 150 basis points over the next two years, with others expecting around 250 basis points within the next 18 months! It is generally expected that increases will continue until pre-pandemic levels are reached at around 6.5%.

Of course, when interest rates are changed, it has a ripple effect throughout the broader economy. This is because low rates make it more affordable to borrow money, which encourages consumer and business spending and investment, and can also boost asset prices. Rising interest rates have the opposite effect. 

It is important for business owners to understand how interest rate increases can affect and influence how their companies operate and perform, because of course businesses generally depend on a healthy economic environment to thrive. 

Smaller businesses in particular feel the effects of changing interest rates more keenly because they have lower cash reserves and are generally more vulnerable to economic shocks. 

However, if you understand the impact of interest rates on your business, you can adjust to interest rate changes to protect yourself from negative effects. 

Let’s start off then by analysing the possible impact of higher interest rates on your business –

What might the impact be on your business?

When interest rates are low, consumers tend to borrow more money, and also to spend more on products and services, because they have more disposable income.

As interest rates rise, consumers with debts ranging from home loans to vehicle finance to credit cards and personal loans will pay more interest to all those creditors. In South Africa, where the debt repayment to income ratio is as high as 66.7% (2021: Q2) when interest rates are at historic lows, interest rate increases can be problematic. 

An increase in interest rates typically impacts consumer spending habits negatively, because with their debt costs increasing across their credit lines, they have less disposable income to spend on products and services. 

The impact of a change in interest rates on customers varies from business to business. In a rising rate environment, consumer-driven businesses often see a reduction in sales. Companies that make luxury goods are hit hardest when interest rates rise because most customers first cut back on non-essentials when their disposable income decreases.

  • The impact on your cash flow
  • This impact on consumer spending and the resultant reduction in sales is likely to affect cash flow in businesses across the board as their customers simply have less to spend.
  • In addition, just like consumers, nearly every business has outstanding loans, and when interest rates rise, those loans also become more expensive – both immediately and over the longer term.
  • Typically, these loans are longer term debts that will take years to pay off, so any increase in the interest rate on those loans means carrying the debt for longer and paying far more.
  • Higher credit costs will also impact a company’s cash flow, compounding the effect of reduced consumer spending. 
  • What about your access to credit?
  • Higher interest rates make it more difficult – and more expensive – to take out new loans to cover unexpected expenses or to fund the expansion of a business. 
  • Higher loan repayments on existing debt will also reduce business profitability, which can make securing new loans even more difficult. 
  • This can curtail the growth of a company for months or even years.
  • The impact on your business planning
  • Reduced sales, constrained cash flow, and the cost and difficulty of obtaining credit caused by rising interest rates must impact your business planning. 
  • Of course, with changing interest rates it is more difficult to ascertain the cost of future borrowing and the cost of existing business loans on a variable rate, which makes it harder to plan your company’s finances. Nevertheless, the expertise of a professional can assist in adjusting your business planning. 
  • In addition, projects which were viable during low-interest rate periods may no longer be viable due to the cost of – and constrained access to – loans, as well as reduced cashflow and consumer demand. Companies might decide not to start new projects or expansions during periods as interest rates rise, which hampers business growth.

How to buffer your business

  • Consider the impact on your customers and how your business can offer more value for money as their disposal incomes tighten. 
  • It is important to factor in the effect of interest rate increases on budgets and cashflow, both immediately and over the next three years.
  • Review your business loans and other borrowing to ascertain affordability as interest rates increase using a business loan rate calculator. 
  • Consider refinancing some of the business loans while interest rates are still low to help stabilise the debt load. 
  • Consider locking in the lower interest rates now to ensure loans will cost less as the interest rates increase over the next three years. 
  • Re-evaluate projects or expansions planned for the next few years and the impact of interest rates increases on the viability of these plans. 

Festive Season Cybercrime Alert: Tips from SARS

“Cyber Attack: An attack, via cyberspace, targeting an enterprise’s use of cyberspace for the purpose of disrupting, disabling, destroying, or maliciously controlling a computing environment/infrastructure; or destroying the integrity of the data or stealing controlled information.”

CSRC – Computer Security Resource Center

South African businesses, already facing significant risk of cyberattacks, have been warned to step up their cybersecurity as the festive season is expected to see significantly more and increasingly sophisticated cyberattacks. Below are listed some of the common types of cyberattacks.

Common cyberattacks

  • Phishing (random fraudulent emails), spear phishing (emails targeting specific people or companies), vishing (voice phishing) and smishing (SMS phishing) – these all refer to fraudulent communications that appear to come from a reputable source, such as a bank or a government organisation, with the aim of tricking employees or individuals to share data, pay money to criminals or download malware.
  • Malware – including viruses, worms, trojans, spyware, rootkits – typically used to breach a network when a user clicks a link or an email attachment from an apparently trusted source that then installs risky software.
  • Ransomware attacks – ransomware infects networks and encrypts or locks data, allowing attackers to demand a ransom for unlocking or releasing the data.
  • Hacking – including distributed denial-of-service attacks (DDoS) and keylogging.
  • Man-in-the-middle (MitM) or eavesdropping attacks in which attackers insert themselves between a user’s device and a network to filter and steal data, commonly through unsecure public Wi-Fi and compromised devices.

SARS: a favourite cyberattack ruse 

SARS says that there is a steady increase in scams and attacks in which the SARS brand is abused, via the Internet, emails, spoofed websites, SMSes, unsolicited telephone calls and even social networking sites such as Facebook, Twitter and others.

A firm criminal favourite are phishing scams involving false “spoofed” emails made to look as if they were sent by SARS. These fraudulent emails contain links to fake forms and malicious websites purporting to be authentic and lure unsuspecting taxpayers to disclose private and confidential information such as bank account details. Examples include emails that appear to be from “returns@sars.co.za” or “refunds@sars.co.za” indicating that taxpayers are eligible to receive tax refunds. 

The latest scams involve smishing, which is phishing via SMSs, and vishing which most recently involves taxpayers being called by a person purporting to be a SARS employee to inform them that SARS owes them money. 

Another common cyberattack approach involves refund scams in which identity thieves use a legitimate taxpayer’s identity to file a tax return and claim a refund fraudulently. Yet another threat involves cybercriminals using personal or company information to change the banking details on the taxpayers’ SARS profiles. 

A further version involves criminals purporting to be SARS auditors or employees contacting businesses using all the means described above to inform taxpayers that they are under investigation and that an audit will be conducted.

SARS Tips for Improved Cybersecurity

  • Do not open or respond to emails from unknown sources and beware of false SMSes.
  • Be suspicious of emails and/or SMSes that request personal, tax, banking and eFiling details.
  • SARS will not request your banking details, login credentials, passwords, pins, credit/debit card information, or other confidential information by phone, SMS, email or websites.
  • SARS will never notify you about refunds by telephone, SMS or email.
  • Immediately report a notice or letter from SARS that states:
  • More than one tax return has been filed in your name
  • You have a balance due, refund offset or have had collection actions taken against you for a year in which you did not file a tax return   
  • SARS records indicate you received a salary from an employer that you don’t work for
  • there has been a payment error or incorrect refund requiring you to deposit the “overpayment” into a bank account. 

Speak to your accountant first!

It is easy for criminals to dupe unsuspecting taxpayers, and yet, at the same time, taxpayers should never simply dismiss or ignore a notice or demand from SARS as a scam. 

The best line of defence against cyberattacks that misuse the SARS brand is to get advice before taking any action. If you suspect the legality of a particular communication or believe you have been contacted by a fake SARS representative, immediately contact your accountant, who will be able to verify the communication or report suspicious activity for you.

This will ensure that you never fail to respond timeously and correctly to legitimate SARS communications, while also safeguarding you from becoming a victim of a cyberattack, especially during the upcoming festive season which promises to be a busy one for cybercriminals. 


The Hybrid Workforce Debate: What SMEs Need to Know

“Success in a hybrid work environment requires employers to move beyond viewing remote or hybrid environments as a temporary or short term strategy and to treat it as an opportunity”

Vice President of Gartner, George Penn

The gradual transition from the conventional office environment to a remote, tech-savvy workforce has been topical in various industries for a while. However the pandemic has  accelerated acceptance of the reality of remote working.

The recent Digital Corporation in South Africa 2021 study, conducted by IT research organisation World Wide Worx with the support of Syspro, Dell Technologies, Intel and Cycan, looked into the hybrid work place model among enterprises in South Africa. It found that a third of respondent companies did not foresee their workforce returning to the office environment. 

The hybrid workplace is an operating model incorporating both remote and in-office working. This is made feasible by cloud computing together with collaborative tools such as direct messaging tools like WeChat, WhatsApp and Facebook Messenger, as well as task management tools like Asana, Google Workspace and Trello. 

The above-mentioned research also analysed the spending habits and investment trends of companies concerning hybrid environment technologies, among other things. 

Budgeting is a critical consideration in remote working. Cloud computing – an important aspect of hybrid working, is second only to business intelligence, which is software designed to retrieve, analyse and report data for business improvement, in terms of budgeting for specific technologies in South Africa, according to the report 

“Spending is surprisingly uniform across numerous operational categories, from computers and cyber-security to accounting and ecommerce,” says Arthur Goldstuck, CEO of World Wide Worx and principal analyst on the project.

Furthermore, remote working involves tax considerations for both employees and employers – an area best tackled only with professional advice.

For example, employers are often requested to issue letters confirming that employees performed their duties mainly in a home office and the difficulty is that the employer has to vouch that all requirements were met.

In general, the hybrid workforce debate is of particular interest to SMEs, particularly since they may be able repurpose the savings of reducing office space and overheads. 

The three pillars of a functional hybrid working model

The University of Cape Town’s Graduate School of Business lists the following pillars as vital to a functional hybrid working model:

  1. Trust: This is the foundation of the employee-employer relationship. The working model requires both parties to actively work on making it a success.
  1. Practicality: The nature of the business offering should determine the inner workings of the model and budget.
  1. Organisational policy: Policy needs to complement the working environment. 

Take professional advice on how hybrid working can impact your business’ bottom line.


What To Do When Preparing to Sell Your Business

“As much as you might love running your business, you must have an end-goal in the plan. At the very least, an exit strategy keeps you from turning your business into a glorified job – working from home, but with longer hours.”

Kevin J. Donaldson)

A new year beckons, and you may be thinking that it will soon be time to sell your business. Perhaps you are nearing the age of retirement, or want to move on to a new endeavour? Whatever your reason, your business could well be your most valuable personal asset, and something you have invested in for years, if not decades. The prospect of selling can therefore feel overwhelming, and clearly you want to receive a fair price for the asset you’ve worked so hard to create.

Selling your business is therefore likely to be not only a busy period, but an emotional one too and you’ll need to engage in extensive preparation if you want to come out satisfied at the other end. 

These tips will help you to prepare for a business sale and get the price you deserve for your company.

1. Have a reason why it is for sale

Anyone who is going to buy your business will want to know the reason why it is for sale. Your reason should be clearly thought out and easily explained to avoid spooking potential buyers. Simply saying “It’s time for me to move on” will not build anyone’s confidence. The aim here isn’t to obfuscate your reasons; honesty will always be appreciated.

A serious buyer will spend time doing their due diligence investigation and so know a fair amount about your business, its reputation and sustainability. So remember that whilst your books are likely to tell them more about the health of your business than your words, your words will give them an idea of what the reputation of the business might be and just what they are likely to be dealing with when it comes time to deal with existing clients and suppliers. Common reasons for exiting a business include retirement, partnership disputes, illness or death, feeling overworked or even plain old boredom. When explaining why you are exiting there is an opportunity to add in some of the strengths of the business. “I am feeling overworked”, becomes a lot stronger from a sales perspective when it’s backed up by, “We have so many orders” or “We have a reputation for never letting our customers down”. 

2. Give yourself time

Selling a business takes time and should not be done in a hurry. Trying to sell in a hurry can only mean the correct things are not in place, and buyers will sense your urgency. In general, you should give yourself at least one year to sell a business and preferably two. 

3. Get your finances in order

A company with clear, legible finances is also going to sell much quicker than one with a drawer full of receipts and a box of demands from SARS. It is essential at this stage to liaise with your accountant to ensure that all financial records are in place, fully up to date and that any outstanding issues are cleared up.

The more organised and accurate your accounting records are, the easier it is for a potential buyer to assess your company’s value. A potential buyer needs a clear picture of your financial condition, and that includes accurate financial statements for the past several financial years. When someone buys your firm, they may need to integrate your accounting data into their systems, and your accounting transactions must follow industry standards.

A company’s finances tell potential buyers a lot about a business and very few will take the plunge if things aren’t organised and transparent. For example, a purchaser can review your interest expense to determine if the expense is increasing as a percentage of sales. If interest expense climbs say 5% to 8% of sales, your firm’s total debt is also increasing.

There is a second, even more important reason your finances need to be accurate, and this is that you will need them to determine the value of your company. It is impossible to sell something if you don’t know what it is worth, and just how much value there is in it. Knowing your bottom-line price will be important come time for negotiations.

A vital consideration in determining the price is future prospects and profitability. The final purchase price will not be simply based on net asset value but also on likely future profits giving a potential return on investment (the purchase price). There is no substitute for professional advice here!

Also, be clear in your mind how you expect the payment to be made – a lump sum, an earn-out over so many years based on the projected profits being realised. A note here – most sale agreements have clawback clauses if the future profits do not materialise. You will need sound advice on what is in the agreement in this and other considerations.

4. Succession Planning

Making sure your business can thrive after you have left will make it a far more attractive proposition for a potential buyer. Hopefully you have always had a succession plan in place in the event that something happens to you, but if you don’t it’s time to get to work.

A succession plan may require you to train and mentor a successor, and to put legal documents in place (be sure to incorporate some flexibility in case a buyer has other ideas!). Both of these tasks are time consuming. If you plan on selling the business on to the employees then an Employee Stock Ownership Plan (ESOP) will need to be developed and, employees funding the ESOP will need a number of years to accumulate the funds to buy out the owner.

For each of these reasons, you should plan for succession as soon as possible. Putting a detailed plan in place can help you avoid a forced sale. A forced sale occurs when the owner is under pressure to sell the business, or the owner’s heirs are trying to sell the company. The seller does not have any bargaining power and will likely receive far less for the business when the sale is finalised.

Finally, in this regard: Consider your reaction and plans should the buyer ask you to stay on for a term or two while they prepare their own successors to take over from you.

5. Increase the value of your business

While it may be tempting to take your foot off the gas pedal as you prepare for a sale, this is exactly what you shouldn’t be doing. Businesses whose performance noticeably declines before all the documents are signed only give the impression that the owner is the only thing that matters, and this will give prospective buyers all the excuse they need to make a lowball offer.

On the contrary now is the perfect time to perform a SWOT (strengths, weaknesses, opportunities, and threats) analysis. Write down the key issues in each of those four areas. Get input from your staff, share your SWOT analysis with your team and ask them for feedback. Once you perform this analysis, you can start focusing on business improvements.

The aim is to make sure that the year before you sell is a record breaker. Imagine you are starting all over again and spend this year getting the word out about your business, building clientele, cementing long term contracts and relationships and cutting back on costs. So ideally start planning to maximise value at least a year before you sell!

Make sure that you account for every cost you incur to operate your business and if there are areas of the company that are not profitable, consider closing them. Now is not the time to be keeping your pet projects alive. Having a great year, cleaning out the business chaff and showing investors that the company has a strong future will undoubtedly provide a huge boost to your sales price.

6. Identify target buyers

As already indicated, selling a business takes time. You can speed up this process if you identify potential buyers and understand exactly why they might be eager to put in an offer. There are generally two types of reasons for buyers to take on a new going concern: financial and strategic.

Financial buyers treat the purchase as an investment, looking at the potential returns they can achieve. Their aim is to make an acceptable return on their investment and then flip the business either to another buyer or through an IPO. Financial buyers will consider the company’s track record based on a history of strong financial statements, and potential for solid growth. They won’t necessarily worry about flaws in the business as they will see these as opportunities to quickly increase the value before selling it off, but they will haggle every cent on the sales price to ensure the most profit for themselves.

Strategic buyers look for purchases that will fit into their own long-term business strategy. They may, for example, be competitors who are looking to expand vertically (to different parts of the supply chain) or companies that need to expand horizontally to a new industry to diversify their portfolio. Strategic buyers are typically larger and willing to pay more for the purchase, since they can immediately take advantage of economies of scale.

7. Bring a good team on board

The final step before actually putting the business up for sale is bringing in a strong team of experts. At the very least you will need an accountant to handle any financial questions the buyer may have and to advise you on choosing a lawyer to attend to the contractual side. 

Seek advice also on whether you should employ the services of a specialist broker to help oversee and facilitate the sale. Negotiating a sale yourself allows you to save money and avoid paying a broker’s commission, so it may be the best route to take when the sale is to a trusted family member or current employee, but still bounce that off your accountant first.

In other circumstances, getting a broker on board can help things run more smoothly as the broker will help free up your time to keep the business up and running, will help keep the sale quiet and get the highest price, because brokers are incentivised to maximize their commission.

At the end of the day, having the right people working toward your sale means that at the very least they will pay for themselves, and more often than not they will increase your profit.

Read more about the article ‘Tis the Season for Giving but Beware the Taxman!
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‘Tis the Season for Giving but Beware the Taxman!

“Think of giving not as a duty but as a privilege.”

John D. Rockefeller Jr.

Christmas is a time for giving, and in our local business environment, as well as in many other markets around the world, it may even be unofficially expected of companies to give generously to their employees, to their clients and suppliers, and to the communities in which they operate. Many companies give generously in these ways, but may not be aware of the tax implications of their generosity. 

In this article, we briefly look at some of the tax implications of various forms of giving, to emphasise that before any corporate giving decisions are made, companies should seek professional advice about the tax implications. 

Giving to employees

  • Company Christmas party: For many employees the annual office Christmas party or lunch is a highlight: a great meal, free drinks and the opportunity to mingle socially with colleagues. Although the costs of such an event would have to be carefully considered, this would be a tax-deductible expense, regarded as a non-taxable occasional meal.
  • Gifts: Whether you are considering gift vouchers, physical presents or intangible gifts, there is no minimum value below which employer-provided gifts are tax free. If it can be regarded as an asset, it will be seen by SARS as a taxable benefit in the hands of the employee. 

Some examples include gift vouchers, prizes or awards; physical items such as a mobile device; and intangible gifts such as flights or accommodation. This applies whether the gift is given to an employee or an employee’s family member, such as a spouse or child. The cost to the employer of any such gift must be reflected as a taxable fringe benefit on the employee’s payslip, and PAYE must be calculated and deducted.

There are some exceptions. For example, in the case of a long service award (15 years or more), the first R5 000 of the cost of such a gift is not taxable, but any amount in excess thereof is taxable as described above. Other possible exceptions include where the employer incurs no cost in conferring the gifts, or where the gifts are utilised by the employees for business purposes. However, even these simplified scenarios are subject to complex considerations and should first be discussed with a professional.

  • Bonuses: When considering giving annual bonusses or “13th cheques”, remember that a bonus is taxed at the same rate as other remuneration. This means that the amount of the bonus will be added to an employee’s annual salary to determine the rate of tax payable for the year. However, the bonus amount might push some employees into a higher tax bracket, significantly eroding the amount of the bonus the employee receives after tax. Be sure to get professional advice on structuring bonuses to be tax efficient. 

Giving to clients/suppliers

  • Christmas functions: Where clients or suppliers are entertained at a Christmas function, expenses such as meals, venue hire and live entertainment can be claimed as a tax deduction. However, this is only allowed where the taxpayer can prove that expenses were incurred in pursuit of business. It will be necessary to keep a comprehensive schedule of the entertainment expenses along with the date, the venue, the company and people entertained, and the purposes of that entertainment (for example prospecting for a new client) to prove to SARS that the expenses were genuinely business-related.

    In the past, this deduction was prone to abuse. Consequently, a claim for entertainment expenses is likely to be flagged for investigation by SARS, and taxpayers should not risk this unless they have verified their tax position with a specialist and are certain they are able to prove the expenses claimed are again, genuinely business-related. 

In addition, input VAT cannot be claimed on entertainment expenses, including but certainly not limited to business lunches and dinners; annual functions; and expenses incurred for entertaining clients at restaurants, bars and night clubs.

  • Gifts: Many companies show their appreciation and build relationships with clients and suppliers with corporate gifts that can range from bottles of wine to keyrings. These expenses could be tax deductible as marketing expenses or as cost of sales expenses, but the onus will rest on the taxpayer to prove that these expenses were incurred in the production of income. 

Giving to charities 

  • Donations: Before making a donation, consider that there may be donations tax implications. A company will not incur donations tax for the first R10,000 per annum in donations. However, any amounts over this limit are taxed at a flat rate of 20% on the value of the donation up to R30 million, and at a rate of 25% on donations over and above R30 million. Furthermore, any donations made to a registered PBO (Public Benefit Organisation) are not subject to donations tax, even for amounts over the limits set out above. The PBO must have been approved by SARS – have a professional check.

The deduction may, however, not exceed 10% of the donor’s taxable income during any year of assessment. Should the company (donor) have given more than 10% of taxable income in one year, the excess over 10% can be carried over to the next year.

Staff can also get tax relief on their PAYE through “payroll giving” whereby the employer donates on their behalf up to 5% of remuneration to qualifying section 18A PBOs. The donation relief will be reflected on the employee’s IRP5 at the end of the year.

Ask for professional advice to structure your company’s donations in the most appropriate and tax-efficient manner. You may also require assistance to declare and pay donations tax, as it does not form part of the business’ normal tax returns. Following a donation, you will need to submit a donor declaration (IT144 form) and pay any donations tax owing by the end of the month following the month during which the donation was made.


Cloud Computing Offers Small Businesses New Age Solutions for Less

“Cloud is about how you do computing, not where you do computing”

Author and former CEO of tech company VMware, Paul Maritz

“Working in a cloud” favours companies of all sizes, specialising in different trades, and allows them to manage their work according to their own preferences of operations. The “cloud” is simply a server facility.

Smaller businesses looking to adopt cloud computing and digitalising their workload would need to make sure that all members involved in the value chain are properly connected to the internet at times they’d need to perform their duties. However, as South African small businesses become more reliant on the internet – the reality of the three “economic disablers” affecting this country creeps in from time-to-time. These are copper theft, load-shedding and poorer quality internet connectivity.

Small companies looking to adopt cloud computing should be aware of these shortcomings, which are a current reality in the South African economy, and plan around them.

There are digital solutions companies that provide and host cloud computing as a Business-to-Business offering (B2B), for example eNlight Cloud and AWS Cloud Services. However, there are also other software solutions and applications which companies frequently use that have capacity to host cloud computing services without extra charges. For example, Google Workspace gives multiple users the opportunity to work on documents, images, presentations, calendars, sheets and slides, among other things, remotely. All they need is to be granted access through a Gmail account, which is available to the public free of charge.

Working in a cloud has notable benefits, and these include…

  • The availability of data in real-time, without the involvement of the originator of the file/data.
  • Remote working, particularly during the Covid-19 pandemic where social distancing is advised.
  • Businesses are able to save on expenses such as logistical costs.
  • The time used to travel can rather be dedicated to work, which could increase productivity. 

The disadvantages associated with cloud computing on the other hand include…

  • South Africa’s digital migration is limited by a lack of computer literacy as discussed here. This is predominantly among the older workforce. This is exacerbated by limited access to digital solutions, with only 52 percent of South Africans using phones and internet regularly, according to a report on the country’s digital divide published by the University of Cape Town.
  • Read Huawei’s article on the lack of proper connectivity in Sub-Sahara Africa, which could disrupt operations/production. There is a low rate of access to the internet in South Africa in general, with only 37 percent of households having regular access to the internet according to the Mail & Guardian.
  • There is an increased risk of sensitive information being accessed by unauthorised individuals. 

Don’t get left behind, take professional advice on how cloud computing can benefit your business and save you money on operating expenses.


How To Get a R1.8m CGT Exclusion When Selling Your Small Business

“The tax on capital gains directly affects investment decisions, the mobility and flow of risk capital… the ease or difficulty experienced by new ventures in obtaining capital, and thereby the strength and potential for growth in the economy”

John F. Kennedy

Since October 2001 South African tax residents have been liable for capital gains tax (CGT) on the disposal or “deemed disposal” of assets, such as a business or a property. Events that trigger a disposal include a sale, donation, exchange, loss, death and emigration. 

For individuals, the CGT rate is a stiff 18%. No separate registration for CGT is required. Since CGT forms part of the income tax system, a person must simply declare capital gains and capital losses in the annual income tax return. All capital gains and capital losses made on the disposal of assets are subject to CGT unless excluded by specific provisions. 

One of the lesser known of these exclusions offers CGT relief, for individuals older than 55, up to R1.8 million on the disposal of a small business with a market value not exceeding R10 million; or active business assets of a small business; or an interest in a small business.

Start planning for your retirement with this exclusion

The exclusion is ideal for those thinking of selling their small business to retire. Whilst, as we see below, you have to be over 55, or disposing because of retirement, infirmity, ill-health or death to actually take advantage of it, it makes sense for a business owner of any age to start planning upfront to meet the various requirements. 

Of course, pages of conditions apply, and these are described briefly below to help you determine if this exception is applicable to you already, or how it can be applied to your future planning should you dispose of your small business; your shares in it; or the qualifying assets. 

Do you qualify? Take the quiz! 

If you answer yes to all these questions, you may qualify for the R1.8 million CGT exclusion. 

  1. Do you, as an individual, own a small business or a share in a small business?

A small business is defined as one in which the market value of all the assets is less than R10 million. The business liabilities are not included in the calculation. 

The individual may be a sole proprietor; run the business in a partnership; or hold a direct interest relating to ‘active business assets’ and have a shareholding of at least 10% in the company. 

  1. Are you older than 55? Or is the disposal in consequence of ill-health, other infirmity, superannuation or death? 
  1. Will the gain (profit) from selling the assets or business accrue to you personally?
  2. Have you held the business or interest in the business for a continuous period of at least five years?
  1. Have you been substantially involved in the running of the business during the above-mentioned five-year period? 

If, for example, you employ a full-time manager to run the business, the exclusion will not apply.

  1. Is the market value of all assets of the small business (as well as other businesses owned) less than R10 million at the date of disposal? 

The market value of all assets – whether ‘active business assets’ or not – must be included. If you are a sole proprietor of a business, who also owns a rental property, both these assets must be included. If you own more than one small business, the combined assets of all your businesses must be less than R10 million. 

If the business is a partnership, and the business assets of the partnership has a combined market value of more than R10 million, none of the partners qualify for the special CGT exclusion. 

  1. Is each asset eligible for the capital gains exclusion?

Eligibility is determined on an asset-by-asset basis because the exclusion only relates to “active business assets”. These include moveable assets such as furniture and equipment used exclusively for business purposes. 

For immoveable assets like a building, where part is used for personal purposes, the capital gain must be apportioned between business use (exempt) and non-business use (not exempt). Assets generating passive income (investment income, rental, royalties) and financial instruments (bank deposits, loans, options, shares, unit trusts and more) are also not exempt.

  1. Will the capital gain be realised within two years from the date of the first disposal? 

    If you sell the business in stages, you only qualify for the exclusion when the full capital gain is realised at the completion of the sale, and that must be within two years.   
  1. Have you already made use of the exclusion? 

This CGT exclusion is cumulative and limited to R1.8 million during the natural person’s lifetime. If you sell your business this year and claim R800,000 as a capital gains exclusion, you could possibly have R1 million to deduct in the future against the capital gain of another business. Any capital gain above R1.8 million is taxed as per usual. 

Best advice! 

CGT is a very complex area and there are many issues to be considered. 

However, not taking advantage of this exclusion if it applies to you could make a substantial difference to your future plans.   

For example, let’s say you bought shares in a company 7 years ago for R2 million, and have since been actively involved in running the business. You decide to sell your share for R4 million, triggering a capital gain of R2 million. 

Taxed at your marginal rate of 18%, the CGT due would amount to R360,000 (R2 million x 18%). Applying the R1.8-million exclusion, only the remaining R200,000 is taxed at 18%, reducing the CGT due to R36,000.

Take professional advice and speak with your accountant to ensure that you qualify for the maximum benefits while ticking all the compliance boxes. 


Boost Your Business Plan – Build an Effective Website with These 6 Tips

“Almost overnight the internet has gone from a technical wonder to a business must”

Bill Schrader

No matter the size of your business or what industry you are in, building and maintaining an effective website should be at the heart of all your planning. The internet has become an essential part of everyday life and having a presence online is extremely important for anyone conducting business in 2021. According to a recent survey conducted by Weebly, 56% of the consumers surveyed said they don’t trust a business without a website. 

A website provides a business with numerous benefits, even those businesses who may not think this is the case. Websites expose businesses to a wider audience, provide leads to people already interested in your service, and help save on advertising costs, but only if they are done right. 

A website that exists, but that is unattractive, unhelpful or simply impossible to find will instead do damage to a brand. As a customer’s most likely first port of call for a business, it is essential it reflects the service and diligence put into all other aspects of the enterprise. Here’s how you make that happen.

1. Buy a good domain name

On the surface choosing a domain name may seem like a simple thing. Most people will immediately focus on their brand name and leave it at that, but what if your brand name doesn’t make it clear what you do or has already been taken by another company?

In the instances above it might be wise to reflect your industry in the domain name. If your travel company is called Bob’s, using the domain name BobsTravel tells potential customers more about what you do, and also gives you one key word that helps the client stumble upon you when searching for their new holiday.

Apart from the simple name it’s also important to remember to keep the domain name as short as possible to make it easier to remember. Those with fewer than 15 characters or 3 words have been shown to be easier for people to memorise. It is also important to avoid using numbers, hyphens, double letters, and special characters to avoid misspelling, which also applies to making the name easy to pronounce. The simpler it is, the more likely your clients will remember what to put into their browser.

2. Focus on the platform

Choosing which platform to build your website on is going to be critical to its success. The platform you choose will depend entirely upon the kind of website you are looking for. A simple business card style website might be built using online website builders, but as soon as you need anything more it would be wise to consult a professional web design company to ensure your needs are properly met. 

For starters the business owner will want to consider the platform’s ability to correctly display the website on a variety of new and old browsers. Having a website where some browsers are not supported is a good way to frustrate your potential clients.

Mobile responsiveness is also critical for a website to be effective. According to the most recent Media Nations Report by British regulator Ofcom, the average adult now spends five hours and 40 minutes looking at their phone every day. Needless to say, this means your business’ mobile website must offer a positive user experience so the platform you choose must integrate seamlessly with mobile browsers.  

According to Steve Grey, Creative Director of web design company Plastic Duck Armada, other things to consider include the platform’s ability to scale at a later date. Building a site that can easily be added to as your company grows allows you to upgrade for lower cost in the future. It doesn’t make sense to build a website that needs to be thrown away a year later simply because it won’t include a feature you now desperately need.

“Maintenance is something very few people consider,” says Grey who explains that as technology advances sites will need to be updated to keep up with the new developments in browsers and web searching technologies. 

“Is there a high cost involved in updating your platform? How easy is it? Can someone in-house be trained to do it? This is all going to have a long term impact on how much the site costs and how effectively it runs,” he explains. 

Likewise he says people should consider how easy it is to upload new information to the site. 

“Do you need a blog? Is that system intuitive? Can you update it regularly by yourself or do you need to now hire someone to do it?” asks Grey. 

The final thing to consider according to Grey is the plug-ins and themes which can alter the look of your site. If you want to update the appearance of the site in a few years, do you need to scrap everything and start again, or is it simply a matter of buying a new theme? 

“Ultimately this all comes down to cost and time. With a little forward planning and choosing the right platform you can actually save a lot of money,” says Grey.

3. Make it easy to find: SEO

Search Engine Optimisation (SEO) refers to practices that help your website appear and rank on search engines. This is one of the most important issues to consider when building your website as, according to WebFX, organic searches through search engines now drive more than 50 percent of all website traffic. As a comparison, paid search only drives 10 percent of site traffic, while social media takes credit for just five percent of website traffic.

Your ranking on Google is influenced by a number of factors, all of which must be considered when building a website. Perhaps the most surprising of these is the speed at which your website loads – no matter how good they are, websites filled with large images and videos are getting bumped down the rankings. Ensuring your site is enriched with meta descriptions, and that its tags, images and text are all reflective of your business and the industry will ensure it is found more easily by your potential clients.

Making sure these are optimised requires you to do keyword research on which words you should use to better help Google understand what it is you do, and therefore send the right people to your site. Correctly linking your pages and sharing your site map with Google and the other search engines, to put the site on the right searches.

4. Security is important

According to the Washington Post, global losses from cybercrime skyrocketed to nearly $1 trillion in 2020 and these losses are only growing each year. It is therefore vitally important to protect the integrity of your website and therefore your brand name.

This can be done by creating strong passwords that include random characters, capitals and numbers and are at least 15 characters long to avoid brute force attacks. Updating your site regularly will prevent hackers from exploiting weaknesses and bugs in the code, while running regular backups will allow you to quickly restore the site should it be hacked anyway. Anti-malware software will stop web scanning, DDoS attacks and remove any Malware, which does manage to infect the site. Finally installing SSL will encrypt data transferred between you and your users thereby preventing hackers from reading and exploiting it.  

5. Keep it easy to use

There is nothing more intimidating for a customer visiting a new site than non-intuitive, cluttered web pages. Keeping things open, clear and easy to read will reduce the pain points for customers, while also helping them to find what they are looking for.

The ideal website has five or fewer tabs at the top to navigate and each page should also offer a clear way to get back to the homepage, as often Google searches may take your reader to a page on your website other than the homepage. 

Limit the use of fonts, colours, and GIFs, which can distract and pull the eyes away from the focus of the webpage. Short paragraphs and bullet points also make the information easier to read.

The whole point of your website is to get people to contact your business or to buy something. It’s perhaps surprising then how difficult information can be to find. If your business depends on people being able to contact you or call your sales team, put that information where customers can find it easily. Don’t be afraid to put contact information where it can be found, even at the top of the homepage, so that visitors don’t have to search for a phone number or address if they want to contact your business.

Similarly, if the company uses social media to connect with customers, social media links should be in the website header or footer where they can be easily found.

On sites where ecommerce is an option, the average cart abandonment rate is a staggering 69.57%, meaning most users don’t complete their orders after setting products aside. The most common issues are all linked to complexity and a lack of information – unexpected extra costs, members-only checkout, and a lengthy checkout process. Keeping it simple is clearly the right choice in every circumstance.

6. Market your website

Marketing your website is going to be essential if you want to climb in the search rankings and increase the number of brand new clients it attracts. While social media and paid Google adverts are common ways to market sites it’s usually the more subtle things that climb a site up the rankings and ultimately affect profitability. There are numerous cheap and free tools on the internet that can help with getting the website in front of the people who need to see it as well as helping them once they are on the site. These include, Google My Business, HubSpot, BuzzSumo and MailChimp. 

While social media only accounts for 5% of all web site traffic it is an area that is completely in your hands as business owner. Using a good social media management tool and properly engaging with clients and followers is a great way to attract new business and owners should not ignore it. There are numerous cheap or free social media management tools to help put up the correct posts and monitor their success, such as Hootsuite, Sprout Social and Buffer.

Take professional advice on formulating your business plan with a website at its core, using these simple tips to ensure that it helps drive sales and boost profitability. 


What Auto-Assessed Taxpayers Must Know as the November Deadline Looms

“The hardest thing in the world to understand is the income tax”

Albert Einstein

A year after the first mass auto-assessments were issued by SARS in 2020, many more taxpayers are facing the 2021 tax season deadline of 23 November – just days away!

Read on to find out what has changed since last year, what is still the same and important to know, and why you need to contact your accountant before accepting or editing a return/auto-assessment result. 

What’s changed since auto assessments were introduced last year?

  • SARS expanded its auto assessment features to more than three million taxpayers, after auto assessing more than 83% of taxpayers last year.
  • Engagements with taxpayers this year will be through SARS’s various digital platforms:
    • The SMS channel (47277) is a new free self-help SMS service for taxpayers to, for example, request tax numbers or check if they need to submit a tax return. 
    • SARS online self-help system at sars.gov.za (click on the “Online Services” icon) for various functions such as requesting Tax Reference Numbers or uploading supporting documents. 
    • Chatbot “Lwazi” on eFiling and MobiApp, for answers to tax-related questions and requesting information such as a Statement of Account, or an Audit or Refund Status.
    • Video or telephonic appointment with a SARS official – eBookings can be made via the SMS channel; the “Book an appointment” icon on www.sars.gov.za (halfway down the Home Page on the left); or via the toll-free number 0800 00 7277 (select “0” to make an eBooking).
  • In September, SARS confirmed that a once-off penalty will be imposed for late submission of Personal Income Tax returns for taxpayers who respond to the auto assessment after SARS has issued an “estimated assessment”. 

What is still important to know? 

  • If you have been auto-assessed, you will receive an SMS from SARS. If you have not received an auto-assessment SMS, it does not mean you don’t have to file a tax return. Non-provisional taxpayers who were not auto-assessed must still file their returns by 23 November, either digitally using eFiling or the SARS MobiApp or by making a booking at a branch.
  • The auto assessment is not an assessment for the purposes of the Tax Administration Act, but a notice for individual taxpayers to access their eFiling profile to review the ‘proposed tax return’ that has been pre-populated or partially completed by SARS.
  • Accepting SARS’ ‘proposal’ will result in this return prepared by SARS being submitted on behalf of taxpayer and an ITA34 assessment being issued. 
  • Choosing the ‘Edit’ option will populate a detailed tax return that can be edited and filed as normal. An ITA34 assessment will be issued based on this return. 
  • Failing to either accept or edit an auto-assessment result by 23 November 2021 will result in SARS raising an ‘estimated assessment’. This is a final assessment of the information about a taxpayer available to SARS and cannot be changed – if the information is incorrect, the dispute process will have to be followed.
  • SARS says at least 70% of taxpayers will receive refunds due within 72 hours if nothing else is required. SARS also says taxpayers can expect very specific requests where outstanding information is holding up an assessment. 
  • Whether you have received an auto assessment or not, and whether you have accepted it or not, it is best to contact your accountant – to ensure you cover yourself against any possible mistakes.

7 reasons to contact your accountant before you do anything!

  1. SARS will never request banking details via email, post or SMS. If you have received an auto assessment SMS, check with your accountant that the communication you received is legitimate.     
  1. Don’t assume that the partially completed auto assessment return must be correct because it was pre-populated by SARS. The third-party data from employers, financial institutions, medical aids and others may be incorrect or outdated, and some information may be missing. Your accountant will help you fulfil your responsibility to check for omissions and mistakes before accepting.
  1. Professional advice will protect you against non-disclosure, which can result in penalties and interest and even criminal prosecution. Omissions could include, for example, income from sources other than reporting third parties like a capital gain, rental income, cryptocurrency, or offshore investments. SARS’ significantly improved abilities to draw taxpayer information from local and international third parties make it easier than ever before for SARS to detect incorrect or undisclosed information.
  1. The auto assessments will not in all cases include all the allowable deductions, such as wear and tear, home office expenses, donations to charities and travel expenses. Your accountant can help ensure that all allowable deductions are included to prevent a larger tax liability than necessary.
  2. Accepting an incorrect or incomplete return, whether by accident, negligence or through ignorance, can even lead to criminal prosecution. Accepting the auto-assessment result will also eliminate your ability to dispute the assessment later. Even if the auto assessment seems right, first check with your accountant. 
  1. Failing to accept or edit an auto assessment result by 23 November will result in penalties – or worse. Taxpayers can be convicted of an imprisonable criminal offence for, among others, failing to submit a return when required to do so; retaining all relevant substantiating records; providing any information requested by SARS; or not disclosing any material information to SARS; even if this is due to negligence or ignorance. 
  1. An average of 12% of returns submitted last year were selected for audit and verification. Both these processes are time-consuming and expensive – your accountant can help ensure you are ready for either audit or verification.

Small Businesses: Reap the Benefits of Cashless Transactions

“Mobile devices, high-speed data communication, and online commerce are creating expectations that convenient, secure, real-time payment and banking capabilities should be available whenever and wherever they are needed

Chair of the Federal Reserve of the United States, Jerome Powell

South Africa is already a cash-heavy economy as it is and this reliance on cash is financially and socially costly for the economy. This cost alone is estimated at approximately R88 billion per year. This number is calculated by the Payments Association of South Africa (PASA) and is derived from consolidating the costs to consumers, businesses, banks and the SARB and is made up of both direct financial and indirect social costs. “The direct financial costs primarily relate to transactional fees incurred by end-users, the costs of printing cash, the supply of cash, and the maintenance of the expensive cash infrastructure (ATM’s, branches and cash centres). The social indirect costs relate to unnoticed factors like time wastage, investment opportunity lost, inflation, crime and others”, according to the Association.

“Fintech” solutions such as tap-to-pay, interbank instant deposits, eWallet, PayPal, Snapscan, Zapper continue to grow in popularity, primarily because of considerations around minimising exposure to Covid-19 and social distancing. 61% of respondents interviewed during the survey cited social distancing as a driver for digital commerce. 

General Manager at Business Partners Limited, Jeremy Lang says “In this new ‘less-cash’ society, the worst thing that any SME can say to a customer is, ‘I don’t accept that method of payment.’ This means that South African businesses are under significant pressure to adapt and evolve their mentality towards digitisation. It is a change for the better, for a number of reasons and we urge all SMEs to get onboard and use digitisation as a way of establishing a competitive advantage going forward.”

Cashless transactions come with the following benefits:

1. Increased safety

Cash exposes the user to higher risk due to the physical exposure to a third party. There is a high risk in holding cash, where users are at risk of theft and leakage. In the current Covid-19 environment, the less contact with cash the better due to safety reasons. 

2. Cashless is more convenient

Another major appeal in cashless commerce is the convenience of having your “money” in a central depositary that you have access to at any location and time, without having to physically count it.

3. SMEs can keep better records of their transactions

A paper trail of every digital transaction lives in a cloud – and can therefore be accessed by either the account holder or the financial service provider should there be a need to reference the transaction in future.

4. “Cash Is Expensive for South Africa” 

This is according to the Payments Association of South Africa. In its “Modernised Real-time Electronic Retail Payments: A Case for Change for South Africa” report, there is a Cost of Cash to Businesses section, which states that “when assessing the cost of accepting payments for businesses, cash is largely perceived as cheaper than card-based payments (POS and QR codes).”

“However, businesses often do not account for all the costs associated with accepting cash payments (e.g. the risk of theft, leakages, infrastructure costs for safes, tellers etc.) over and above the costs associated with depositing this cash. On average, for smaller businesses, cash deposit fees are about 1.5% including the fixed base costs, which is significantly lower than the average merchant service fees (MSF) for accepting card payments. However, if we include the indirect costs of cash acceptance utilising the same proportion of indirect costs for the cost of cash to consumers, then the true cost of cash for businesses increases to approximately 3.4% for small businesses,” it clarifies.

Take professional advice on the best and safest ways to take advantage of the cashless transactions trend.


How to Build Your Business with Freelancers

“The gig economy is empowerment. This new business paradigm empowers individuals to better shape their own destiny and leverage their existing assets to their benefit”

John McAfee

The modern world of work was already changing by the time Covid-19 hit. The “gig economy” had taken hold and numerous apps allowed employers to connect with freelancers more easily to get small jobs done quickly. The work from home culture, which was necessitated by the virus, only reinforced for business owners the idea that their employees need not be on site and there has been a veritable boom in the use of freelancers across all industries.

A recent LinkedIn study of small businesses in the U.S. found that “51% of sole proprietors have used freelancers and intend to hire more, while 58% of companies that have 2-20 employees and 66% of companies with 21-200 employees plan to hire more freelancers in the future”. The reason for all this is flexibility. With full time employment becoming a serious commitment for employers, freelancers are picking up the slack. But, with so many people taking chances and selling skills they don’t have, how does one go about building a reliable team of high-quality freelancers and get the most out of them?

Here are five tips.

1. Determine your needs

It may seem like an obvious first step, but working out exactly what work needs to be freelanced and which to keep in-house is important. Knowing what skills you are looking for, and just when you need them available will also make it more likely you will find a freelancer who matches with your vision.

While freelancers can offer flexibility and their productivity is generally much higher than in-house staff, they can also be more costly, and knowing which work you can easily manage and which should be left to an expert will both save money and ensure you are maximising your resources.

Make a list separating the important tasks, and the ones you can’t do, and those you could reasonably manage with your existing employee complement. Determine just how many people it will likely take to complete each assignment and work out just who needs to be brought in to complete the most important tasks first.

Secondly it’s important to ask yourself just what you want from a freelancer. Is it important that the freelancer works alongside you? Do they need to come into the office, or do you just need them available during your work hours? What skills do they need? Must they be bilingual, own their own transport, or be familiar with your communications platforms and systems? Once you understand your needs you can move on to actually finding someone who is right for the job.

2. Finding freelancers

Finding freelancers is similar in many ways to finding permanent staff. The first thing to do is ask around and get recommendations from people in your industry. Those people who come recommended already have a track record and you know they won’t need additional training. Failing that, there are a number of social media groups and apps where freelancers advertise their skills and employers can advertise jobs. A quick online search should easily help you find those that cater to your industry and needs.

Once there, you will need to post a job listing. You have already determined your requirements so that listing should be as comprehensive as possible to ensure only the people who are interested and have the relevant skills apply. Make sure to include a clear description of exactly what the job entails, how many hours you need and by when, what it pays and how payment is made. Do you pay at the end of the job, upon complete satisfaction, or within 30 days of completion? 

The more details you can give the better.  For example, when contracting a social media manager, outline which platforms they will be managing and how many posts a month you expect.  Writers need to know whether to send ideas or write based on topics you assign, and how many words you hope the stories will be. Website developers need to know about the purpose of the site, the functionality and also how much tech support you expect once the site is live. A research analyst will need to know whether they are simply collecting and collating data or making recommendations on it as well.  An administrative freelancer will need to know exactly which tasks are being handed over and the scope of their powers in handling them.

Once you are in touch with someone, ask to see their portfolio of past work. That work should then match with your requirements. Being a designer who works on logos and animations doesn’t automatically make you a good web designer. Does the freelancer have experience in exactly the type of project you need? 

The second thing to look at on a potential freelancer’s portfolio is the tone of the work. If you’re looking for a technical writer beware a portfolio full of social media management or lifestyle feature articles. The freelancer needs to have examples of just what you are looking for before you commit. Ideally, you’ll see strong samples in a range of styles as this is a good sign that the freelancer is versatile and adaptable.

3. Start small

No matter how well recommended a freelancer is, the smart business manager knows to start them on small tasks. The benefit of a freelancer is that you aren’t immediately locked into a long term relationship, so use that to your advantage and get them going on less crucial tasks so you can evaluate their performance and potential. Freelancers who excel at the small things, meet deadlines and maintain a professional outlook can then be trusted to move on to the bigger and more important jobs without any anxiety on your part. 

Starting on a smaller job will also take less of your time in managing the freelancer and ensuring the work that comes in is as you expect it. It’s easy to forget that while freelancers may be highly skilled people, your company has its own quirks and ways of doing things and your expectations are in line with that. Initially it will take more time to manage the freelancer, explain the jobs and ensure things are being done the way you like it. A good freelancer is open to constructive feedback on his or her work, will be happy to make the necessary changes for you and will adapt their work quickly to your situation. Hopefully then, when it comes time to assign them to the more critical projects, they will already be in step with how you work.

4. How much should you pay?

Determining what to pay is one of the trickier aspects of hiring a freelancer. Given that they could conceivably come from anywhere in the world and have totally differing levels of expertise, working out what to offer for the right person can be hard. Generally, freelancers are paid either an hourly rate, or a rate per project. The latter is probably the easiest as both sides already know going in what they can expect to pay or receive upon completion and there are no nasty surprises. 

The freelancer’s experience and expertise, project complexity and timetable, and the project’s ultimate value to you all affect price, but in the end you should look at your own budget and allow that to determine the level of freelancer that the job will attract. What is it worth to you and your company for this job to be done well and on time? That’s what you should offer. 

5. Treat them well

Now that you have found a good freelancer, and have them aware of just what you need, it’s important that you maintain the relationship. High quality freelancers are eventually inundated with work and if they need to chase payments each month, or haggle to get their rates, or are otherwise treated badly your work will fall down their list of priorities and eventually they may end up firing you – remember they do what they do, because they also like the flexibility of not being locked into a single arrangement.

Paying punctually, and well, communicating clearly and not making impossible demands has the opposite effect and will see your freelancer value your contract, and go the extra mile in ensuring you get what you need, when you need it.


Letter of Demand from SARS? Handle With Care!

“A senior SARS official may authorise the issue of a notice to a person who holds or owes or will hold or owe any money, including a pension, salary, wage or other remuneration, for or to a taxpayer, requiring the person to pay the money to SARS in satisfaction of the taxpayer’s outstanding tax debt”

Tax Administration Act

For many South African companies – already battered by loadshedding, lockdowns and looting – a letter of demand from SARS could be the last straw. For others it may be the entry point into one of the many scams that use letters of demand pretending to originate from SARS. For others still, it may be a signal that the company’s internal compliance procedures are lacking. And, in two recent court cases (refer below), the manner in which the letter of demand was delivered proved to be an important safeguard for the companies that experienced SARS simply deducting the outstanding tax debt from their bank accounts!

Regardless of the circumstances, any letter of demand from – or seemingly from – SARS should be handled with care!

What a SARS Letter of Demand means 

Among the mechanisms increasingly applied by SARS to increase tax debt collection is the issuing of letters of demand to taxpayers.  

A letter of demand is sent by SARS when a taxpayer has not paid the amount due to SARS by the deadline date as specified in a notice of assessment previously sent to the taxpayer. A letter of demand may also be issued in respect of late, missed or incorrect VAT or PAYE payments. 

These outstanding tax debts may not necessarily be new – or even recent – but can span over a period of years.

It could also be a scam. Realising that many taxpayers panic when receiving such a letter of demand, criminals have seized the opportunity, with numerous scams doing the rounds. See just one example below from SARS’ website –

Example source: SARS

See more examples on the SARS “Scams & Phishing” webpage

These letter of demand scams involve email and SMS communications seemingly from SARS with links to fake websites that scam people into sharing confidential information such as bank account details, which is then used fraudulently.

A letter of demand from SARS could also indicate problems with a company’s internal tax compliance processes, for example, that taxes due are not correctly calculated internally, that incorrect amounts are being paid over to SARS, or that taxes due are being paid late – or not at all.  

It is also possible that the letter of demand could have been issued by SARS erroneously. Perhaps the outstanding amount has already been paid but not correctly allocated, or perhaps the outstanding amount as calculated by SARS is incorrect.   

If a taxpayer fails to respond to the letter of demand within the deadline specified, SARS can legally commence with collection measures. These can include third-party payment appointments enabling the outstanding tax amount to be deducted from a taxpayer’s bank account or income, or assets being attached by the sheriff of the court, or – in the worst-case scenario – the liquidation of a company to recover the debt. 

Among these measures, recovering outstanding tax debts directly from the taxpayer’s bank account is a quick and effective collection tool, but one that can leave taxpayers facing severe financial hardship.  

In this respect, a letter of demand can also be a crucial safeguard for taxpayers. In two recent court cases the courts overturned SARS’ instructions to the respective third-party banking institutions to debit the taxpayers’ bank accounts with the outstanding tax debt and ordered SARS to repay the amounts with interest. 

Pivotal to the taxpayers’ success in both these cases was the fact that in terms of the Tax Administration Act (the “Act”), a letter of demand must be delivered to the taxpayer either through the eFiling system or to the last known physical address at least 10 business days before SARS proceeds with debt collection. The letter of demand must also set out the recovery steps that SARS may take if the tax debt is not paid by the deadline date, as well as the available debt relief mechanisms under the Act.

How to handle a letter of demand

Realising all these various possible scenarios under which a company might receive a letter of demand, business owners and managers will understand the importance of an informed, professional and swift approach.

Firstly, it is crucial to understand what remedies are available to taxpayers facing a letter of demand – 

  1. Where the amount outstanding is undisputed, and the company has sufficient resources, simply paying the full outstanding tax debt within the specified timeframe will prevent SARS from taking further action.
  1. Where the amount outstanding is undisputed, and the company can demonstrate short-term cash flow challenges that prevents the settlement of the tax debt in one payment or by the deadline date specified, application for an instalment payment arrangement can be made.
  1. Where the amount of the tax debt is undisputed, but the company is unable to pay the amount, the company can submit a Compromise of Tax Debt application which can reduce the tax liability to an affordable amount to be paid off over time.
  1. If the company intends to or has submitted a formal dispute and does not have sufficient resources to pay the outstanding amount, it can submit a request for suspension of payment prepared by an accountant or tax practitioner. If approved, the collection of the tax debt is suspended until 10 business days after SARS informed the taxpayer of its decision regarding the dispute.
  1. Taxpayers can apply for settlement of a disputed tax debt in terms of section 146 of the Act to save time and costs.

Secondly, a professional approach remains the best policy. If SARS is approached professionally and timeously, using the correct and legal processes, taxpayers will often find that SARS is willing to both guide and assist. 

It is also helpful to realise that SARS’ debt collection department is a separate business unit, uninvolved with normal tax processes. It will pursue its objective of collecting outstanding tax debts whether these are disputed or not unless a suspension has been granted. The advice and assistance of a qualified accountant or tax practitioner will not only ensure the correct remedy is applied but will also save time and costs.

Thirdly, swift action is essential. While all correspondence received from SARS should be immediately addressed with the assistance of your accountant or tax practitioner, time is of the essence in respect of letters of demand. 

Remember that the “pay-now-argue-later” principle applies to all tax debts, whether or not an objection or appeal has been lodged. Furthermore, a legitimate letter of demand is a warning that SARS will commence with legally allowed collection measures after the specified deadline. Failure to respond to this letter within the specified timeframe, can have dire and expensive consequences. Don’t delay!

What steps you need to take

  1. Ensure that your company information saved on the eFiling platform is accurate and current so urgent communications from SARS, which are sent via the eFiling platform, always reaches the right person. Check also that all email and contact details are correct.
  2. Check your eFiling profile regularly to be sure that you don’t miss any correspondence from SARS.
  3. Establish validity by checking all the details on the letter of demand. Is the letter correctly addressed to the taxpayer? Is the tax number correct? When was the letter issued? Was it delivered via eFiling or to a physical address? 
  4. Check the amount of the tax debt allegedly due to SARS, starting by downloading a Statement of Account from your SARS eFiling profile. Further internal investigation may be required.       
  5. Note the time limit within which to take the next step – SARS usually allows the taxpayer 5 to 10 business days to respond. Failing to respond within this timeframe will allow the collection process to commence legally. 
  6. Get professional assistance in understanding the possible remedies available and to decide on the most appropriate solution.
  7. Engage with SARS within the time limit specified on the letter of demand, in writing and with professional guidance, applying one of the remedies that are legally allowed.  
  8. Follow through on all the required steps for each remedy. For example, it is not sufficient to lodge an objection – a Request for Suspension of Payment must also be submitted to delay debt collection until the objection is finalised.
  9. The winning strategy remains ongoing and verified compliance. Check the Statements of Account for the various tax categories on a regular basis.

Business Combinations: A Path to Exponential Growth and Profitability?

If everyone is moving forward together, then success takes care of itself

Henry Ford

Initiating, setting up and launching a new, typically, small business is a challenge and can be a lonely journey to growth and, hopefully, success. 

Could developing a partnership or co-operative with like businesses be a pathway to growth and profitability?

How do you describe your business?

Truly understanding how to properly describe what your business is can make the difference between success and failure. This is an important consideration for both the entrepreneur and potential customers. Is a company that uses a truck(s)/bakkie(s) to move goods around simply a moving company or is it in reality a logistics organisation offering a range of transporting options? A proper description can put what the organisation really is in proper perspective for those who are looking for a supplier of goods or services.

Next, ask yourself “Are there other products or services that relate to what my business does and should we pool our resources?”

The story of a plumber and how he grew his business

Consider, for example, the construction industry. Not the big guys but those who supply into that industry. Tradesmen such as plumbers, carpenters, electricians, painters, plasterers and so on.

Some years ago a plumber who had a good reputation (an essential element) for both the quality and timing of his work wanted to grow and develop the operation. He had a team working with him but found it difficult to scale up the business.

Because of his standing (reputation) in both the residential and commercial construction industry, he had been asked, from time to time, to recommend other tradesmen of similar quality. He turned those requests into a growth business. He approached the artisans he had worked with who had proved to be reliable and for whom he had a good regard and suggested they join his business. He explained how it would work.

He would find the work for them and refer them to the client. This was in respect of all the trades servicing and supplying the industry. He took a small percentage of the fee/charge for the following benefits he offered these tradesmen:

  • Work sourcing,
  • Administration for them (and their teams if they were more than ‘one-man bands’),
  • Handling all the finances, banking, submission of regulatory returns
  • Sourcing of supplies for them where necessary,
  • Managing their payrolls and attendant administration,
  • Other issues.

Of course, there was a simple written agreement between his little company and those who contracted with his business.

The consequences of this “pooling” of talents and services

  • His business grew in influence, reach and demand as its reputation grew,
  • There was a growing demand from tradesmen to join his operation, and he was able to be selective in deciding with whom he would develop relationships,
  • Because of the aggregation of supplies he sourced he was able to obtain quantity discounts. He retained part of these savings which went to meet the costs of his business with the balance being passed on to the tradesmen contracted to his operation,
  • The individuals who contracted with his business were able to scale up their operations as they were introduced to suitable lucrative and reliable contacts who paid their bills on time and in full,
  • Eventually, some decided to go on their own. This was always his expectation, that once they were on a sound footing they would develop their own operations further,
  • He was able to turn his full attention to growing the broader operations even though he kept his hand in his original plumbing operations,
  • Finally, he was never greedy and kept his focus on growing both his and his cooperative partners’ businesses.

His operation grew exponentially and after many years he retired a well-off man who had the satisfaction of having contributed to the well-being and success of others in a tough industry.

What do you need to consider?

Once you have determined exactly what your business really can be described as, consider whether there are any other businesses that relate more or less naturally to your operations. 

Is there an opportunity for you to ramp up your operations to offer relevant services to these businesses to grow both their and your operations and provide your business with additional income streams?

The construction industry example used here is but one where collaboration could lead to growth and improved performance and income generation.


SMEs and Microinsurance: Benefits and Risks

“Do you know the difference between education and experience? Education is when you read the fine print; experience is what you get when you don’t”

American singer and social activist, Pete Seeger

Microinsurance refers to an area of cover made accessible to low-income individuals and businesses at relatively low cost. Within the South African context, they originally dealt heavily with funeral insurance. Since 1 July 2018, in terms of the Insurance Act of 2017, microinsurers were allowed to offer additional product offerings. 

The Insurance Act introduced a new microinsurance license category. Now microinsurers may be profit-making, not-for-profit or co-operatives. This has brought stability to the sector and even opened up the market, and extended the list of options.

Legislation included a time cap on contract terms of 12 months for life insurance and a “No Waiting Periods” law for policies covering accidental death or disability, as well as credit risk policies.

The importance of the microinsurance sector for local SMEs

A South African Microinsurance Case-Study, which was conducted by the University of the Western Cape (UWC) for the International Labour Organisation, surveyed SME operators to assess the risks that they face and then explored the possibility of insuring those risks. 

It concluded that “there is an important, albeit limited, role for microinsurance (especially life insurance)” among SMEs. The case study assessed the risks SMEs face in totality, from operational to employee benefits. 

The avoidable financial risks negligent SMEs face

Given the many companies advertising funeral cover, employees of SMEs should first find out if such cover is offered as an employee benefit to avoid making unnecessary contributions to their own policies given the payout caps in the event of a claim.

Accordingly, SMEs which contribute to their employees’ life insurance and/or funeral policies as benefits, run the risk of wasting money should they not fully understand the regulations relating to these policies. This should be fully discussed with employees as the impact of the R100 000 cap on life and/or funeral cover affects SMEs which offer these employee benefits directly to staff. For example, if an employee is covered by multiple funeral policies and a claim is filed, the insurers will scrimmage and divide the R100 000 cap liability among themselves. Regardless of the policies’ individual values, not a single rand will be paid beyond that amount. 

These are usually taken out as group covers. Communicating with employees is vital as there is no need for multiple funeral policies if the R100 000 aggregate sum is reached.

Advantages of using microinsurance over traditional insurance

  • They provide cover at lower premiums.
  • No exclusion is allowed due to pre-existing health conditions for funeral and credit life insurance policies.
  • Excesses only concern the non-life insurance policies.
  • Authorisation and payment of claims are not allowed to take more than two business days.
  • SMEs that have microinsurance cover for employees have them as group schemes with less admin and red tape as compared to traditional insurance.

Disadvantages of using microinsurance

  • Many microinsurance schemes are said to have relatively poor viability and sustainability, so products require more scrutiny in order to be considered safe.
  • SMEs need to be aware of the cap of R100 000 maximum payout in the life and funeral insurance category and the R300 000 cap in the non-life category.
  • Products are usually not comprehensive in the non-life category.

Seek professional assistance to find the best microinsurance options available in order to avoid being trapped by the fine print.


The Top 5 Leadership Skills Every Entrepreneur Needs

“The pessimist complains about the wind. The optimist expects it to change. The leader adjusts the sails.”

John Maxwell

To be a good leader in the small business environment a person needs to possess a variety of skills, understand themselves and recognise areas where there is room for improvement. The leader’s abilities will be the main driver for growing the business. An effective leader is required to not only guide a company from a financial perspective, but also to build a team that is accountable and designed to get results. On the surface this sounds like a simple statement, but here are the five main skills that it takes to develop that end goal.

1. Motivation

Leadership is not just about charting the right business course. At the end of the day, profit and loss will be determined by the strength of the team working in the company and by how motivated they are to do their very best. 

A recent study conducted by Dr Kou Murayama at the University of Reading found that when people are motivated, they learn better and remember more of what they have learned.

Great business leaders are capable of establishing a positive culture in their organisation, and to do that they need to lead from the front. A true leader needs to exemplify the values they want to instil in their employees and motivates their team through their passion and accountability. That said, a leader cannot believe that they alone will be able to inspire their employees to greatness and they should not diminish the value of rewards in motivation. Simply adequately rewarding your team with good salaries and other non-monetary bonuses and offers can inspire them to do better work. 

According to recent findings in a cognitive neuroscientific study by Adcock, Thangavel, Whitfield-Gabrielli, Knutson & Gabrieli, rewards enhance learning, focus and enthusiasm due to the modulation of hippocampal function by the reward network in the brain.

Motivation then is a blend of the character of the leader, the culture within the company and the rewards being offered in return for effective and productive employees. A good leader needs to take all that into account to get the most from their team.

According to Kara Kelly, Executive Director of CompleteContents.com, “Leadership is not about who is in charge. It’s about making sure your team stays focused on the goals, keeping them motivated and helping them be the best they can be to achieve those goals. This is especially true when the risks are high and the consequences matter.”

2. Communication

Good, honest communication with both employees and clients is one of the key pillars to small business success. The leader is the one primarily responsible for developing a good communication system and culture within the organisation and for ensuring employees are able to effectively communicate the necessary information, opportunities and problems they perceive to the right people, quickly and easily. Forbes reports that one of the simplest ways new businesses collapse is through either a lack of communication or through too high a complexity level of communication. 

Employees should feel empowered to communicate directly with those in charge if they perceive problems or notice opportunities and should be rewarded for doing so, and feedback to both employees and clients should be frequent and simple. 

A bad communication system is one that generates numerous, complex reports that have to travel through a chain of command before it reaches the right person. Leaders should focus on being accessible, communicating more simply and more often to ensure all parties are fully aware of what needs to happen, and the details associated with it. Your lowest level employees and clients don’t need 60 page reports filled with complex graphs and algorithms explaining what you are going to do– a quick message to outline targets and how they will be achieved, by which deadline is far more effective.

3. Passion

The best leaders are absolutely passionate about what they do and their company as it’s impossible to become successful at something that one does not care about. Before starting an endeavour a business leader needs to seriously ask themselves if what they are doing is something they are passionate about. The early years of a business are filled with grind, difficulty and setbacks and tackling all this without passion for what you are doing is close to impossible. 

Passion for a business also has numerous other positive side effects for it such as drawing the right consumers, building networks with similarly minded individuals, and creating authenticity that your audience (suppliers, customers and employees) will identify with. 

But obviously not all businesses are born out of passion for the product. Not many plumbers for example will say that the one thing they always wanted to do when they left school was work with pipes and bathroom fittings! These leaders find their passion in other places and inspire themselves by perhaps knowing that they are providing necessary and helpful services to people in need, that they are doing good, providing for their families or giving themselves, and their employees, the kind of lifestyles they all really want. Finding genuine passion for your business, from whichever source, will ultimately be one of the biggest factors in also discovering success. 

4. Interview Skills

In the early days of a business being able to find and recruit true talent can make or break a company. An entrepreneur needs to be their own Human Resources department and discovering and nurturing true talent is therefore absolutely essential. Finding the right candidates begins when determining what kind of candidate is truly needed in the company. All too many job adverts claim to want someone who is a “copywriter, graphic designer and SEO specialist, who dabbles in social media and has three years agency marketing experience”. These adverts show a clear lack of leadership in the company, because unicorns with that kind of diverse experience are extremely rare, and clearly the roles the company really needs filled have not been considered carefully enough. 

Defining exactly what it is a company needs will allow the entrepreneur to advertise the position effectively, remunerate fairly and therefore attract the right kind of person into the role.

After attracting the right candidates to an interview, the intelligent small business employer will then focus on a few key things at the interview stage. Interviews should focus on “behaviour based interviewing” or interviews that focus on examples of past behaviour and achievements. What the interviewer is looking for is someone who can effectively work and deliver unsupervised as they won’t have the capacity to watch over that employee 24/7. A good trick is to send in someone you trust to have a casual chat with the employee while they are waiting for their interview, or when you need to “step out” for a few minutes. This employee will be more likely to get a sense for how the person really is and determine if there is good chemistry.

Understanding a potential hire’s motivations for taking a job is also critical. You need to know this person is as passionate as you are about making your company work and isn’t just in it for the money or, looking to fill a short-term role. In the end, you want to ensure whoever you hire will be there a few years to limit the necessary training and wasted time and expense employee churn can create.

5. Education and personal development

People who choose to go into business for themselves usually do so for a number of reasons that range from years spent in an industry, to having a good idea, or simply wanting to try something new. Whatever the reasons it’s safe to say that the skills they have at the start of the business are usually not the ones they are going to need in the future as the company grows and expands. A crucial aspect of building a successful business is in the entrepreneur making sure that they are as qualified as possible to meet the upcoming challenges of the company and planning ahead so they aren’t caught off guard.

It is therefore essential that any business leader, but particularly those in start-ups, continue to educate themselves on their industry and in business. The more skills a leader has, and the more they understand their company, legislation affecting their industry, new developments and the competition, the more chance they have of making it to the end game. The answer is simple, never stop learning, and encourage a culture in which this is true of each employee in your business. 

As John F. Kennedy said, “Leadership and learning are indispensable to each other.”


Emergency Tax Relief: Is Your Business Eligible and What Should You Consider?

“SARS will implement these tax relief measures because compliant taxpayers have paid their fair share of tax, making it possible for government to provide such a temporary safety net in a time of extreme difficulty”


Battered by national lockdowns of varying intensity since March last year, many businesses have been further affected by weeks of looting and riots in July. These cost 330 South Africans their lives, while our country lost about R50 billion in output, with an estimated 50,000 informal traders and 40,000 businesses affected, placing 150,000 jobs at risk.

For some businesses who had managed to survive in an economy that contracted by 7% last year, it was a final blow. In the economic hubs of Gauteng and KwaZulu-Natal, businesses, shops and warehouses were destroyed or shut down. Virtually all businesses across the country – and in neighbouring countries – were impacted by the resulting food, fuel and medical supply shortages, as well as disruption of supply chains when the ports of Durban and Richards Bay were brought to a standstill and the N3 highway was closed.

In response, on 25 July 2021, President Ramaphosa announced emergency tax measures to assist those affected by the riots and looting.

Three tax relief measures offered 

  1. A tax subsidy of up to R750 per month, for four months, per employee earning below R6,500 – 1 August 2021 to 30 November 2021 – under the current Employment Tax Incentive (ETI) for private sector employers. The first extended ETI can be claimed in your August EMP201 (due 7 September). SARS will pay monthly ETI refunds for the four-month period commencing on 13 September, subject to verification or audit steps required. 

2. Deferral of 35% of Pay–As-You-Earn (PAYE) liabilities over the three months – 1 August 2021 to 31 October 2021, without penalties or interest. The first deferment can be claimed on the August 2021 EMP201 return, due 7 September. After 7 November, SARS will determine the four equal payments for the total amount that you have deferred and include it in your monthly Statement of Account. Payments will be made over a four-month period that will commence on 7 December 2021 with the last payment due by 7 March 2022.

3. Deferral of excise duty payments for up to three months for businesses in the alcohol sector. 

Note that this deferral is available immediately.

What are the qualifying criteria?

  • Only tax compliant companies qualify for the emergency tax measures and that means the business:
    • Is registered for all required taxes. 
    • Has no outstanding returns for any taxes it is registered for.
    • Has no outstanding debt for any taxes it is registered for, excluding instalment payment arrangements, compromise of tax debt, and payment of tax suspended pending objection or appeal.
  • The employer must be registered with the South African Revenue Service (SARS) as an employer by 25 June 2021.
  • The employee tax subsidy applies to tax compliant private sector employers with employees earning below R6,500 per month. 
  • PAYE deferrals apply to tax compliant businesses with a gross income of up to R100 million, with a limitation that gross income should not include more than 20% of income derived from specific listed sources. 
  • Excise duty payments deferrals apply to compliant licensees in the alcohol sector that have applied to SARS.

Issues to consider 

  • You are responsible – The law holds an employer personally liable for an amount of tax withheld and not paid to SARS, or which should have been withheld but was not withheld. The employer could also be held criminally liable for failure to withhold and pay PAYE.   
  • SARS’s focus on employers – Just weeks ago SARS announced it has teamed up with the NPA (National Prosecuting Authority of South Africa) to deal with tax non-compliance, initially focussing on non-compliant employers. SARS’ Criminal Investigations Division has already handed over 30 non-compliant employers to the NPA in their new joint venture.   
  • Mistakes are costly – While previously a mistake made by a taxpayer was only a crime when it was done “wilfully and without just cause”, taxpayers can now in certain cases be convicted of an imprisonable criminal offence even if non-compliance was due to negligence or ignorance. If you decide to implement the relief measures, call in professional assistance from your accountant to ensure accuracy and recordkeeping.
  • We’ve been warned Before announcing the details of these emergency tax relief measures, SARS Commissioner Edward Kieswetter made it clear that SARS has the capability to detect and make it costly for those that are non-compliant with their legal obligations and engage in criminal malfeasance. Get a professional opinion to ensure your company qualifies and that the relief is correctly claimed.
  • Expect a verification or audit from SARS – ETI refunds will be subject to any verification or audit steps that may be required. Your accountant can assist you in preparing for the likelihood of verifications and audits, and in successfully completing a verification or audit when selected. 
  • Will you have recovered sufficiently in three months? Three months is a very short time in these unpredictable times. The ability to recover during the grace period is an important consideration: the company’s cash flow will improve initially, but after the three-month deferred payment period, an even higher PAYE liability is due – over the year-end and into the next financial year. Your accountant can help you to carefully project your financial position over the coming months to enable an informed decision.
  • Can you afford the deferred tax repayments? While the lower PAYE payments for the three months of August, September and October will provide short-term cashflow relief, one quarter of the total deferred amount must be paid – on top of the company’s normal PAYE obligation for each month between November (due 7 December 2021) and February (due 7 March 2022). If your payment is made late, you will forfeit the benefit of the tax relief for PAYE and SARS will impose penalties and interest on the calculated total payable. It will also create other challenges, such as not being able to obtain a tax clearance certificate required for loan applications and tenders.  

While these tax measures introduced for employers may be a lifeline for some companies to survive, all businesses are well advised to call on the advice and assistance of their accountant, both when carefully considering the decision to take up this tax relief and in claiming the tax relief.


Home Office Expenses: To Claim or Not to Claim?

We would simply ask taxpayers to consider carefully the longer-term implication of defining an area in their primary residence as a home office for tax purposes”

Edward Kieswetter – SARS Commissioner

“All employers should allow their employees to work from home unless it is absolutely necessary for them to perform work on-site” was among the government’s directives issued on 28 June, when South Africa was placed under an adjusted Alert Level 4 lockdown in response to the third wave of Covid-19 infections in the country. 

While working from home has certainly become a more familiar feature of the employment landscape and is predicted to remain so long after all lockdown restrictions are lifted, it has been some time since employees were actually compelled to work from home wherever possible. 

This, along with the opening of the 2021 tax season on 1 July, refocussed attention on the issue of home office expenses and how these should be treated for an optimal tax outcome for employees and employers. 

Just days later after the lockdown commenced, SARS announced that it had published an update on its website in relation to home office expenses to provide “additional clarity for individual taxpayers who may be considering submitting claims for home office expenses in their income tax returns that can now be filed for the 2021 tax year” from 1 March 2020 to 28 February 2021. 

What has changed? 

SARS notes that expenses in maintaining a home office have been a controversial issue since the 1968 judgment KBI v Van der Walt. The legislative provision relating to home office expenditure that a taxpayer may claim, section 23(b) of the Income Tax Act, has therefore been periodically amended since 1990.  

However, since March 2020, things have changes drastically due to Covid-19, and more employees have been compelled to spend more time than ever before working from home. It is in any case likely to be a permanent feature of the employment landscape in the future. Employees have been accommodating this shift by setting up home offices and bearing certain expenses to create and maintain a proper working environment at home.

Despite the substantial change in the employment landscape, SARS emphasized in their media statement that “there have been no changes to the legislation in relation to a ‘home office’… the legal requirements remain the same as before the Covid-19 pandemic.” 

However, in May, SARS also issued a 17-page draft Interpretation Note 28 (IN28) on what taxpayers who are “in employment or holding an office” can deduct for home office expenses, providing various examples of when expenses will not be permitted. These include, for example, working at a dining room table instead of in a dedicated room; or also using the home office space for purposes other than working.   

Media comments have suggested that the draft interpretations are narrow, excluding most employees from claiming a tax deduction; do not adequately address tax implications arising from the increase in home office use due to Covid-19; and do not align with National Treasury’s intention, expressed in the February Budget Review, to investigate current travel and home office allowances for “efficacy, equity in application, simplicity of use, certainty for taxpayers and compatibility with environmental objectives”.

While the Draft Interpretation is under discussion, SARS says that the legal requirements set out in the Income Tax Act remain the same as before the Covid-19 pandemic. 

6 questions to determine if you are eligible to claim home office expenses 

SARS’ “Home Offices Expenses Questionnaire” here says that answering ‘Yes’ to all 6 questions below confirms eligibility to claim home office expenses. 

  1. Did you receive remuneration for duties performed mainly (more than 50%) in part of your private premises occupied for purposes of that remuneration?
  2. Do you have a dedicated room in your premises?
  3. Is this room specifically equipped for the purpose of that remuneration?
  4. Is this room regularly used for purposes of performing the duties in relation to that remuneration? 
  5. Is this room exclusively used for purposes of performing the duties in relation to that remuneration?
  6. Did you incur home office expenditure relating to your domestic premises?

Just please read the “Pitfalls” section below before making any decisions!

What can and cannot be claimed? 

For a home office expense to be deductible, the requirements of the Income Tax Act must be met and its prohibitions must not apply. 

Typically, home office expenditure includes rental of the premises; cost of repairs to the premises; and expenses in connection with the premises.

This means that taxpayers may deduct rental or bond interest on the home and home repairs; municipal rates, electricity and water; wear and tear on office equipment considering differing depreciation rates on computer equipment and office furniture.

In terms of the rental or bond, as well as the municipal rates and utilities, an apportionment of the costs must be made when claiming. This is typically calculated on a pro-rated basis of floor space i.e. square metre basis of the home office in relation to the total area of the home. 

Employees may also incur numerous costs in running a home office such as telephones and cell phones, Internet connectivity, equipment repairs, stationery, and cleaning.  

Beware the pitfalls 

  1. The specific wording, narrow interpretations and possible changes to home office expenses could place taxpayers at risk. For example, to claim home office expenses, the home office must be a room “dedicated” to work where duties are performed “mainly’ or “more than 50% of the time”, and it must also be “specifically equipped” and “regularly” and “exclusively” used for work. Wording such as this, along with possible changes and the narrow interpretations suggested in the most recent draft Interpretation Note (IN28) should prompt employers and employees to take professional advice before deciding to claim a tax deduction in respect of home office expenses.    
  1. The burden of proof lies with you as taxpayer. Employees should be provided with written confirmation regarding the specific timeframe they are required to work from home. In addition, employees should keep a running spreadsheet of hours and days worked at home covering the entire tax year, or consider other solutions such as keyboard tracking software, stealth monitoring or mobile time clocking solutions.
  1. Home office expenses must be linked to employment use and must be verifiable. Be sure to retain invoices and statements of all home office expenses. Where expenses are not specified as deductible in the Income Tax Act, opting for reimbursement by your employer may be a more efficient solution.
  2. The possible impact on capital gains tax. SARS warns that where the home office is on taxpayer-owned property, formally defining part of a primary residence as a home office will ‘most likely have an adverse impact on a future capital gains determination’. This is because the home office area will, on a pro-rated basis, be excluded from the primary residence exclusion of R2 million on disposal of the residence. Careful consideration should therefore be given before a claim for home office expenses is made and it is essential to get professional advice on this aspect.
  1. Increased risk of being audited. SARS warns that while all claims for home office expenses may be subject to further verification or audit, there is a high likelihood that a taxpayer who claims home office expenses for the first time will be selected for verification or audit.

Cost vs Benefit Analysis 

Given all the potential pitfalls, it is important for employers and employees to consider whether the cost, risk and administration involved in claiming home office expenses are worth the benefit received in terms of the total tax deduction.

Other options should also be explored to ensure the optimal tax outcome for employers and employees. For example, should the employer provide the employee with an allowance per month to cover home office expenses, such an allowance will be taxed as part of their remuneration. Where the employer reimburses such expenses, however, it would not be taxable in the employee’s hands. Similarly, if the employer reimburses expenses for the purchase of home office equipment, such equipment is then the property of the employer and would also not be taxable in the employee’s hands. Employers should consider a reimbursement policy to clarify the treatment and maximum reimbursement amounts and are strongly advised to obtain advice from their accountant when making these decisions. 

SARS itself notes that taxpayers may find that working from home resulted in savings on expenses they would otherwise have incurred, like transport, wear and tear on vehicles and so forth. These savings, together with the loss of part of the capital gains exclusion, may outweigh the benefit of a claim for home office expenses.

“We understand that many employers, and employees alike, are grappling with establishing a new normal,” says SARS Commissioner Edward Kieswetter. “We would simply ask taxpayers to consider carefully the longer-term implication of defining an area in their primary residence as a home office for tax purposes. It may be more prudent to wait and establish a more sustainable rhythm before making the decision” (Emphasis supplied).


6 Tips on Surviving the Failure of a Big Client

“Generosity is a virtue, but unlimited generosity is a fast route to bankruptcy”

Bret Stephens

Healthy cash flow is what keeps a company afloat. The ability to pay suppliers and staff, without risking the future of the business, entirely independently of expected new payments, is vital for any enterprise to keep going.

In this era of regular redundancies and corporate collapses, managing your cash flow is the most important aspect of managing your business. Key clients and customers getting into difficulties and potentially failing puts serious strain on your own company’s ability to stay afloat. The six tips below should help you stay solvent even if your biggest clients bow out.

1. Secure the debt upfront

Firstly, to talk “prevention rather than cure” for a moment, seek advice on taking some form of security for your debt (a cession of the client’s debtors perhaps) upfront. As we shall see below, being a “secured creditor” gives you a much better chance of at least partial recovery in the event of liquidation than being a “concurrent creditor”.

2. Request upfront payments as standard

Still talking prevention, requesting payment up front can often feel like a rude or difficult thing to do. You may fear offending clients by implying they will not pay, or you don’t want to scare new business away by asking them to trust you to deliver. At the end of the day upfront payment is about trust; and asking for someone to pay you before you deliver may feel wrong. It does, however, have many advantages.

Apart from ensuring you will not be taken for a ride by fraudulent clients, asking for payment up front also protects against failure of those clients. The worst situation you can find yourself in is one in which you have done work, and now owe your own suppliers, only for the payment not to come through. Asking for money up front means this will never happen and questions around scaring off clients are generally unfounded. Of course, your own suppliers may already be asking you for upfront payment, especially in the current environment.

If a client has decided to work with you, they have likely done their research and are already trusting you to deliver within certain time frames and deadlines that they themselves need to meet. Generally there is also an understanding that costs will be incurred by you to meet their requirements. Asking for upfront payment is therefore a relatively small pain point in this transaction and upfront payments are therefore common in trade businesses, or creative enterprises where payments may need to be made in order to start a job. 

If you still feel uncomfortable asking for the money up front, at least ask for a deposit and progress payments.  Be prepared to pause work on projects if payments are late before you incur additional expenses.

Particularly if it is your standard policy, you need not feel you are discriminating against any one client. In the long run your cash flow will be healthier for it.

3. Win new clients

The first, and most important, thing to do to protect your company from going under when a client fails, is to have as many clients as possible. Diversifying your client base means you are not as dependent on that one client who may be struggling. It sounds like obvious advice, but there are business owners who, once that one big client is secured, sit back on their haunches and live the easy life servicing that goose that lays the golden eggs.

It is important then to never stop marketing, or hustling for new business, and this is particularly important when that one big client goes under. One person’s misfortune is another’s gain, and your client’s failure is going to have a ripple effect through their industry. Somewhere, one of their competitors may find some space to grow. By marketing yourself and your products/services you may find your business in the perfect position to pick up that work when they start expanding.

So while it’s important to focus on the clients you have now, it’s also important to start planning as early as possible for a future without one or more of them. If you landed one big client, the chances are you can land another.

4. It’s time to become strict

No matter how long you have been dealing with a client, the second you suspect they may be struggling financially it’s time to alter the terms of your arrangement. Protecting your business needs to be your number one priority. If you had the client on a 90 day payment plan, move that to 30. Stop paying for things on their behalf and secure payments wherever possible up front. Suspend projects until payments are received. If your product or service is key to their operations they will find a way to pay in advance, and if it’s not, well your payments would have been first on the chopping block anyway. There is absolutely no sense continuing work and spending good money chasing bad.

5. Negotiate early and be willing to sacrifice

As soon as a client indicates that they are in financial distress it’s time to look at your books and decide just how much of what they owe you is essential and how much you could reasonably lose. Then negotiate as below, because when a company goes into liquidation there are three types of creditors and which kind you are will determine just how likely you are to get all or a portion of your money back during the winding-up process.

Preferent creditors include employees of the company, who are owed wages, and of course the tax authorities. 

Secured creditors are those that have liens/security on the debtor’s property (such as the bank that loaned the company money to buy a factory taking a cession of debtors). 

Unsecured (“concurrent”) creditors include those that provided the company goods or services, such as suppliers and contractors, without taking any security. Unsecured creditors will be the last to get paid in any bankruptcy process and are therefore most likely to lose everything. Getting at least some of that back before the process begins is therefore the best you can hope for.

Once you become aware of a client’s financial difficulties, making them an attractive offer may help get something into your accounts. A good offer would be to ask for a 30% payment now with an offer to extend payment on the rest to a later date. An alternative would be to ask for 50% payment now in return for wiping out the remainder of the debt. The earlier in the process you do this, the more likely you are to get something back and don’t be afraid to be pushy. Keep lines of communication open and send frequent reminders. Most people feel bad about letting down their vendors and making sure you are front of mind will also encourage them to pay you out first.

A client’s financial difficulties could also result in their going into business rescue. This will mean that no payments may be demanded by creditors until (if) they trade out of business rescue back into health. So being aware of how your customers are doing is essential. This also applies to your suppliers as the failure of a key supplier may be a real problem for your business.

6. Do a Cost-Benefit analysis

When your client has actually gone into business rescue or liquidation it’s time for you to decide whether you are going to pursue your claim. This can be an expensive and time consuming process and the amount of debt involved will need to be measured against the costs and time chasing it. 

In a practical sense, you need to look at the value of the client company, how many assets they have and what chance there is that there may actually be any money to recover. Then look at how much time and money you can spend chasing that money. Again beware of spending good money chasing after bad.

To be in line for some payment in a liquidation, you will need to submit your claims with proof at the first meeting of creditors which will be scheduled by the liquidator, which sounds like an easy decision to make. You must be careful, however, because if there are not enough assets in the company to satisfy the cost of liquidation, anybody who proves a claim at a meeting of the creditors may be called upon to contribute to the costs of liquidation. Check first with the liquidator and find out if there is a danger of a contribution being levied on concurrent creditors.

Only go as far along in the process as you are willing to, based on costs, efforts and the money you reasonably expect to recover. There is little sense spending good money to chase bad. Often your time will be better spent looking for a new client. 


Audit Your Employee Taxes, Before SARS Does

“One of our strategic objectives is to make it easy for taxpayers to comply with their tax obligations, and hard and costly for those who willfully do not comply”

Edward Kieswetter, SARS Commissioner

Earlier this year, SARS and the NPA (National Prosecuting Authority of South Africa) announced that they are joining up to deal with tax non-compliance, initially focussing on employers. 

Employers under intensified scrutiny 

While this enhanced collaboration covers a number of aspects, the immediate focus will be non-compliance by employers, who deduct employee taxes and levies, never turn those taxes over to SARS, and do not file their returns when required, as well as “other general corrupt activities”. 

To enable the collaboration, the Criminal Investigations Division within SARS will allocate dedicated capacity and work closely with the NPA in its Specialised Tax Units (STUs). Solid cases ready for prosecution will be prepared in a coordinated manner across the country. The SARS regional leaders in criminal investigations and the NPA regional directors of the STUs will enrol these cases on a specific date for each region.

Why audit your employees’ tax? 

The Tax Administration Act holds an employer liable for an amount of tax withheld and not paid to SARS, or which should have been withheld but was not withheld. The employer could also be held criminally liable for failure to withhold and pay PAYE. 

SARS’ Criminal Investigations Division has already handed over 30 non-compliant employers to the NPA in their new joint venture and are working to identify and prioritise more cases.

They are further enabled by recent changes to the tax laws that effectively lowered the threshold for criminally prosecuting taxpayers through removing the requirement to prove that the taxpayer’s conduct was “wilful and without just cause” for selected offences. While previously a mistake made by a taxpayer was only a crime when it was done “wilfully and without just cause”, taxpayers can now in certain cases be convicted of an imprisonable criminal offence even if non-compliance was due to negligence or ignorance. Offenses include, among others, failure to submit a return when required to do so; failure to retain all relevant substantiating records; failure to provide any information requested by SARS; or failure to disclose any material information to SARS. 

This, along with SARS’ and the NPA’s intensified focus on employers, as well as SARS’ increased abilities to draw taxpayer information from third parties, make an employee tax audit a necessity. 

It also protects employees. Employees’ tax is not a separate form of tax, but rather an amount that the employer is obliged to withhold in respect of the employee’s liability for normal tax. On assessment annually, the employee’s tax withheld is set off against the employee’s liability for normal tax. The correct calculations and deductions will certainly help protect employees from unexpected surprises on assessment, and will also ensure that the employer’s processes are not the cause of disputes or delays when, for example, an employee needs to claim UIF.  

How to audit your employees’ tax 

  • An employee tax audit is a deliberate process undertaken to review payroll taxes and records, with the intention of ensuring accuracy to protect your employees as well as to comply with regulations. It is also an important part of a payroll audit.
  • Verify the employee information on your payroll: Do you have the required information for each employee in respect of identifying and calculating the applicable taxes, rebates and more? For example, the employment relationship affects the classification of an employee, which in turn determines the tax rate that must be applied. 
  • Verify and review the remuneration for each employee: Remuneration, whether in cash or otherwise, includes any wage, salary, overtime, bonus, voluntary award, leave encashment, fee, stipend, commission, gratuity, pension, emolument, annuity, allowance, lump sum benefit payment, director’s remuneration, etc. Can the remuneration be structured more tax efficiently for the employee? 
  • Verify that the correct taxes and levies are deducted: 
  • Pay As You Earn (PAYE) must be withheld from the remuneration paid to employees, subject to thresholds and rebates.
  • Unemployment Insurance Fund (UIF) contributions, for which the monthly threshold recently (1 March) increased from a maximum of R14,872 pm (R178,464 pa) to R17,712 pm (R212,544 pa).
  • Skills Development Levy (SDL) is payable by employers with a payroll of more than R500,000 pa. 
  • Employment Tax Incentive (ETI) rebates incentivise employers to employ young workers – if your company has taken advantage of the ETI rebate, these tax deductions should be verified in respect of each qualifying employee. 
  • Verify that the correct amounts are deducted: Both over deductions and under deductions as well as any corrections to submitted returns will certainly flag your employee tax account at SARS for audit.
  • Make sure the correct tax rate is used to withhold the correct PAYE taxes from each employee’s wages, verifying that all tax thresholds, rebates, directives, tax credits, deductions, benefits, exemptions, contributions and allowances have been considered and correctly applied where appropriate. 
  • UIF is calculated at a rate of 2% of remuneration (1% employee and 1% employer contribution).
  • SDL is calculated at a rate of 1% of total remuneration paid to employees, excluding certain payments such as reimbursements or severance benefits.
  • The ETI allows “eligible employers” of “qualifying employees”, subject to specific criteria, to claim a rebate with a maximum value of R1,000 per month for employees earning up to R4,500 per month, with the rebate tapering to zero at the maximum monthly remuneration of R6,500. The ETI was recently extended to February 2029 and should be considered with the assistance and advice of your accountant. Employers will be able to claim the incentive for a 24 qualifying month period for all employees who qualify.
  • Verify that the deducted amounts are correctly declared and remitted: The employees’ taxes and levies deducted from an employee’s remuneration must be declared on the Monthly Employer Declaration (EMP201) return and paid to SARS within seven days after the month end, or the previous working day if the seventh day is on a weekend or holiday. Late filing is subject to newly-introduced penalties, and late payments are subject to an immediate penalty of 10% and interest at the prescribed rate will be charged monthly on the outstanding amount. 
  • Employment Taxes Validation – IRP5 Certificates: An employer must furnish employees from whom employees’ tax was deducted with an IRP5 certificate, within the prescribed tax period. From the 2020 year of assessment, SARS is performing tax calculations on the IRP5/IT3(a) certificates. Where the incorrect amount of tax was deducted from the employee, a letter will be issued to the employer. 
  • Verify compliant employee record keeping: Employers must keep a number of specified records for each employee for a period of five (5) years and make them available for scrutiny by the Commissioner.
  • Schedule regular employees’ tax audits: Ideally, employers should conduct a payroll and employees’ tax audit on a routine basis and certainly any time there are changes in the tax regime, the labour laws, in the business or in its internal processes. 
  • Professional processes: Much of a business’ employee tax risk can be mitigated by putting professional processes in place. Invest in SARS-compliant automated payroll software with training for the relevant staff members and regular legal updates; or outsource your payroll and its taxes to professionals such as your accountant or even a payroll specialist. 

What You Should Know About Airbnb and Tax

“All forms of rental income must be declared to SARS … We are … determined to make it hard and costly for non-compliant taxpayers not willing to meet their obligations. We are working hard to improve system capabilities, in order to detect those taxpayers who do not comply by using data to identify risk”

Extracts from SARS media statement 11 March 2021. 

The Basics

Airbnb is an online app which allows homeowners to rent out their property to travellers on an ad hoc basis with very little admin from their side. Users of the app simply search and select properties that have been listed in the area they are visiting, then pay on the Airbnb platform. The owner is responsible simply for letting them in and making sure the property is as described in terms of quality and cleanliness. In return for this service Airbnb takes a percentage of the total rental charged as commission.

It’s a simple and clean system that to date has been extremely difficult for SARS to track. The recent announcement by the revenue service that it was aware owners were not declaring this income and thus underpaying owed taxes and that they are determined to tax this income does, however, suggest that things are about to change. 

“We are determined to make it hard and costly for non-compliant taxpayers not willing to meet their obligations. We are working hard to improve system capabilities, in order to detect those taxpayers who do not comply by using data to identify risk,” SARS announced.

This in itself poses a problem for SARS as while it’s easy to see just who is renting their property out on Airbnb by looking at adverts and cross-referencing them with ownership records, it is more difficult to see just how much time was spent by guests in the property. Nonetheless, the announcement does seem to indicate a determination by SARS to put a stop to tax avoidance in this area and this could spell trouble for those who have been letting out their properties, most likely in the way of audits. But just what is owed by owners, and how would they correct this situation?

Income tax returns and registering for VAT

There is no doubt income derived from letting a property out on Airbnb must be declared on your income tax return. As SARS made clear, “This is the same principle that applies to any person who has rental income from letting out their property as a homeowner, placing them under the same obligation to declare such rental income to SARS”. 

According to registered CA(SA) and Group Financial Controller for SYSPRO Louise Buchanan, “A property owner who hosts fee-paying guests like in the case of Airbnb, has to declare the rental income on their income tax return as it is considered gross income.” She warns that in addition to this, any property owner earning more than R1 million within a 12 month period would also need to register as a VAT vendor and charge VAT 15% on rental income. 

What about deductions?

As always, any income that comes with costs can be reduced by a portion or percentage of certain of those costs allowable for tax purposes. 

According to Buchanan only expenses which arise in relation to the production of rental income can be claimed as a deduction. 

“These include levies, rates and taxes, electricity and water, home-owner’s insurance, advertising, bond interest and agent’s fees,” she says, cautioning that, “If only a portion of a property is rented out, then only pro-rata expenses related to that portion are deductible”. 

What about Airbnb themselves?

Airbnb has a notice on its site which states that “In areas that Airbnb has made agreements with governments to collect and remit local taxes on behalf of hosts, Airbnb calculates these taxes and collects them from guests at the time of booking. Airbnb then remits collected taxes to the applicable tax authority on the hosts’ behalf.” 

This can sometimes be confusing for the home-owner who may believe that tax has been paid on their behalf already. Unfortunately, South Africa is not one of the areas in which Airbnb has made an agreement with government to collect and remit taxes on its behalf. Owners with properties in other areas are, however, able to take advantage of this fact, and a full list of these areas can be found here.

What to do if you didn’t declare Airbnb income and owe back taxes

Homeowners who have not been paying taxes on their Airbnb income are still liable for those taxes and SARS has made it abundantly clear that they aim to find and crackdown on non-compliant owners.

“Taxpayers are reminded that failure to comply with their tax obligations may result in administrative penalties being imposed in addition to interest, or even criminal action being taken against them,” the revenue service said.

Buchanan explains that in practice what this means is that administrative penalties are likely to be imposed along with interest, but has also warned that it would not be unheard of for criminal action to also be taken against a defaulter. She therefore urges all Airbnb owners who may be in default to consider declaring their Airbnb income through the SARS voluntary disclosure programme, which offers more favourable penalty amounts and a significantly reduced chance of criminal procedures being instated.

If you are an Airbnb owner who has not declared this income, it would be wise to speak to an accountant like us to evaluate just how much you might owe in back taxes and to try clear up the situation before you are the subject of a tax audit.


How 67 Minutes on Mandela Day Can Change Our World and Benefit Your Business

“What counts in life is not the mere fact that we have lived. It is what difference we have made to the lives of others that will determine the significance of the life we lead”

Nelson Mandela  

Nelson Mandela, our former president and world-renowned human rights champion, was born on 18 July. Fondly known as Madiba or Tata, his life was an inspiration to the world and he received more than 250 public honours, including the Nobel Peace Prize.

Why Mandela Day and why 67 minutes?

 In recognition of his immense contributions, 18 July was declared Nelson Mandela International Day by unanimous decision of the UN General Assembly in 2009. It is more than a celebration of his life and legacy; it is a global movement to honour his life’s work and to change the world for the better.

On his 90th birthday, Madiba said: “It is time for new hands to lift the burdens. It is in your hands to make of our world a better one for all.” 

This call-to-action started a worldwide movement for social change, led by the Nelson Mandela Foundation which said: “Nelson Mandela has been making an imprint on the world for 67 years, beginning in 1942 when he first started to campaign for the human rights of every South African. By dedicating 67 minutes of their time – one for every year of Mandela’s service – people can give back to the world around them and make a contribution to global humanitarianism.” 

No matter how small your action, Mandela Day is about changing the world for the better, and celebrating the idea that each individual has the power to transform the world, the ability to make an impact.

Top tips for making an impactful contribution 

  • Align your company’s contribution with your vision and mission
  • Focus your contribution around your product or service or expertise
  • Make it a long-term commitment with an authentic contribution that will have a lasting impact
  • Focus on your company’s immediate community 
  • Include your staff from the start 
  • Collaborate – invite your suppliers, clients and even competitors to participate in your 67 minutes initiative
  • Advertise and market your 67 minutes initiatives – on your website, in the local newspapers and on social media using the hashtag #MandelaDay. 

Ideas for Your 67 minutes 

Madiba himself believed that education is what makes the greatest impact. He said: “Education is the most powerful weapon which you can use to change the world.” 

For many companies, offering scholarships, internships, apprenticeships and mentorships is an excellent way to help change the world while reaping many benefits, including tax incentives and access to well-trained future employees. 

Businesses can also simply contribute to the official Mandela Day Each1Feed1 campaign or join in a community initiative.

Companies can also link into the Mandela Day Global Network, a community of organisations, government, corporates and individuals that partner with the Nelson Mandela Foundation to drive Mandela Day and pursue its objectives. It is a base for the strategic partnerships of organisations with common goals aimed at globally coordinating efforts, sharing information and linking the needs to resources.

There are so many ideas…

  • Dedicate 67 minutes to brainstorm and plan your company’s formalised contribution going forward
  • Give your staff 67 minutes of paid time off work to support a charity or organisation of their own choosing 
  • Spend 67 minutes as a team painting, cleaning and maintaining a school, clinic or library
  • Take 67 minutes to clean up the street or the local park, or volunteer to help out at a soup kitchen or animal shelter
  • Kick-off a project to plant 67 trees or a community garden over the coming year
  • Host a fundraiser such as a breakfast, fun walk or even a golf day to raise funds for a local cause
  • Donate your 67 units of your products, service or expertise to a start-up company or a local charity organisation
  • Pledge to donate R67 for each R50 raised for a cause by employees, clients and suppliers 
  • Donate 67 blankets, food parcels, rugby or football kits, bicycles or computers to a school, church or a local organisation
  • Make company resources, such as delivery vehicles or computers, available to organisations when not in use (e.g. over a weekend)
  • Host a party for emergency workers and volunteers, or treat a group of underprivileged kids or the elderly to a fun day.

What are the benefits to your business? 

Social contributions improve not only the lives of the project’s beneficiaries but also of those who are involved –

  • Creates an opportunity to link your business to a cause aligned with your corporate identity and business strategy 
  • Improved brand recognition through association and positive media coverage
  • Placing your company in a positive spotlight improves corporate reputation and creates a competitive edge with regard to attracting and retaining investors, clients, suppliers and employees
  • Increased customer loyalty: consumers are attracted to companies that contribute to a greater cause, as it allows them to feel they are making an indirect impact just by supporting your company and brand
  • Higher employee satisfaction: a common cause for the greater good is an excellent way to bring employees together to make a difference as a team.

Download resources for businesses, schools, organisations and individuals, or a full Mandela Day toolkit, at https://www.mandeladay.com/  or visit  the Nelson Mandela Foundation for more information.


Tax Filing Season 2021 Opened 1 July: Start Preparing!

“The secret to getting ahead is getting started.”

Mark Twain

To avoid the last-minute rush, the risk of errors and omissions, and the cost of late submissions, penalties and audits, there is no better time to get ahead on your company and individual tax returns than the day the 2021 tax season opens. 

What applies to your business – and to you? 

The tax season for filing the 2020/2021 returns for both your individual tax and your company’s tax has now opened.  

Have a look at the table below for details –

There were no changes to the corporate income tax (CIT) at 28%, or to the rate of tax on trusts at 45%. The Small Business Corporations (SBC) tax rate also remains unchanged, although the threshold is up to R83,100 from R79,000 last year (it increases for the 2021/2022 tax year to R87,300). 

Personal tax rates still start at 18% for those earning up to R205,900 pa (up from R195,850 in the 2019/2020 tax year) and up to 45% on income exceeding R1,577,300 (up from R1,500,000 in the 2019/2020 tax year). 

The changes to the tax thresholds and rebates for individuals are summarised in the table below –

Capital Gains tax and its specific exclusions also remain unchanged from last year, ranging from 18% for individuals and special trusts, 22.4% for companies and 36% for other trusts.  

Given these tax rates, it is imperative to ensure you and your business is taking advantage of every tax deduction possible! 

Take advantage of familiar and new deductions

The basic tax deductions for businesses and individuals are tax-deductible expenses, defined as any expense incurred in the carrying on of any trade, including employment income. However, there are many terms and conditions dictating when and how these deductions may be claimed, which makes it imperative to take professional tax advice.

For example, for the 2021 tax year with its numerous Covid-19 lockdowns, certain expenditure incurred while working from home can be included in the deductions. The expenses are calculated as a pro rata amount of home expenses such as rates and taxes, electricity, repairs and insurance. However, these expenses can’t be of a capital nature and no deduction can be claimed for any equipment provided by an employer without charge, or for anything that is reimbursed. Also bear in mind that claiming a tax deduction for home office use can impact on capital gains tax when you sell your home.

Red flags: what has changed since last tax season? 

  • Building on last year’s first auto-assessments, SARS says that – starting in July – significantly more individual taxpayers will be auto-assessed this year. If you are selected to be auto-assessed, SARS will send you an SMS. Before you accept an auto-assessment, be sure to check with your accountant that all the relevant information and declarations have been correctly included, ranging from subsistence and travelling allowances and advances to fringe benefits; and that deductions for retirement fund contributions, medical and disability expenses and even donations have been correctly applied. 
  • SARS has significantly improved its abilities to draw taxpayer information from third parties, including employers, financial institutions, medical schemes, retirement annuity fund administrators and other third-party data providers, making it easier than ever before for SARS to detect incorrect or undisclosed information. 
  • SARS has notified certain taxpayers that they are under specific scrutiny, notably ‘wealthy’ taxpayers and those with ‘complicated’ tax structures, as well as taxpayers who hold offshore assets such as crypto currencies and those who receive rental income, including from Airbnb rentals. With regard to companies, SARS states: “CIT filing compliance is currently an issue for SARS and as SARS closes in on non-compliance by companies it urges companies to note that it is compulsory for registered companies that are required to file a return to do so on time and complete in all respects”.
  • The consequences of not submitting your tax return correctly by the SARS deadline are extensive. 
  • SARS will levy a non-compliance penalty for each month that an individual’s return is outstanding. This can range from R250 up to R16,000 a month for each month that the non-compliance continues, up to a maximum of 35 months. 
  • Failure to submit the return(s) for a company within the prescribed period will result in administrative penalties being imposed on a monthly basis per outstanding return and could result in a summons and/or criminal prosecution, which upon conviction is subject to a fine or to imprisonment for a period of up to two years. 
  • While previously a mistake made by a taxpayer was only a crime when it was done “wilfully and without just cause”, things have changed. Now, there are two categories of offence. One requires wilfulness, but the other doesn’t. In that second category, even if non-compliance was due to negligence or ignorance, taxpayers can be convicted of an imprisonable criminal offence for, among others; failure to submit a return when required to do so, to retain all relevant substantiating records; to provide any information requested by SARS; or failure to disclose any material information to SARS. 

What to do now 

  1. Don’t delay! The deadline dates are deceptively distant. However, the 23rd of November is less than 5 months away, and 31 January is just a few short weeks later. Immediately starting to prepare to lodge your tax returns will ensure that there is time to attend to any potential problems, such as finding documents, obtaining third party information or getting professional advice. 
  2. Ensure that all sources of income are included and that all rebates and amounts allowed to be deducted or set off are also factored in, including provisional payments already made and any claims for COVID-19 tax relief.   
  3. Keep accurate records of all the calculations and source documents used as SARS may ask for these documents to be verified and/or for the calculations to be justified. 
  4. Get professional assistance!

4 Ways to Measure Your Company’s Performance, Beyond Profit

“Even if you are on the right track, you’ll get run over if you just sit there”

Will Rogers

In the hostile business environment in which we find ourselves, every small advantage could be the difference between success and failure. While traditionally companies and their shareholders have looked at profit and the cold hard numbers for determining the current and future success of a business, there are many other non-financial measures, which can give as clear a picture as to just how strong a company is. These non-financial measures can provide clarity and context for the financial KPIs (key performance indicators), while at the same time offering a way to see whether your business is living up to its mission statement and vision in a way that the numbers cannot. 

If looked at carefully these measures can help illuminate your business’ strengths and weaknesses, while also pointing to areas which may be affecting business performance. 

Here then are four significant non-financial performance measures every business owner should be analysing.

1. Efficiency and Delivery

The profit margin may look good, but what it cannot do is tell you just how hard you are working for that profit, or where things can be improved. How you choose to examine your company’s efficiency and delivery will depend strongly on exactly what service you are offering. For those in manufacturing an excellent statistic to look at is the “Product Defect Percentage”, which can be worked out by dividing The Number of Defective Units in a Given Period by The Total Number of Units Produced in the Same Period. This combined with a general Efficiency measure, which in the manufacturing industry can be measured by analysing how many units are produced every hour and the plant’s uptime percentage, can give you a very clear idea of inefficiencies in the system.

Deadline-driven companies and those in the transport or logistics industries may want to look more closely at their “On-time Rate”, being the percentage of time products were delivered on time as scheduled. Dividing the Number of On-Time Units in a Given Period by The Total Number of Units Shipped in a Given Period will give you your “On-Time Rate”.

Customer support tickets are also a wealth of information. How many new tickets are opened, how quickly they are closed and how many go unanswered are all valuable when calculating customer satisfaction as well as flaws in your processes.

2. Customer retention and conversion rates

Your customer is obviously the backbone of your business. Keeping them happy will result in success, and likewise their dissatisfaction can result in bankruptcy. Tracking the pure numbers of clients that you have, and their loyalty will give you a good indication for the coming year. Did you gain new clients, and did your old ones stay with you? Answering no to either of these questions highlights problems. If you are getting in lots of new clients, but not managing to keep them then you need to look at costs, quality and service levels, because your PR and marketing are clearly working. Alternatively if you have a core of very loyal customers, but are struggling to find new work, then what is needed is additional budget on getting your name out there.

Using the formula, Customers Lost in a Given Period divided by the Number of Customers at the Start of a Period, will give you your Customer Retention Rate.

Further to this is just how successful your team is at closing a sale once that customer is through your door. Are you making sales, or winning pitches? Just how regularly? The formula for working out your conversion rate is: Interactions with Completed Transactions divided by Total Sales Interactions. If this is going up then your sales team is working optimally, but a declining conversion rate may hint at the need for morale boosts within the sales team, or even additional training. 

3. The power of promotion

Every business owner will know that the word of mouth and customer recommendations are the single best way to increase business and yet very few entrepreneurs or new businesses will track this statistic. It requires a little work but setting up a “net promoter score” survey is a good way to gain feedback from your customers or clients.

There are principally two kinds of net promoter score surveys, ones that focus on a customer’s loyalty to the brand, known as a “relationship survey” and ones that want to analyse a customer’s experience at a specific event known as a “transactional survey”. While the latter will allow you to drill down into the details of each customer contact point, it is the former which will give you a stronger overall impression of the reputation of your brand. 

This survey should be a maximum of 4 or 5 questions to avoid fatigue and increase responses. These questions should all focus on whether people enjoy interacting with the brand, where their problems may be, and a final question can ask how likely they are to recommend the company with a score out of 10. 

The likelihood that customers will recommend a brand to others can be worked out by assigning people who score the company a nine and higher as promoters and those who score it six or lower as detractors. Then take the Number of Promoters and minus the Number of Detractors to find your Net Promoter Score.

Don’t forget to leave a comment box at the bottom of your survey and ask whether the customer wants to be contacted. People may have additional insights that your survey doesn’t cover.  

4. Maximising your workforce

Staying ahead in business depends on your employees and getting the most out of each person’s skills will greatly benefit your bottom line. Retaining good staff is an important part of the business as in the long term having experienced and knowledgeable employees will make everything else work more smoothly at the company.

High performers need to be identified and retained. A good business owner is always aware of the company’s “High Performer Turn Over Rate”. This statistic reveals the company’s ability to firstly attract, but also more importantly retain, good employees. Your High Performer Turnover Rate can be calculated by dividing the Number of High Performers Who Departed in Past Year by The Number of High Performers Identified.

If you find your company is leaking high performers and the turnover rate is higher than you would like, it would be wise to work out just why this is happening. Your company’s “Salary Competitiveness Ratio” will give you an idea of whether people are leaving for money. You work it out, by taking your Average Company Salary and dividing it by the Average Salary Offered by Competitors. 

If it’s not your salary offering, then perhaps chances for advancement have been stifled? High performers tend to be ambitious. Looking at the “Internal Promotion Rate” gives a great indication of whether staff are being allowed to grow and develop at a reasonable rate. It can be calculated by dividing the Number of Promoted Individuals by the Total Number of Employees.

No matter what you do, people will leave, so getting high performers into the company is always important. Looking carefully at the efficiency of your hiring process with regard to time and cost to recruit new employees, will also show whether your HR systems could use an improvement. Remember, every month a position is vacant means your company is running sub-optimally and losing out on profit.


Got Cryptocurrency? Here’s How Much SARS Wants…

“The future of money is digital currency”

Bill Gates, Co-founder of Microsoft

Cryptocurrencies have been around for over a decade, with the first and most famous one – Bitcoin – launched in 2009. Since then, many other cryptocurrencies have been created and supported in the market, including for example Ethereum, Litecoin, Dogecoin and Bitcoin Cash. 

Regulators have been slow in responding to the rapid fintech developments behind cryptocurrencies. However, further cryptocurrency regulation is certainly on its way, and the Intergovernmental Fintech Working Group (IFWG), a group of South African financial sector regulators, published a policy position paper on crypto assets to provide specific recommendations for the development of a regulatory framework.

In the meantime, however, many cryptocurrency owners may be unaware that their cryptocurrency gains will most certainly be taxable by SARS – and in the year of assessment in which income or gains are received by or accrue to the taxpayer – not only if or when the cryptocurrency is withdrawn and converted into legal tender. 

What’s the sudden spotlight on cryptocurrencies? 

A number of recent developments have catapulted cryptocurrencies into the spotlight. 

The first was the Bitcoin boom over the last year. Having maintained a price under $10,000 for years, excluding two peaks in December 2017 ($13,000) and June 2019 ($12,000), Bitcoin’s price started to skyrocket in September 2020 as big-name companies such as PayPal, Mastercard and Square began to accept it. 

Early in 2021, the price of Bitcoin reached a staggering $60,000, following Tesla’s announcement that it had acquired $1.5 billion worth of Bitcoin and the public listing of US cryptocurrency platform Coinbase Global on the Nasdaq. In February, Bitcoin breached the $1 trillion market capitalisation mark.

Local Bitcoin investors would have seen the price of their bitcoin jump from under R100,000 in March 2020 to just under R430,000 at the end of 2020 to almost R1 million in April 2021, doubling in value in just a few months.

Many South Africans started investing in cryptocurrencies during the boom, with a global crypto platform operating locally saying it had registered more than a million new cryptocurrency accounts in under two months, South Africa being in the top four highest growth locations. 

SARS’ scrutiny not surprising 

It is not surprising that these substantial gains and the fast-growing number of South African investors in cryptocurrencies have come under specific scrutiny from SARS. It presents an opportunity to collect substantial taxes from a previously untapped source at a time when all other options for tax increases and new taxes have been exhausted. 

In addition, earlier this year, R3 billion was allocated to SARS in the Budget to improve its ability to track undeclared assets and income, including a dedicated unit to uncover “undisclosed offshore assets, including crypto-assets such as bitcoin” and other cryptocurrencies.  

Unfortunately, very few South Africans holding cryptocurrency are likely to be aware of the tax liability they could be facing. 

So, while cryptocurrency platforms are not yet legally required to report on their clients and while SARS boosts its tracking abilities, our tax authority has simply begun asking for information on crypto transactions in audit letters issued to taxpayers – even to taxpayers that have never traded in cryptocurrencies. 

The information requested includes the purpose for which the taxpayers purchased cryptocurrency, as well as bank statements, and a letter from the trading platform(s) confirming the investments and the relevant trading schedules for the period.

Thanks to recent legislative changes that have made it a criminal offence for a taxpayer to willfully fail to submit a document or information as requested by SARS, or to make a false statement to SARS, non-compliant taxpayers could be liable to a fine or imprisonment for up to two years – or up to five years for attempted tax evasion or obtaining an undue refund.

SARS’ stance

In 2018 SARS issued a media statement confirming that the existing tax framework and normal tax rules will apply to cryptocurrencies and that affected taxpayers are expected to declare cryptocurrency gains or losses as part of their taxable income.

It said that cryptocurrencies such as Bitcoin are considered by SARS to be “assets of an intangible nature”, and that capital gains tax or normal tax may apply, depending on whether you are investing for the long term or trading actively for short-term gain. SARS will likely consider cryptocurrency-related gains to be revenue in nature and the onus will be on the taxpayer to prove otherwise.

For long-term investors, cryptocurrency is deemed “capital assets” and gains will be taxed at Capital Gains Tax rates – up to 18% for individuals and 22.4% for companies. The purchase price of cryptocurrency is deemed to be the price paid on date of purchase.  

Active trading will ensure your cryptocurrency is considered “trading stock”, with the income “received or accrued” falling under the definition of “gross income” in the Income Tax Act and profits taxed at normal income tax rates, between 18%–45% for individuals and 28% for companies.  

Cryptocurrencies income can be “earned” in various ways, all of which are subject to normal tax.

  1. A cryptocurrency can be obtained by so-called “mining”. According to SARS, until it is sold or exchanged for cash, cryptocurrency obtained in this way is held as “trading stock” that can then be realized through an ordinary cash transaction, or through an exchange transaction.
  1. Cryptocurrency may be received as income by a self-employed independent contractor for performing services; or received as remuneration or wages for services from an employer.  
  1. Cryptocurrency may be accepted as payment for goods or services. Where goods or services are exchanged for cryptocurrencies, such a transaction is deemed to be an exchange transaction and the usual exchange transaction rules apply. 
  1. Investors can exchange local currency for a cryptocurrency (or vice versa) by using cryptocurrency exchanges, or by private transactions.
  1. If a trade is made between two cryptocurrencies, for example Bitcoin and Ethereum, the profits are also taxable. 

Failure to declare cryptocurrency holdings, income and gains could result in interest, penalties and criminal prosecution.  

What you should do now 

(Remember to get expert advice specific to your circumstances!) 

  • SARS says that the responsibility rests with taxpayers to declare all taxable income in respect of cryptocurrency in the tax year in which it was received or accrued. If you mined cryptocurrency; bought any cryptocurrency; exchanged cryptocurrency for another cryptocurrency; or were in any way paid in cryptocurrency, it must be declared.
  • As with other asset classes, it is important to understand cryptocurrency investments and the attendant tax obligations, and to plan accordingly. A buy-and-hold strategy is more tax efficient, but professional tax advice is recommended for each individual case. 
  • If you have received a request for information from SARS – whether or not you have traded in cryptocurrency – immediately contact your accountant for professional assistance. 
  • Whether or not you have received communication from SARS, if you have not disclosed cryptocurrency holdings, income gains and losses, contact your accountant for specialist tax advice. 
  • Keep records of all transactions – according to SARS conventional receipts and/or invoices are acceptable proof of purchase and sale price. 
  • Use software to track crypto transactions – cryptocurrency platforms do not provide SARS compliant tax certificates such as the IT3c provided by financial services institutions for tax returns. 
  • Declare cryptocurrency holdings, income, gains and losses correctly –
    • SARS has already included questions about cryptocurrency investments in the capital gains tax portion of tax returns;
    • The income or market value thereof forms part of total taxable income in respect of the year of assessment on a provisional tax return (IRP6);
    • Taxable income in the source code or tax return container field provided on the ITR12 form.
  • Individuals can make use of the annual Capital Gains Tax exclusion of R40,000. 
  • Claim deductions – deductions against cryptocurrency income are allowed if they meet the requirements of the Income Tax Act, including whether expenditure is incurred in the production of income or for trade purposes – for example costs relating to computers, servers, electricity and internet service provider charges.
  • Offset losses – losses on cryptocurrency bought as investments will count as capital losses. However, it can only be deducted from capital gains. If there are no capital gains to deduct losses from, the losses can be carried over to the next tax year. You will be well advised to obtain expert tax guidance in this regard. 

The risks and consequences of willfully or negligently failing to make full and true declarations to SARS, or to submit documents or information requested by SARS are now substantial, so ask us at Emma Pardoe Chartered Accountant for advice specific to your circumstances!


Youth Day: Why Our Young People Are So Important to Your Business

“If [business is] not listening to the youth, they are not listening to their future competitors, employees, or customers”

Wadia Ait Hamza, head of Global Shapers at the World Economic Forum

Youth Day commemorates and celebrates the impact the youth of a country can have on the future – the Soweto Uprising on 16 June 1976 changed the course of history. 

The size of its young population is Africa’s huge asset and a strong competitive advantage, according to The African Development Bank: a large youth population, bigger than on any other continent, which is also growing rapidly, while populations in the rest of the world are ageing and contracting. 

Current estimates are that the number of youths in Africa will double to 850 million by 2050. They form part of the 1.8 billion global youth who, according to Deloitte, are between the ages of 15 and 29, accounting for more than 25% of the total world population. These are the future taxpayers, voters and leaders, as well as workers and consumers.  

The many reasons why these young people are crucial to the future of companies are briefly highlighted below, along with the ways in which your business can benefit directly from initiatives that encourage and incentivise youth employment and training.

The tax base of tomorrow

As Nelson Mandela reminded us: “Our children are the rock on which our future will be built, our greatest asset as a nation. They will be… the creators of our national wealth who care for and protect our people.” 

These future taxpayers are crucial in South Africa, with its very narrow tax base. A handful of taxpayers – just 3 million according to available data – paid 97% of total personal income tax collected in the past tax year, funding everything from hospitals and schools to roads and social grants for a population of 56 million! Tax on companies’ profits is only the third largest contributor (after VAT) – and its contribution decreased to just 16.6% by February 2019, compared to nearly 27% a decade ago. In addition, tax revenue growth has slowed, despite the increase in VAT to 15% and the marginal income tax rate to 45%, and despite the introduction of new taxes such as sugar tax and environmental levies. 

SARS has also highlighted the high youth unemployment rate in South Africa as “a serious threat to the tax base and the overall integrity of the tax system” in its annual performance plan for 2021/2022. According to Statistics South Africa’s unemployment numbers, the official unemployment rate for young people aged 15–24 years was 63.2% in Q4 of 2020.

It is in the interests of all South Africans to invest in our youth, given that the only alternative to widening our country’s future tax base is higher taxes on the few individuals and companies who are already carrying the tax burden of an entire nation. 

The market of tomorrow

The youth of today will be tomorrow’s consumer market – and in this respect, Africa is the place to be. Changing demographics and improving business environments across Africa are just two of the factors contributing to rising household consumption, which is predicted to reach $2.5 trillion by 2030.

This is according to The Brookings Institution, which also notes that Africa’s emerging economies will take the lead in consumer market growth, with one in five of the world’s consumers living in Africa by the end of the next decade, and more and more of these people falling into the category of affluent or middle-class.  

Knowing that today’s youth will be the consumer market of tomorrow creates an opportunity for companies to positively brand and position themselves in the minds of tomorrow’s consumers, even if only in their immediate community. 

How can your business connect with the young people who tomorrow will be your customers? Can your business sponsor a sports event or an academic prize at a local school? Perhaps you can provide opportunities for school tours of your facilities?  

The workforce of tomorrow

The youth of today are also the workers and employees of tomorrow. The African Development Bank estimates that more than 12 million youth enter the labour market across the continent every year. 

There are many benefits to employing young people in both the short-term and the longer-term. 

As Deloitte suggests in their recent publication Preparing tomorrow’s workforce for the Fourth Industrial Revolution, now is the time for the business community to reposition itself as a driving force for change – investing in new ideas and alternative approaches to skilling youth for the future of work, such as retraining; technical, vocational, education and training (TVET); career and technical education (CTE); as well as internships, apprenticeships and artisanships for on-the-job skills training.

Take advantage of the tax incentives

Fortunately, there are also incentives for businesses to promote youth training and employment. The employee tax incentive (ETI) is a SARS incentive to employ young South Africans valid until February 2029. In short, employers can claim a deduction from PAYE for qualifying employees: those who are younger than 29 and earn less than R6,500 a month. It is for a maximum of 24 months per qualifying employee and is not subject to broad-based black economic empowerment criteria. 

Think of asking your accountant for assistance – the requirements to claim ETI can be complex and the claims can differ month to month and from one employee to the next, as various criteria and formulas determine the amount businesses can claim. There are also a number of “ETI Schemes” being marketed at the moment and if you are offered one, ask your accountant for advice before committing to anything.

Another example is the “section 12H Learnership Agreement tax allowance” providing an additional tax deduction, currently until March 2022, to employers with learnership agreements registered with a Skills Education Training Authority (SETA). It comprises both an annual and a completion allowance. It can be implemented internally or through programs such as the NEASA (National Employers Association of South Africa) Youth Program, with qualified TVET interns available for 18 months, funded by FASSET, the Finance and Accounting SETA. With regard to the NEASA Youth Program, students receive a monthly stipend and travel allowance, while employers can access additional entry-level labour at minimal cost (R2,575 excluding VAT per month) without having to commit to employment thereafter.

The leaders of tomorrow 

It was also Nelson Mandela who said: “The youth of today are the leaders of tomorrow.” 

Businesses that will operate in the environment created by these future leaders have a vested interest in their development.  

As the World Economic Forum points out, cultivating non-traditional talents such as soft skills, critical thinking and empathy is increasingly important, as is teaching young people to be entrepreneurial thinkers.

Forward-thinking companies could, for example, offer mentorship to promising young leaders, invest in established leadership development programmes, host conferences or learning events, or provide bursaries to impact positively the young people who will be tomorrow’s leaders.


8 Tips for Marketing Your Business on Instagram

You are what you share”

Charles Leadbeater, We Think: The Power of Mass Creativity

Instagram is a popular photo and video-sharing social media platform with over one-billion active users around the globe. Users are able to share photo or video posts as well as temporary “Stories” that exist on their profile for just 24 hours. What many don’t know is that users are also able to shop directly from e-commerce brands through the app, and this is just one of the benefits for small businesses.

For the entrepreneur Instagram offers a cheap, reliable and easy way to build a following and engage with customers and has become a marvellous way to reach customers even for the newest of endeavours. To help you take advantage, here are some top tips for getting your business noticed on this platform.

1. Use a business account

Signing up for Instagram is an easy process akin to signing up for any other social media site, but the business owner needs to take an additional step if they intend to use their Instagram account to market their business, by switching the personal account to a business one.  

You will want to do this as Instagram business accounts offer owners access to unique features which are not available on a personal account, including Instagram Insights, Instagram ads, Instagram Shopping, a call-to-action button on your profile, contact information and even a variety of messaging inboxes. These functions will allow the business owner to better engage with customers and bring their products front-and-centre to their client base.

To change to a business account, go to your profile and tap the hamburger icon at the top right –

  1. Tap Settings, then Account.
  2. Tap Switch to professional account.
  3. Tap Business and follow the prompts.

2. Know why you are on Instagram

Defining the reason for your existence on Instagram will immediately help you to create the kind of page that you want. Are you there to get the company noticed, to direct people to your website or shop, or sell directly to your customers from the app? 

In order to effectively achieve those goals you will also need to define your target market. Who are you trying to reach? Instagram’s users are primarily between the ages of 18 and 35, but this does not mean they are the only ones there. Indeed, Instagram claims that more than 500-million people use the site daily, so knowing which demographic within that huge database you are targeting will help you stand out.

3. Shape your page

Now that you have defined who it is that you are looking to target and just what you hope to achieve, you can set about shaping your actual page profile to be attractive to that demographic and for that purpose. There are a variety of aspects of your page that you will be able to change to including your username, your actual name, and your website. More subtle perhaps is making the decision as to which business “Category” you fall under as this will provide followers information without using up bio space and will help you get recommendations for people who are searching in your field.

The most important part, however, is the actual bio itself. Your business’ bio should directly reflect the brand promise as well as its personality. Are you informative? Funny? Motivational? Are you a local business or aiming for international sales? What makes you unique and what do you want people to do once they have seen your profile? 

4. Create engaging content

This is without a doubt the most critical part of a decent Instagram account, and is also the most elusive. On Instagram your brand will be judged by the effort you are putting into your images, so this isn’t a place to put up sayings with a single colour background. While you don’t need professional photography, your photos and videos do need to be at least well-lit, well-composed, and in focus. What you are looking for is not simply beautiful photos, however, but photos and images that tell the story of your brand and make your audience feel like they know you better.

Take your followers behind the scenes of your brand with shots inside your offices, or of your manufacturing process. Teach your followers something that aligns with your brand or show them how to overcome a business challenge which you just accomplished. Share your mistakes. Listen to your followers and Regram (share), their content about your brand. Ask questions, and respond via video to questions they are asking. It all comes down to getting your customers to buy into your business, believe in it and then start backing it.

5. Create an aesthetic

Now that you know what kind of content you want to put up it’s also important to think about the aesthetic you want for your content. You chose the colours for your logo carefully because different colours give off different impressions of the brand. Now you need to take that idea and extend it to each and every photo and video you upload on the site. Will you be highly corporate with defined lighting, or a softly lit and warm account? What colours will the curtains be, and how is the décor arranged when you do your live interviews? These things will all help make your content instantly recognisable and more shareable in the future.

An easy way to achieve this kind of consistency is to use Lightroom presets. Here are a few unique filters that can get you started. Take a look at other user’s accounts to try to find the looks you like or that you think may fit with your brand and start from there.

6. The Writing is also important

While Instagram is definitely a visual medium, your captions on each post are also vitally important. Your captions are a great place for expanding your brand, nudging clients to your website and making a sale. While captions can be long, and some brands take advantage to tell stories, it’s the first two lines that will be always visible and which will capture audience’s attention. Getting the right information in those first two lines is therefore critical. Importantly, the caption is also a great place to introduce your unique hashtag.

Creating your own hashtag is a good way to drive instant engagement with your business, and over time it will become an easily-spread marketing tool that others will use to share their own posts with your business. Because the hashtag is unique to you, this allows you to also search for all mentions of your business online quickly and easily, and every time someone uses your hashtag they will be exposing your business to their followers.

7. Use Instagram tools to find the right metrics

Business profiles on Instagram aren’t all that different from Facebook business profiles. Through Insights, you can view statistics like impressions, engagement data, and more. You can also get a breakdown of the demographics of your followers, including information on their age, gender, location, and most active hours. This information will help you make informed decisions about when you should be posting and what kinds of content your followers like the most.

For starters though, according to SimplyMeasured, the worst days to post on Instagram are Wednesdays and Sundays, while Mondays and Thursdays are considered the most likely to be successful.

8. Engage

These tools can give you great insights into just how successful your time on Instagram is. The two most important things to look out for are “Follower growth rate” and “Engagement”. While the number of followers gives you very little idea of how good your posts have been of late, the rate at which that number of followers is growing does. Additionally, looking at how many likes and comments you are getting on your posts will show you just how interested those followers are in what you are posting
If you want more engagement, you are going to need to engage yourself. No Instagram account will be successful simply by uploading images every day. Search out other brands or products that are similar to yours and comment on their posts. This will not only put your brand front-and-centre for people looking for companies like yours on your competition’s page, but it will also teach algorithms that you are an expert in this field and that other users should be directed at your page for that kind of service. Working with other brands and influencers will also allow your brand to be shared beyond your normal circle and engaging with them is a great way to get noticed.


How SMMEs Can Benefit Financially from the Fourth Industrial Revolution

Digital is the main reason just over half of the companies on the Fortune 500 have disappeared since the year 2000”

Pierre Nanterme, CEO of Accenture

With the increased buzz around 4IR (the Fourth Industrial Revolution) in the last year particularly, due to lockdowns and “isolated industrialization”, it’s befitting to zoom-in the lens on how SMMEs (Small, Medium and Micro Enterprises) can better embrace and utilise the new operational technologies migration to their advantage. 

Words like Big Data, Internet of Things, Block Chain, Machine Learning, etc tie into 4IR and are some of the buzzwords heard with which we are becoming familiar. Since the lockdowns, companies are being forced to embrace, adapt and adopt these changes more than ever.  But just how far along is the implementation of these technology advancements and how much do they impact SMMEs today? Most importantly, how can your business benefit from these advancements?

The South African Context

President Cyril Ramaphosa has already announced that the government set up what is called “The Presidential Commission on the Fourth Industrial Revolution”. It is a 31-member commission spearheaded by communication minister Stella Ndabeni-Abrahams. It states that it wants SMMEs to benefit from digital migration, as much as financially possible. 

Within the preambles and descriptions of the mandate of the commission itself, the state announced that the project was meant to “make recommendations on interventions to enable entrepreneurship and SMMEs to take advantage of the 4IR.”

Adapt or Die

Stevens Maleka, currently responsible for Strategic Planning & Monitoring at the Department of Communications and Digital Technologies, points out that the nation is at a point where companies have to either swim or sink, because industries have already picked the 4IR direction. He states that there are business opportunities in the transition, as much as there are cost implications – the secret to effectiveness lies somewhere in the median. 

“It is important to note that the scale of investment in the 4IR should have a significant return in the form of economic development and this could lead to the increased investment   in   high   growth   technologies/companies, increased   expenditure   in technologies e.g. tablets, smart watches, and increase   in   exports   of technological services and products to other African countries” he said.

4IR presents business opportunities for SMMEs on the “supply side”

The South African government, through the Presidency’s National Planning Commission, acknowledges that “Although the South African telecommunications market continues to be one of the most developed and advanced on the African continent, there are still gaps on the supply side (encompassing both infrastructural and regulatory issues) that constrain the creation of the affordable backbone and services required to develop a digital economy. To deal with supply-side gaps, ICASA must create a fair, competitive environment for multiple players in the market by publishing the findings of its market review and applying the necessary pro-competitive remedies, in particular with regard to entities enjoying significant market power.”

This in itself presents appealing opportunities for SMMEs as the South African government leans more towards tendering in the public service space.

Impact of 4IR on SMME Staff Complements

4IR has been identified as a potential reason for workforces being drastically reduced. However the pinch is only measured by the size of the business and the nature of the actual enterprise – thus far.

The Small Enterprise Development Agency (SEDA) seems somewhat ambivalent when it comes to the technological impact of the functional switch on workforce within our context, due to the size and gender spread thereof. 

It states that “In Sub-Saharan Africa, it is reported that most youth-owned SMMEs have no employees (57.3%), while hardly any (1.5%) have more than six employees and none have more than 20 employees. Interestingly, there is also a gender difference within SMMEs owned by youth. In rural areas, SMMEs owned by youth have slightly lower labour productivity compared to the older age categories; and most youth-run businesses have no employees while hardly any have more than six employees.”

Each SMME’s individual case depends on the factors tabled above, and a blanket approach is not always applicable.

Ask us for tailored advice on how your business can benefit from these developments.


Uncertain, Costly Power Supply: How to Mitigate Your Risk

“The more that energy costs, the less economic activity there can be”

Robert Zubrin

It has been 13 long years since we first experienced load shedding in 2007. Since then, businesses have lost thousands of hours of productivity and significant amounts of money to these “rolling blackouts”. 

The situation is not going to improve – more load shedding is predicted, by Eskom itself, for the next five years together with even higher electricity tariffs. Given the impact of load shedding and the high cost of electricity, business owners are well-advised to understand and assess the risks faced in terms of electricity supply and to implement strategies to mitigate this risk. 

Impact on companies  

In addition to its devastating impact on the economic environment in which companies operate, all businesses that use electricity for machinery, technology and light, experience a loss of production during power outages – even those with backup batteries or generators. 

Smaller and medium sized businesses that cannot afford alternative energy solutions are disproportionately disadvantaged. Unable to provide any service, they lose customers too. 

Companies also suffer physical damages from load shedding, for example, to computers and other electronic equipment, perishables damaged in refrigerators and raw materials wasted as production cycles are interrupted, and the inability to deliver to clients as load shedding affects traffic flow.  

During load shedding, companies are also exposed to a greater security risk, as well as a theft and burglary risk, as security systems and processes are compromised, which, in addition, could affect their insurance cover. 

Six ways to mitigate your electricity risk 

  1. Stay abreast. Task a team member to stay up-to-date with, for example, a load shedding notification app. This will ensure better planning, so the time when there is power can be maximised. It will also enable staff to minimise damage to equipment by switching off correctly before load shedding commences and to reduce stress by ensuring data is backed up.  
  1. What is measured is managed. A professional energy audit for your business will allow you to understand your energy needs and usage patterns. This is the first step to finding the right alternative that may simplify and optimise power usage, lower costs and improve business performance.
  1. Consider alternative energy solutions, ranging from simple uninterruptible power source (UPS) units and back-up solutions to small or large battery-based and generator solutions, to a variety of solar PV (photovoltaic) solutions. While the initial cost of converting to solar power or purchasing a generator may seem high, the consequential costs of Eskom’s uncertain supply and fast-rising tariffs are also mounting. The cost of solar power equipment, for example, has decreased significantly, making it possible to generate power at a cost lower than the national grid. (This may well be a viable solution particularly if your business operates mainly during daylight/sunlight hours). 
  1. Explore financing options for funding. The impact of the initial capital outlay for alternative energy solutions can be reduced with the right finance. The alternative energy solutions division at FNB Business for example says it has seen a significant increase in demand for funding for renewable energy solutions, with solar PV being the most popular, and are projecting a significant increase in alternative energy funded solutions by the end of the year.  
  1. Find out what incentives your company might benefit from. For example, Eskom is planning to test a “critical peak pricing” pilot tariff with qualifying large customers. 
  1. Another example is Section 12B of the Income Tax Act, which provides for a capital allowance for movable assets used in the production of renewable energy and incentivises the development of smaller solar PV energy projects with an accelerated capital allowance of 100% in the first year for solar PV energy of less than 1MW.

The companies tax rate in South-Africa is 28%. With this incentive, the value of a new solar power system may be deducted as a depreciation expense from the company’s profits. This means that the company’s income tax liability will be decreased by the same value as the value of the installed solar system. This reduction can also be carried over to the next financial year as a deferred tax asset. This is a direct saving of 28% on the purchase price from day one on the solar system!


POPIA and Your Business: A Practical 5-Step Action Plan to Implement Now?

“By failing to prepare you are preparing to fail”

Benjamin Franklin

The media is awash with warnings about the dangers of not complying with POPIA (the Protection of Personal Information Act) by 1 July 2021, and indeed the risks of non-compliance are substantial.

The clock is ticking …. if anyone in your business needs to be motivated to take this seriously, refer them to the Countdown Clock on the Information Regulator’s website.

Although you still have until the end of June 2021 to become fully compliant, there are major benefits to understanding POPIA and starting the compliance process now – before it becomes compulsory. The penalties for getting it wrong are sizeable, “preparation makes perfect”, you are giving yourself time to get it right, and for many businesses there is also good marketing potential in being able to tell your customers and clients that you are already addressing the situation.

Five practical steps to start with…

Before we start on your action plan, get to grips with the fact that you will almost certainly have to comply fully with POPIA. As soon as you in any way “process” (collect, use, manage, store, share, destroy and the like) any personal information relating to a “data subject” (customers, members, employees and so on), you are a “responsible party”. Very few businesses will fall outside that net. Equally you are unlikely to fall under exemptions like that applying to information processed “in the course of a purely personal or household activity”. Get going with these steps –

1. Information Officer:

Identify an “Information Officer” who will be responsible (and liable) for all compliance duties, working with the Regulator, establishing procedures, and training your team in awareness and compliance. You are automatically your business’ Information Officer if you are its “Head” i.e. a sole trader, any partner in a partnership, or (in respect of a “juristic person” such as a company) the CEO, MD or “equivalent officer”. You, your partnership or your company can “duly authorise” another person in the business (management level or above) to act as Information Officer and you can designate one or more employees (again management level or above) as “Deputy Information Officers”. You will need to register both Information Officers and Deputy Information Officers with the Regulator, which (at date of writing) says that it will have an online registration portal available by 1 May 2021 – otherwise download the manual Registration Form here

2. Assess what personal information you hold, how you hold it, and why:

Figure out what personal information you currently hold, how you hold it, and why you hold it. To collect and “process” such information lawfully you need to be able to show that you are acting lawfully, reasonably in a manner that doesn’t infringe the data subject’s privacy, and safely. 

You must show that “given the purpose for which it is processed, it is adequate, relevant and not excessive”, data can only be collected for a specific purpose related to your business activities and can only be retained so long as you legitimately need to or are allowed to keep it. 

There’s a lot more detail in POPIA, but you get the picture – you cannot collect or hold personal information without good and lawful cause.

3. Check security measures, know what to do about breaches:

You must “secure the integrity and confidentiality of personal information in [your] possession or under [your] control by taking appropriate, reasonable technical and organisational measures to prevent … loss of, damage to or unauthorised destruction of personal information … and unlawful access to or processing of personal information.” You are going to have big problems if there is any form of breach from a risk that is “reasonably foreseeable” unless you can prove that you took steps to “establish and maintain appropriate safeguards” against those risks. Bear in mind that whilst cyber-attacks tend to get the most media time, there are also other risks out there – brainstorm with your team all possible vulnerabilities and patch them.  

Any actual or suspected breaches (called “security compromises” in POPIA) must be reported “as soon as reasonably possible” to both the Information Regulator and the data subject/s involved.

If third parties (“operators”) hold or process any personal information for you, they must act with your authority, treat the information as confidential, and have in place all the above security measures.

4. Check if you do any direct marketing:

Most businesses don’t think of themselves as doing any “direct marketing”, but the definition is wide and includes “any approach” to a data subject “for the direct or indirect purpose of … promoting or offering to supply, in the ordinary course of business, any goods or services to the data subject…”. So for example just emailing or WhatsApping your customers about a new product or a special offer will put you firmly into that net.

If your approach is by means of “any form of electronic communication, including automatic calling machines, facsimile machines, SMSs or e-mail”, you must observe strict limits. Whilst you can as a general proposition market existing customers in respect of “similar products or services” (there are limits and recipients must be able to “opt-out” at any stage), potential new customers can only be marketed with their consent, i.e. on an “opt-in” basis. 

5. Get a start on procedures and training:

Cover how you will collect the data, process it, store it, for how long, for what purpose/s and so on. What consent forms do you need and when/how are they to be completed and stored? 

You are much less likely to have a POPIA problem if everyone in your business (and most importantly you!) understands what your procedures are and implements them as a matter of course. Make sure that no functions “fall between two stools” – assign individual compliance tasks to named staff members and make sure everyone understands who is to do what.

This is a complex topic and there is no substitute for tailored professional advice. What is set out above is of necessity no more than a simplified summary of a few practical highlights.


Where does Fairness Belong in Your Business and Why Should You Care?

Many decisions are made on the basis of careful research and considerations about a variety of issues. Not all these deliberations will necessarily turn out to be correct. That in itself does not place question marks over the leadership’s execution of its responsibilities in terms of the Companies Act to act with due care, skill and diligence or the King IV Report Principle 1 that they should lead ethically and effectively.


An entity, which has been run and managed in such a way as to build a reputation for ethics, integrity and reliability, will likely have a growing group of loyal customers and other stakeholders, based on trust. 

The size of the entity concerned has no bearing on whether or not it is trusted. That is based entirely on the entity’s consistent, trust-centred behaviour towards all its stakeholders. 

What if things go wrong?

There will be times when a decision turns out to be wrong resulting in a service or product not being delivered on time or otherwise being deficient. The reasons may be beyond the control of management. However, such an event may have the potential to negatively impact stakeholders’ trust.

The cause may be the result of a strategic decision by management to change the nature or make-up of a service or product. For example, by reducing the size or contents of a product without any communication to consumers so as to increase profit margins or to avoid a price increase. This, of course, is a completely different proposition as it is inherently dishonest and lacking in transparency and integrity, questioning the moral mindset of management. Another example would be price-fixing and collusion. Some years ago this was evident in the construction and food processing industries. 

A third example could be a deliberate decision to undertake activities without recognising the potential of damage to the environment; getting environmentalists, conservationists (some of whom may be customers) up in arms, and let’s not forget the reach and impact of social media.

What are the consequences?

In all examples there is a real likelihood of a loss of trust resulting in customers abandoning the entity. In the second set of examples, where there is real or perceived dishonest behaviour on the part of management there are likely to be fines/penalties (which there were in the cases of the construction and food processing industries). However, the real damage may well be the loss of trust – which for a smaller business could be fatal.

In the former case where the problem arose through a situation that was either not anticipated or due to a change of circumstances, the loss of trust is still possible but appropriate remedial action may avoid the destruction of trust.

Finally, in the last example, how the entity responds to the situation will determine the long-term consequences.

Can fairness make a difference? 

Having said that, where an entity responds by treating customers fairly, putting right the problem as a matter of moral rectitude, trust is likely to be retained and may even be enhanced. This, of course, requires swift and transparent communication so that stakeholders are aware of the circumstances of both the issue and the entity’s response to it. 

Consider the Autumn 1982 response of Johnson & Johnson to the deaths of seven people in Chicago who had taken its market leading, over-the-counter painkiller, Tylenol. 

Throughout the crisis thousands of stories ran in U.S. newspapers together with hundreds of hours of national and local television coverage. A major potential trust breakdown for Johnson & Johnson, bearing in mind that Tylenol was the market leading paracetamol in the US and a substantial contributor to J&J’s revenue and profits. After the crisis, J&J said that over 90 percent of the American population had heard the story within the first week of the crisis.

J&J, however, did not have a crisis management plan, unthinkable today, or is it? Do you have anything like it?

So the company’s Chairman, James Burke, went back to the company’s founding credo. This saw the business as having a moral responsibility to society beyond sales and profit. He formed a seven-member strategy team with two tasks: how do we protect people and how do we save this product and our reputation?

First of all they alerted consumers via all available channels of communication not to consume any type of Tylenol product. They halted production and advertising and ordered a nationwide withdrawal of the product. This cost the company millions of dollars, however, it received credit for putting public safety above profit.

The cornerstone of J&J’s recovery, in priority order, was: People, Environment, Property and only then Finance. They restored trust by behaving fairly to the most important people, their stakeholders. J&J’s Tylenol, accordingly, ultimately re-gained its market share.  

This is an example where fairness retained trust. There is even the possibility, as occurred in this case, of the enhancement of trust when, after the event, it is seen that the promise of fairness has been honoured in full. 

Trustworthy fairness

So, all in all, treating all stakeholders fairly is a moral approach to business which enhances relationships. Even in personal relationships, responding with fairness when trust is at risk, can save the relationship. 

An investment in fairness as a matter of corporate value is as essential and generates as good returns as fundamental trustworthy behaviour. 

In conclusion, it is clear to me that Trust and fairness in the workplace are connected as they are in all of life. Trust defines how we as humans relate to one to another, while fairness is a practical mechanism for maximising the benefits of trust. The two work together, and we need them both to operate consistently at the heart of workplace activity. In other words, ‘Trustworthy Fairness’ provides a foundation for building meaningful and productive workplace life (Jonathan Rens).


A Basic Guide to PAYE and Four Common Mistakes

“The point to remember is that what the government gives it must first take away”

John S. Coleman

If it weren’t for the PAYE system, which forces employees to pay taxes as they earn their money, each of us would be liable for a lump sum payment of between 18% and 45% of our total monthly earnings at the end of each tax year. Pay As You Earn (PAYE) requires that employers deduct money from their employees’ earnings as they earn it, and pay this money over to SARS on the employees’ behalf.

The Basics

To calculate PAYE an employer should multiply an employee’s taxable earnings (which include any fringe benefits such as Disability Benefit Contributions etc.) by 52 weeks, 26 weeks or 12 months (depending on how often they get paid) to get an annual amount. This annual sum is then cross-referenced against the SARS tax tables to calculate annual tax. This is then divided again by the same work period to get the monthly PAYE tax which is then withheld, displayed on your IRP5 and paid over to SARS.


  1.  Regular monthly income = R10,000.
  2. Annual equivalent = R10,000 x 12 = R120,000.
  3. Tax calculated on R120,000 as per tax tables = R5,886.
  4. PAYE payable on regular monthly income = R5,886/12 = R490.50 p.m.

In cases where an employer pays certain things like medical aid, pension fund, income protection and/or retirement annuity fund contributions on an employee’s behalf, the employer must deduct these costs from the employee’s earnings and take these deductions/credits into account when calculating PAYE and making payment to SARS.  This is where problems begin to creep into the system.

Four Common Problems

  1. Travel Costs

Travel costs are a common area of concern for SARS as they can be miscalculated extremely easily. To determine the portion of the travel allowance that should be included in the calculation of an employee’s taxable income, so as to determine the PAYE, the employer is required to implement an 80/20 rule. Either 80% of their mileage is for business purposes, and the remaining 20% of the allowance is subject to tax. Or, only 20% of their travel is business related, and the remaining 80% of the allowance must be taxed. To determine the percentage to be included in taxable income, accurate logbooks must be provided by employees so that the appropriate 80/20 rule can be strictly adhered to. 

Choosing the wrong rate here can expose an employee to substantially more tax than they should be paying. 

  1. Disability Benefit Contributions

Prior to 1 March 2015 Disability Benefit Contributions could be deducted tax free from an employee’s salary thereby reducing their PAYE contribution. Tax was then charged on the pay-out that the employee received in the event of a disability. This changed in March of that year, however, and now the Disability Benefit Contributions are no longer tax deductible and must be counted as being part of the employee’s fringe benefits. The final Disability pay-outs are, fortunately, tax free. 

  1. Retirement payments

Retirement payments give rise to another common error in the calculation of PAYE, mainly due to the fact that people are unaware that the system changed, and they are still implementing the old system. As of 1 March 2016, SARS now considers all company contributions to an employee’s retirement and risk benefits as a fringe benefit which should be taxed.

There are, however, instances in which a pension fund contribution may be tax deductible. This depends primarily on whether the pension fund is “approved” or “unapproved”. Whether a retirement benefit is “approved” or “unapproved” is determined by the way its associated fund is administered as well as the rules of the fund. The broker who administers the fund will be able to tell you whether it is approved or unapproved and it will then be easier to work out just how to treat those deductions for PAYE.

  1. Partial tax year

Because PAYE taxes are calculated on a projected annual earning, those employees who work only part of a year are liable to benefit from a rebate. Effectively a person earning R30 000 a month would pay monthly PAYE based on an annual earning of R360 000 a year. If they only work for six months of that tax year they should then have only been charged for an annual tax earning of R180 000 and will be deserving of a rebate for the six months where they paid too much.

Speak to us at Emma Pardoe Chartered Accountant (SA) for detailed advice. 


Leadership, Ethics and Governance: The Benefits for Your Business

The European (and South African) authorities (refer to governance codes below) opted for a principles-based approach. However, governance cannot be truly effective without the integrity of purpose and actions which drive the ‘tone from the top’ leading to a strong moral compass founded on ethically-based values.

The governance imperative

Corporate Governance has been a topic of ongoing conversation and even legislation since the early 1990’s. However, in spite of a number of outstanding codes and reports (such as the Cadbury Report, the four King Codes and Reports, the Combined Code and many more around the world), together with the various legislative responses (such as Sarbanes Oxley in the USA), business failures continue. 

Where were the directors of these failed businesses and what were they looking at and asking of management when considering their approval of the financial statements year after year?

Ethics and moral duties

Each director is a steward of the company and should demonstrate: 

  • Conscience – intellectual honesty and independence of mind,
  • Inclusivity – legitimate interests and expectations of stakeholders,
  • Competence – knowledge and skills
  • Commitment – diligence, and 
  • Courage – to take the appropriate risks and to act with integrity.

There is evidence that suggests that companies displaying consistent ethical values and behaviours based on solid and sustainable moral values driven throughout the organisation where all are aligned to the ‘tone from the top’ deliver better and more sustainable returns.

The ethical and moral imperative

Key questions:

  • Is it a reasonable presumption that all know and fully understand the meaning and impact of ethical behaviour, moral values and what drives them?
  • Do the directors live out their stated ethical and moral values – the tone from the top?
  • What are the views of management and the workforce of the leadership’s (director’s) ethical and moral values and the example set?
  • Is it reasonable to assume that management knows how to embed these values throughout the organisation?
  • How do directors measure the ethical and moral climate of their organisation?
  • Does the ethical and moral climate of the organisation align with those espoused by the directors?

What is understood by ethics and morals – is there a universal standard, a universal moral compass?    

In the Glossary of terms in the King IV report the term Ethics is defined as follows:

“Considering what is good and right for the self and the other, and can be expressed in terms of the golden rule, namely to treat others as you would like to be treated yourself. In the context of organisations, ethics refers to ethical values applied to decision-making, conduct, and the relationship between the organisation, its stakeholders and the broader society”.

However, what is understood by ethical values, behaviours and integrity? Can one assert that there is a set of Universal Principles? Consider the following:

Universal Principles 

Noted anthropologist Donald E Brown found in his research that the moral codes of all cultures include recognition of responsibility, reciprocity, and ability to empathise. Other studies have confirmed his findings. The major world religions preach common values: commitment to something greater than self, responsibility, respect, and caring for others. Genuine behaviour norms in different cultures may distract us from what we have in common with all people – a universal moral compass.  

Stephen Covey suggests more evidence of universal principles: “From my experience in working with different people and cultures, I find that if certain conditions are present when people are challenged to develop a value system; they will identify essentially the same values. Each culture may express those values differently, but the underlying moral sense is always the same.” 

What are these universal moral values?

The authors of Moral Intelligence (Doug Lennick and Fred Kiel, Ph. D) suggest the following from their research:

  • Integrity
  • Responsibility
  • Compassion
  • Forgiveness and reconciliation

While the first two seem self-explanatory, what about the last two? 

Compassion shown to an employee in distress may lead not only to a swifter recovery and return to full operational ability but also to a substantial gain in loyalty from employees – and not just to the employee concerned. 

Forgiveness and reconciliation: Is not business the enterprise of risk?  If employees and management are too fearful of making mistakes, how much business risk are they likely to take?

Finally, an organisation that demonstrates these ‘universal values’ from the top through management in alignment with actual behaviour will achieve, through its workforce, greater returns than might otherwise be the case.

So, these ‘soft’ practices have the potential of leading to hard bottom line results.

Ethics and moral values – are they worth it?

It has been suggested that companies with recognised good governance are valued at a premium over those with poor governance records. The same applies to companies with sound ethical records. Ethical companies attract and retain talent.

The Proposition

  • Enhanced governance through demonstrated ethical behaviour
  • What are your values and ethics?
  • Does your behaviour reflect them?
  • How do your board colleagues and your first line reports perceive your values, ethics, and integrity?
  • What is your staff’s perception?
  • How do you go about ensuring the values are embedded throughout the organisation to achieve alignment?
  • Starts at the top
  • Safety for those really tough and necessary conversations
  • Ethics led performance
  • Behavioural change and feedback
  • Strong business case
  • Is your top team up for the challenge?

SMME Owners: Your Training and Education Will Boost Your Business

 “An investment in knowledge pays the best interest,” 

– Benjamin Franklin, American politician and inventor

Most SMMEs (Small, Medium and Micro Enterprises) in South Africa fold in the first two years of doing business. Reports suggest that the lack of education and training are some of the primary reasons for the low level of entrepreneurial activities and the high failure rate of SMMEs. To add salt to the wound, the overall quality of entrepreneurship in South Africa is recorded as lower than average. 

Here are some of the visible results of the impact of, and lack of, education and training for SMME managers along with some corrective recommendations:

1. Quality of SA’s entrepreneurial activity below global average

South Africa’s entrepreneurial activity is rated at 5.1%, which is below the Global Economic Monitor (GEM) average of 6.4% and the average of 6.7% for efficiency-driven economies. (In 2019, South Africa ranked 49th out of 54 economies on GEM’s National Entrepreneurship Context Index, ahead of only Croatia, Guatemala, Paraguay, Puerto Rico and Iran. This index provides a single composite number that can express the average state and quality of the entrepreneurial ecosystem in a country and be compared to those of other economies.)

According to existing research on the subject, “This and other figures show a lower than average level of entrepreneurial activity in South Africa and present challenges to all role players (government, the private sector and educators) for getting programmes that encourage entrepreneurship off the ground, so that this gap can be decreased”.

2. Quality education linked to managerial confidence

In 2019, Ahmad Al-Tit, Associate Professor of Business Administration at Qassim University reported aspects such as the “business owner’s age, educational attainment, management skills, training, business size, and general business experience”, as elements impacting the success of a business. 

“From these factors, the attainment of good quality education, general age, and business experience is believed to result in higher managerial confidence and quickens the procedure of obtaining adequate business finance,” he further stated.

3. Academic recommendation to solving the problem

Considering the importance of SMMEs to the economy, the responsibility to educate entrepreneurs is spread among several stakeholders.

Based on the findings of research published by the University of Fort Hare, the following recommendations are suggested to the stakeholders: 

  • Government Agencies: “It is also suggested that government agencies work hand in hand with the banks to ease access to finance (training programmes) by SMMEs”.
  • Government: “It is recommended that the government explore other strategies to compliment entrepreneurship education that will help create independent entrepreneurs instead of educated beggars.”
  • SMME Owners and Managers: “SMME operators need to take advantage of entrepreneurship education programmes that are offered by institutions of higher learning and government agencies if they really want to improve the performance and survival chances of their businesses”.
  • Institutions of Higher Learning: “They need to play a critical role in providing entrepreneurship education, for they have the expertise and resources to do so”.
  • Banks: “It is recommended that banks provide financial resources to SMME operators who show potential for success”.

Consider additional education and training for SMMEs offered by the Institute of Directors South Africa (IoDSA) to improve your understanding of good governance requirements. These will improve your likelihood of success and the attractiveness of your business while reducing the potential of regulatory risk.


Raising Small Business Finance in 2021: 5 Common Mistakes with a High Impact

“Designing a presentation without an audience in mind is like writing a love letter and addressing it ‘to whom it may concern”

– Ken Haemer

In these challenging times, raising finance could very well be a matter of business survival, so knowing how to pitch to potential investors is a critical skill you should not neglect. 

When you started your business you probably did so because your life experience allowed you to see a gap in the market or the opportunity to make the most of your skillset in a new way. You almost certainly did not go into it because your skill was presentations and pitching for investment. This is a common scenario in the world of small business and it leads to many great ideas being forgotten, or going without investment, simply because the new owner did not know where, how and when to sell the idea to those who could help with necessary funding. Here are five common mistakes that people make when arriving to pitch for investment.

  1. Pitching to the wrong investor

One of the first things you should do when seeking finance is your research into just who is invested in the field, and who might be keen to take on a company of that kind. Not all investors are eager to diversify into all industries, and finding someone who understands your industry and further, wants to invest in it, is key if you want to find a business partner.

Once a connection is made or a name is mentioned, it is important to do your research into just who the potential investor is, what they are currently invested in, and what they are interested in. Showing awareness of who the investor is and what they like to invest in, will also help at the pitch level, because it will show them that you are the kind of person who does their due diligence as well as make conversation easier. 

  1. Not refining your pitch deck

Many entrepreneurs want to get funding as quickly as possible. They construct a pitch and approach the people they think are ideal investors without properly refining the deck and ensuring they can answer all necessary questions. The first step when creating a good pitch is to look at other successful pitches to see what information they included and how you can best present your business.

Once you have constructed a best effort it’s time to start reaching out, but don’t head for the office of your favourite investors just yet. Getting a pitch right takes practice and getting in front of a few people who you suspect may not invest will help you to get your pitch just right by revealing the kinds of questions an investor may ask. When turning you down these non-ideal investors may also give you advice on your business, which will help strengthen the pitch for next time.

At the end of the day, you need to be able to provide short, clear answers to every question and getting the pitch and your presentation right will ensure that this happens. You can’t simply tell an investor that you will get back to them with answers as this provides a bad impression.

  1. Over-valuing your business

Going into a meeting it’s very important that a business owner not over value their business or its position in the market. Investors have been around and they will have a rough idea ahead of the meeting as to just what they think your business may be worth. Overselling it, or promising impossible returns simply makes it look like you don’t know what you are doing. 

Entrepreneurs should further avoid making projections for growth that are unlikely. Telling an investor you will make 500% profit gains in a year with only 40% expense increases, only serves to tell them you are speaking about pie in the sky. 

This is the same for your competitive landscape analysis. This part of your presentation is critical and you should not be going into a meeting saying that you have no competition – all that means to an investor is that you have not researched the field properly. If it’s true that your product is unique you need to present the information on how the industry deals with the problem you are solving now, which companies offer the alternative solutions and why yours is better. Do not just say you are unique. 

  1. Not understanding the risks

Any experienced investor is going to want to understand the risks of investing with you, and will want to see that you see them too and have planned for them. Inevitably any business has risks attached and if you understand yours, you instantly become a more bankable proposition. 

Questions you should be able to answer might include: What are the principal risks to the business? Does the business have any legal risks? Do you envisage any technology risks in future? Are there any upcoming regulations which may impact upon your company? And are there any product liability risks attached? Just what are you doing to mitigate all of these risks?

  1. Not accurately explaining the benefits of your business

At the end of the day your business’s benefits and unique selling points are going to be what makes it successful. But a business is more than just its product or unique idea. It’s a wonderful idea to have a video or demo model of your product or your company, but if that’s all you have you will not succeed in attracting investors. 


Selected for SARS Verification or Audit? Here’s What to Expect… and What to Do

“Is there a phrase in the English language more fraught with menace than a tax audit?”

Erica Jong, American novelist

A number of recent tax developments strongly indicate that taxpayers will face even more intense scrutiny from SARS in this new tax year. Most recently, an additional R3 billion was allocated to SARS in the 2021 Budget Speech “to improve technology, data and machine learning capability and upskill SARS officials to improve the efficiency and effectiveness of SARS”. This will include expanding specialised audit and investigation skills and establishing another specialised audit unit for investigations into the tax affairs of high net worth individuals with highly complex financial structures, which will likely lead to in-depth lifestyle audits.

Two ways in which SARS enforces compliance are through verifications and audits, both of which can now be expected to increase. 

Being selected for a verification or audit entails significant risk to a taxpayer, whether individual or corporate. In addition to the time, cost and effort to collate the information, documents and clarifications required, a verification or audit can lead to the levying of understatement penalties varying from 0 – 200% where an understatement occurred, and even harsher penalties are reserved for ‘obstructive’ taxpayers or culpable repeat offenders.

What is SARS verification? 

A verification involves the comparison of the information declared on the return to the taxpayer’s financial and accounting records and other supporting documents. 

The purpose of a verification is to ensure that a declaration or return fairly and accurately represents a taxpayer’s tax position.

What is the SARS verification process?  

  1. SARS sends notification via an official letter.
  1. SARS’ letter will require you to either submit the requested supporting documents via eFiling or at a SARS branch or submit a Request For Correction (RFC) within 21 business days.
  1. If you do not respond within 21 business days, a second letter will be issued. If you still do not respond within 21 business days, a SARS official will telephonically request the relevant material within 5 business days. If you have still not complied, SARS may raise an assessment based on information readily available or obtained from a third party.
  1. A letter requesting further relevant material could be issued if the relevant material initially supplied was not sufficient to finalise the verification.
  1. SARS will conclude the verification within 21 business days from the date all required relevant material is received.
  1. If the tax position declared is found to be incorrect given the relevant tax legislation, an assessment will be raised. 
  1. Where no further risk(s) were identified, and no finding was made, a Notification of the finalisation of the verification is sent by SARS.  Where SARS made a finding, a notice of assessment (i.e. an additional or reduced assessment) will be issued.
  1. Where further risk(s) are identified, your return/declaration is then referred for an audit and you will receive a Referral for Audit Letter. 
  1. You can dispute the assessment by lodging an objection within 30 days.

If you were subject to a verification and the verification process has been completed, your tax affairs could still be referred for audit as part of the SARS compliance process.

What is a SARS audit?

A SARS audit goes further than a verification to examine the financial and accounting records and/or supporting documents of the taxpayer to determine whether the taxpayer’s tax position has been correctly declared to SARS. Where the taxpayer made no declaration or did not file a return, the audit is an investigation into the taxpayer’s compliance with the provisions of the relevant tax legislation.

By its nature, an audit is more intrusive than a verification and the scope could be extensive.

What is the SARS audit process?  

  1. A formal Notification of Audit is issued to the taxpayer by a specific auditor, indicating the initial scope of the audit.
  1. Relevant material or supporting documents requested in the Notification or in a further Notification will differ depending on the tax type and scope of the audit and must be submitted to SARS within 21 business days.
  1. Requested relevant material can be uploaded via eFiling, or can be collected or delivered. Arrangements can also be made for an Electronic Forensic Specialist to download the material from your computer systems or for a field audit. The SARS Auditor will issue an Authorisation Letter for a field audit. 
  1. SARS can request additional or further relevant material throughout the audit. If not submitted, SARS will raise an assessment based on information readily available or obtained from a third party.
  1. Progress reports of the stage of the audit should be issued at intervals of 90 calendar days from the date of the Notification of Audit. 
  1. While SARS undertakes to conclude an audit within 90 business days after all required relevant material is received, an audit could take anything from 30 business days to 12 months, or longer, depending on the complexity, the volumes of transactions and the taxpayer’s co-operation. 
  1. Where potential adjustments are identified, SARS will issue an Audit Findings Letter indicating the grounds for the proposed assessments. Taxpayers will be given a deadline for response, indicating agreement or disagreement and providing evidence. 
  1. If SARS believes revised assessment is still required; or where the taxpayer did not respond, the imposition of understatement penalties is considered, whereafter a revised assessment will be raised.
  1. If the tax position is found to be incorrect, SARS will provide a Finalisation of Audit Letter detailing the grounds for the assessment (including the amounts) or provide a Finalisation of Audit Letter to conclude the audit where no findings were made.
  1. Taxpayers can dispute the assessment by lodging an objection.

Note that if, in your original submitted return, you anticipated that a refund might be due, the refund will not be paid out while the verification is in progress or during the execution of the audit process.

What to do – and what not to do

  • Stay prepared – Any taxpayer can be selected by SARS, once a declaration or return has been submitted for verification or audit “for the purpose of proper administration of tax”, including on a risk basis. Taxpayers may also be selected for audit on a random or cyclical basis. Even tax-compliant companies and individuals are regularly audited despite getting clean audits every year.
  • Keep correct and accurate records – Speak to a professional to ensure compliance with legislative requirements regarding the type of information that should be retained, bearing in mind that SARS can also obtain relevant material from any third party, and – if relevant material is not supplied by the taxpayer – can raise an assessment based on information readily available or obtained from a third party.
  • Act immediately – When you receive notification of verification or audit, immediately contact your accountant. Then, as soon as possible, but certainly within the 21 days granted, make contact with SARS. 
  • Work with the SARS auditor to ensure your personal or business and commercial realities are understood and that misunderstandings or flaws in the analysis of the auditor are eliminated. As SARS notes: “Taxpayers found to be obstructive could face higher penalties…”.
  • Call in expert assistance early – The knowledge and assistance of a trusted tax advisor can ensure that verification and audit findings do not progress unnecessarily. The importance of involving a qualified and capable advisor at the earliest stage of the process – rather than when an objection has been rejected or even later in the process – cannot be overstated. 
  • The law places obligations on SARS in terms of procedural compliance and provides protection for taxpayer’s rights. Failure by SARS to comply with these obligations may render assessments unlawful and could create grounds for objection in a tax dispute. A tax specialist will be able to advise. 
  • Also consider tax risk insurance designed to protect against the risks associated with an audit from SARS. If a taxpayer is selected for a SARS tax audit, the insurer will appoint and pay for a team of tax professionals to defend the audit.
  • At all times, taxpayers can approach the Voluntary Disclosure Unit to make a voluntary disclosure. Be certain to obtain expert guidance and to understand all the implications before doing so.

Taxpayers with complicated declarations or returns should ask their accountant to assist them in preparing for the likelihood of verifications and audits, and successfully completing a verification or audit when selected. Similarly, where penalties and interest have already been imposed, taxpayers may need expert assistance to successfully complete the process of objecting, particularly if the objection is submitted after the prescribed due date.


New National Minimum Wage and Earnings Thresholds From 1 March 2021

(N.B. The increases highlighted below are extracted from the Employment and Labour Minister’s announcement of 9 February 2021, and emphasis has been supplied where helpful in enabling quick identification of your employment sector. Comment is in square brackets)

  • “The National Minimum Wage (NMW) for each ordinary hour worked has been increased from R20,76 to R21,69 per hour [a 4.5% increase] for the year 2021 with effect from 1 March 2021

It is illegal and an unfair labour practice for an employer to unilaterally alter hours of work or other conditions of employment in implementing the NMW. The NMW is the amount payable for the ordinary hours of work and does not include payment of allowances (such as transport, tools, food or accommodation) payments in kind (board or lodging), tips, bonuses and gifts.

  • Following a transitional phase, the farm worker sector has been aligned with the NMW rate of R21,69 per hour [a 16% increase]. 
  • The domestic workers sector will be entitled to R19,09 per hour [a 23% increase] and could be expected to be aligned with the NMW when the next review is considered [i.e. 2022]. [Use the Living Wage calculator to check that you are paying your domestic worker enough to cover a household’s “minimal need”].
  • In line with the Basic Conditions of Employment Act (BCEA), the increase in the NMW will mean that wages prescribed in the sectoral determinations that were higher than the NMW at its promulgation, must be increased proportionally to the adjustment of the national minimum wage. Therefore, the Contract Cleaning; and Wholesale and Retail Sector will also have their wages upwardly adjusted by 4,5 percent.
  • In another development, the Minister has also, in terms of the BCEA earnings threshold, revised the rate from R205 433.30 to R211 596.30. Chapter 2 of the Act deals with the regulation of working time, limit on the duration of an employee’s working week and to prescribe a rate at which an employee should be paid to work outside normal working hours among others.
  • Employees that earn in excess of this rate per annum are excluded from sections 9, 10, 11, 12, 13, 14, 15, 16, and 17(2) and 18(3) of this Act from 01 March 2021. These sections protect vulnerable employees and regulate amongst others, hours of work, overtime, compressed working time, average hours of work, meals interval, daily and weekly rest period, pay for work on Sundays, night work, and work on public holidays.”

The Department of Small Business Development’s Lifelines to Suffocating SMMEs

It’s been said that government doesn’t create jobs, business does. For the most part, this is true. But government creates the environment in which businesses can excel and expand”

Christine Gregoire, American politician and lawyer

There are several resources that the government, under the guidance of the Department of Small Business Development (DSBD), has made available to SMMEs with the objective of assisting them to keep afloat and competitive in this current climate. The programmes below are but a select few.

The department until recently had a COVID-19 Debt Relief Finance Scheme, which unfortunately ceased to exist a couple of months ago. The fund had re-prioritised just over half a billion Rand to assist small businesses during the lockdown stranglehold. 

However, the DSBD still has these resources to assist SMMES: 

  • The SMME Business Growth Resilience Facility

In sport, experts always say “the best form of defense is offense”. The same sentiment applies in business. 

This resource was set up with the objective of assisting SMMEs in taking advantage of supply opportunities resulting from the COVID-19 pandemic and the shortage of goods in the local market. This includes the likes of PPEs and other COVID-19 fighting measures. This is a “counter attacking” resource that aims to assist small businesses respond to the COVID-19 pandemic, and is a programme that helps cushion them while leaning against the ropes as a result of COVID-19

According to the department, to qualify:

  • The business must have been registered with CIPC by at least 28 February 2020. 
  • It must be 100% owned by South African Citizens, 

Its staff compliment must be 70% South Africans; among several other qualifying considerations.

  • The SheTradesZA Hub

Together with the DSBD and the Small Enterprise Development Agency (SEDA), the ITC SheTrades has set up a Hub in South Africa, in order to help South African women entrepreneurs, increase their international competitiveness and connect to national, regional and global markets through the SheTradesZA Hub.

The primary objective of the Hub is to connect at least 50 000 women owned businesses to markets by 2023. This is part of South Africa’s contribution to ITC’s goal of connecting three million women owned businesses to markets by 2021.

  • The Black Business Supplier Development Programme (BBSDP)

The BBSDP is essentially cost-sharing grants offered to black-owned SMMEs with the aim of sustainably stimulating their competitiveness and creating employment.

The objective is to fast-track and stimulate existing SMMEs that exhibit good potential for growth and to grow black-owned enterprises by fostering linkages between black SMMEs and corporate and public sector enterprises, among other objectives.

This programme provides grants of up to R1 million to small businesses that meet the selection criteria.

  • Research and access to information

The DSBD has placed various research findings on small businesses, for the benefit of entrepreneurs, on its website. These are expertly done reports on interesting topics like comparisons on the performance and trends of South African SMMEs based on legislation against their peers from other parts of the world. For that report, please click on this link and for the general research resources, please click here.

Ask us at Emma Pardoe Chartered Accountant how you can take advantage of these resources to give your business an edge.


3 Survival Tips for Your Small Business In 2021: Little Things with A High Impact

“If we believe that tomorrow will be better, we can bear a hardship today”

Thích Nhất Hạnh

According to a press release issued this year by the World Bank, the pandemic has taken “a heavy toll of deaths and illness, plunged millions into poverty, and may depress economic activity and incomes for a prolonged period”.

World Bank Group President, David Malpass, explained that while the collapse in global economic activity in 2020 due to the onset of the pandemic, is estimated to have been slightly less severe than previously projected in advanced economies overall, for most emerging market and developing economies, the impact was more acute than expected.

“Financial fragilities in many of these countries, as the growth shock impacts vulnerable household and business balance sheets, will also need to be addressed”, added Vice President and World Bank Group Chief Economist, Carmen Reinhart.

It is under these circumstances that businesses are battling to keep their heads above water. Here are four simple things you can do to help your business survive in 2021.

1) Delve into your budget

Now more than ever the small business owner needs to understand their company and the way that company spends money. A budget is a roadmap for small businesses, and in the day-to-day running of a start-up or small enterprise it can often be neglected in favour of making payments if and when they seem necessary. 

If you don’t have a budget, make one, and if you have one, take a fresh look at it. Understand what the costs are and where the money is coming from. Know what expenses are coming up down the line – are there licences or new machines you need to own or lease? Do the staff expect a bonus at a specific time of year? Do you need extra at year end for a marketing campaign? Where and how you spend money will show you what’s important to your business and where the fat can be cut. Trimming small amounts from dead areas and focusing that money on the places that deliver returns can make a dramatic difference to the bottom line.

Riley Panko, in a report on budgeting, said, “Businesses of all sizes should create a budget if they don’t want to risk the financial health of their organisation…Businesses may create more challenges for themselves by skipping a budget. This is because budgeting helps small businesses focus.”

Knowing what your long and short terms needs are will help you plan, and streamline your business, which in turn will help you survive 2021. 

2) Focus on your core customers, and ditch your “barnacle clients”

In good times it is a good idea to expand your outlook and try to capture new markets for your products. You have the time to focus on those “barnacle clients” who eat up your time and don’t necessarily deliver the same return for time invested. But in tough times, it’s wise to return to key principles and focus on those clients and markets you know work. 

Barnacle clients are, according to Joe Woodward, those clients who, “Whine about fees; complain about work quality even when you know it was well done; don’t supply needed information on a timely basis; and aren’t teachable”. Woodward suggests those clients should be jettisoned from a business as they only serve to drag a business down in choppy waters when the company needs to be running as sleekly and efficiently as possible. 

“Those kinds of clients should be fired,” he says. “It’s a scary thing, but I have never had anything but a net gain from firing a client.”

At the same time the business owner needs to put the energy that was going into barnacle clients into those who offer returns. Go back to the best clients that you haven’t spoken to in a while, touch base with friends, networks and contacts who you know could benefit from your business, and, in this way, reinvigorate your client base.

Advertising too should start to focus on your core client demographic. Don’t know what that is? Then it’s time to start going through the data. Start with internal data on past customers, and focus on creating a customer profile. This includes basic demographic information, but also try to map your customer on a deeper level. What are their values? What are their spending attitudes? What makes them excited and what makes them tick?

All of this will give you a comprehensive picture of what your core customer demographic looks like. While you may want to market as widely as possible to capture as many customers as possible, this focused kind of marketing will be much more effective, especially for small businesses. 

3) Advertise concisely

Repeated studies are finding that people are increasingly jaded, easily distracted and unwilling to engage with advertising – particularly on social media, an important area for the small business. This does not, however, mean that you should stop advertising. On the contrary, social media is still one of the most important tools that a modern business owner can utilise with 52% of new brand discovery happening on public social media feeds. The trick is to be clear, and concise. 

According to stats from Instagram, 60% of users report that they have discovered a product on another person’s profile, but this never happens with overly long posts or wordy descriptions. Gone are the days when people would watch a full YouTube advert. If your brand message isn’t in place before the skip button can be pushed, you should consider the money wasted. And the rules of social media should be applied across the board to all other types of marketing be they newsletters, emails or even phone calls.

Luke Lintz from social media agency Highkey suggests business advertising should:

  • Lead with the product or service,
  • Make the offer personal to the customer, 
  • Use only a few key statistics to support the claim
  • Emphasise return on investment
  • Stay away from “used car” sales language like “Don’t miss out”.

“The key is personalised honest communication that doesn’t eat up the client’s time,” he explains.

Repeated studies also show that getting staff to personally reach out to potential clients works much better than generic adverts.


Budget 2021: What It Means to You

“Hope is being able to see that there is light despite all of the darkness.”

Archbishop Emeritus Desmond Tutu

It was with a sense of trepidation that South Africans awaited the 2021 Budget Speech by Finance Minister Tito Mboweni. 

Still confronted with all the challenges that existed before COVID-19 – massive debt, lacklustre growth, unemployment, the public service wage bill and rampant corruption – Treasury also faced the seemingly insurmountable challenge of funding the rollout of COVID-19 responses along with muted tax revenue collection impacted by lockdowns, record job losses and business closures.

Reminding South Africans of Archbishop Emeritus Desmond Tutu’s advice that hope is being able to see light despite all the darkness, the Minister presented what has been called a “positive”, “balanced” and “sustainable” framework to address these challenges, announcing some unexpected but welcome short-term tax relief. 

The main story: funding COVID-19 responses without tax increases

The two main stories in the 2021 Budget proposals are the funding of the country’s COVID-19 response and the welcome absence of new and/or higher taxes. 

Despite talk of a possible ‘vaccine tax’ and new and increased taxes to fund South Africa’s COVID-19 response – including a massive vaccine roll-out that will save lives and support the economic recovery – no new or increased taxes have been introduced to fund vaccines. 

Instead, the majority of funding for new and urgent priorities is provided through reprioritisation and reallocation of existing baselines, budget allocations, emergency withdrawals and – if needed – the contingency reserve.  

Government has set aside R19.3 billion to fund Covid-19 vaccines, with more than R10 billion allocated for the purchase and delivery of vaccines over the next two years. The contingency reserve has increased from R5 billion to R12 billion for the further purchase of vaccines and other emergencies.

Let’s look at what will change according to the proposals, and what it all means for us on a practical level…

Tax increase proposal withdrawn  

In addition to the fact that the Budget review proposals included no new taxes nor any increase in personal and company taxes, government has also withdrawn the proposal announced in the October 2020 Medium Term Budget Policy Statement (MTBPS) to introduce tax measures to raise revenue by R40 billion over the next four years.  

This is due to improvements in tax revenue collections in recent months, with tax revenue estimates R99.6 billion higher than projected in October, reducing the tax revenue shortfall to R213 billion.

This will provide welcome relief in the coming year as companies are still reeling from the economic devastation of COVID-19. 

Lower corporate tax rate from 2022 

It is proposed that the corporate income tax rate will be lowered to 27% for companies with years of assessment commencing on or after 1 April 2022. This is a move in the right direction as SA’s corporate income tax rate at 28% is among the highest in the world. According to Treasury, reducing the rate will have “a positive effect on wages and employment, while promoting additional investment”. The Minister also said that consideration will be given to “further rate decreases to make our tax system more attractive”.  

However, this will be accompanied by “a broadening of the corporate income tax base by limiting interest deductions and assessed losses”. 

Good news on personal income tax  

Personal income tax brackets will be increased by 5%, an above-inflation increase, to provide R2.2 billion in tax relief for lower and middle-income households. This will eliminate “bracket creep”, effectively decreasing personal income tax rates.

It means that if you are earning above the new tax-free threshold of R87,300, you will have at least an extra R756 in your pocket after 1 March 2021. 

Government is aiming to reduce the personal income tax rate over time by increasing the tax base through focusing on economic growth which will trigger job creation.

Higher “sin” and other indirect taxes  

Unsurprisingly, the excise duties on alcohol and tobacco products were increased by 8% with immediate effect. It means a 750ml bottle of wine will cost an extra 26c while the price of a bottle of 750 ml spirits has increased by R5.50, and a packet of 20 cigarettes will be R1.39 more expensive. Excise duty on electronic nicotine and non-nicotine delivery systems are to be introduced later this year – following public consultations.

From 7 April, the fuel levies will also be increased by 27 cents per litre, comprising 15 cents per litre for the general fuel levy, 11 cents per litre for the Road Accident Fund levy and 1 cent per litre for the carbon fuel levy. This will have a negative effect on the cost of living for South Africans and businesses across all industries.

Other changes 

  • The June 2021 sunset clause for the so-called Section 12J tax breaks was not extended. The tax rebate could be claimed on investments through an approved venture-capital company and was meant to encourage investments in small businesses and riskier ventures that can help to create jobs and economic growth. Some analysts commented that the absence of this attraction offered to venture capital investment companies, will negatively impact job growth in the country.
  • The UIF contribution ceiling will be set at R17,711.58 per month from 1 March 2021.
  • An inflationary adjustment to medical tax credits – which will increase from R319 to R332 for the first two members, and from R215 to R224 for all subsequent members.
  • Financial sector levies – Bill to be tabled early 2021.
  • The carbon tax rate increased by 5.2%, from R127 to R134 per tonne of carbon dioxide equivalent, along with an increase of 1c to 8cents/l for petrol and 9cents/l for diesel from 7 April 2021, and 12.5cents/bag for bio-based plastic bags.

Taxpayers under greater scrutiny 

An additional spending allocation to SARS of R3 billion over the medium term has been requested to fund tax collection efforts. As the Minister warned in his speech: “SARS has started to deepen its technology, data and machine learning capability. It is also expanding specialised audit and investigative skills in the tax and customs areas to renew its focus on the abuse of transfer pricing, tax base erosion and tax crime. In this coming fiscal year, SARS will establish a dedicated unit to improve compliance of individuals with wealth and complex financial arrangements. This first group of taxpayers have been identified and will receive communication during April 2021.”  

This means that taxpayers with complex financial arrangements should engage a CA(SA) tax specialist to assist them in preparing and/or reviewing their tax returns prior to submission. Similarly, where SARS have selected a taxpayer for verification or audit, or where penalties and interest have already been imposed and levied, taxpayers will need expert assistance.

Have a look at the Tax Tables and Calculators below for more on how this will all impact on you and your business.


Independent Non-Executive Directors: A Value-Add for Your SME?

Many small and medium-sized enterprises (SMEs) are owned and managed by the founder(s), sometimes with the involvement of family members, and in the early stages of the life of a small or medium-sized company there would seem to be little reason or motivation to appoint independent non-executive directors to the board. However, as an entity grows in size, complexity and, hopefully, market share, there may well be a need for, and advantage in, having diversity and independence of thought in the direction of the company. 

All members of the board, whether executive, non-executive or independent non-executive have a legal duty to act with independence of mind in the best interests of the organisation.

Firstly, what exactly is an “independent non-executive director”?

The Companies Act and King IV define a director as “a member of the board of a company, as contemplated in section 66”. There is no definition in the Act of ‘Independent’ or ‘non-executive’. Accordingly, all directors have the same responsibilities.

King IV, however, explains independence as follows: “When used as the measure by which to judge the appearance of independence, or to categorise a non-executive member of the governing body or its committees as independent, it means the absence of an interest, position, association or relationship which, when judged from the perspective of a reasonable and informed third party, is likely to influence unduly or cause bias in decision-making”. 

Why appoint independent non-executives?

  • Appointing independent non-executive directors does not, in itself, ensure the entity’s governance is enhanced. 
  • However, establishing a well-balanced governing body is a meaningful step towards good governance. The King IV code states: “The governing body should comprise the appropriate balance of knowledge, skills, experience, diversity and independence for it to discharge its governance role and responsibilities objectively and effectively”.
  • Bringing in additional skills, experience and thought to the leadership of the entity has the potential of enhancing the ability of the board, recognising and dealing with risks and opportunities, and even lifting quality and effectiveness of the deliberations in the board.
  • Non-executive or independent non-executive directors are charged with maintaining an arms-length relationship with management, exhibiting professional scepticism and bringing independent judgment to bear on issues of strategy, risk management, performance and resources including key appointments and standards of conduct. Non-executive directors may not have any operational capacity within the entity; no employment relationship; not be a major supplier or major customer and should not be rewarded on the basis of the entity’s performance.
  • An entity recognised for its strong ethical and effective governance will likely attract more business as a trusted partner. After all, while a company requires a licence from CIPC (Companies Intellectual Property Commission) to commence business, it also needs a Social License to Operate!

What should the independent non-executive director bring to an SME?

  • Someone, as mentioned above, who will bring specific skills and a range of business experience of relevance to the entity. While it may be helpful to have experience in the entity’s particular industry, diversity of experience in other sectors such as, for example, the financial sector, could add value.
  • Clearly, an understanding of the business and the industry is essential in order to make a positive contribution. A non-executive director is expected to make a creative contribution to the board by providing objective and constructive challenge and advice.
  • Owners and management of an SME should not seek to appoint independent non-executives who will simply reflect management’s views, but accept that honest, respectful and robust challenge should be expected and encouraged.

What qualities should you seek in an independent non-executive director?

Clearly, an independent non-executive director should exhibit appropriate behaviour, have a strong ethical stance with absolute integrity; a disciplined and dedicated approach to the role together with a good understanding of the requirements of good governance, controls and risk and opportunity management.

A knowledge and understanding of the regulatory environment of the entity together with the key players and risks in the supply chain and customer base (the entity’s market) is an added advantage.

What should you offer a new appointee to your board?

Any new independent non-executive should insist on an induction programme together with appropriate Directors’ and Officers’ indemnity cover. 

Realistically, most SMEs may not be able to offer competitive fees, compared to large or listed companies. Both the Institute of Directors in South Africa and PricewaterhouseCoopers issue useful annual guides to directors’ fees. SMEs should consider making use of this resource in determining the level of fees they are able to afford. 

Furthermore they need to consider how the fees are determined i.e. per meeting attended; a retainer regardless of meeting attendance or a combination of both – retainer plus per meeting attended. The SME should also undertake annual director’s performance evaluation.

A non-executive and independent non-executive director needs to balance the contribution they can make in considering an appointment where the fees are, perhaps, not quite at the level they expect. Serving on NPO (Non-Profit Organisation) and SME boards is an opportunity to ‘put back’ their experience and skills. They should consider the responsibility and risks they undertake against the potential contribution they can make to these essential sectors of the economy.


The Benefits of Outsourcing to the Experts

With the uncertainty of how long the COVID-19 pandemic will continue and the current state of the South African economy as a result, many business owners are having to re-evaluate their costs and ask themselves how they can save money. One obvious way many business owners consider is bringing more skills inhouse, whether it be assigning more tasks to existing staff or to hire a new employee, but while the figures may be more appealing on paper, not outsourcing and leaving the experts does come at a cost.

No matter the size of your business, contracting out operational tasks such as your accounting and tax functions provides a multitude of benefits. Below we discuss the importance of outsourcing to the experts:

1.      It provides continuity

Outsourcing skills provides continuity to your business as sick leave, annual leave, family responsibility leave or resignation does not affect your service being delivered. Instead there is always a team available to work on your requests 24/7. 

2.      Increased efficiency & access to skills

When you outsource your business needs to an outsourcing partner like Emma Pardoe Chartered Accountant (SA), we bring years of experience and expertise. This allows us to do the job better as we have the knowledge and understanding of this field which ultimately leads to an increase in productivity and efficiency in the process. We are also able to ensure that tax deadlines are never missed.

3.      You can focus on your business

Hiring staff, training and managing new employees in a new department takes time that could be used to focus on the building and development of your business. Outsourcing allows you to prioritise your business while we handle the more difficult and complex checks and balances of your taxes and accounting affairs.

4.      Faster & Better Service

By outsourcing to experts, you are guaranteed faster and better services as a team is able to focus on your business needs. We are able to use our combined knowledge and experience to assist you as quickly and efficiently as possible, ensuring that your tax and accounting matters are up to date, correct and compliant. You also have access to qualified professionals to ask all your accounting and taxation queries. This also ensures that the integration between your annual financial statements and taxation calculations gets assessed by qualified experiences managers where the best taxation option is put forward. As we are the experts and you are contracting out to us, we take full accountability for the work performed which is in your benefit as well.

When considering how outsourcing can help you grow, don’t limit yourself to looking at the cost of outsourcing versus handling a task with your current staff or new employees. Instead focus on the value an outsourced contractor’s expertise adds to your company, as the benefits are more than their money’s worth. Whether you are a sole proprietor or a director of a company, businesses of every size can use outsourcing to ensure their company is run more efficiently. 


Provisional Income Tax Due 26 February: Do’s and Don’ts for Companies

“The only thing that hurts more than paying an income tax is not having [an income on which] to pay an income tax”

Thomas Dewar

Provisional tax is not a separate tax but rather a method of payment used to collect in advance some of a taxpayer’s income tax payable for the year. SARS calls it “an advance payment of a taxpayer’s normal tax liability” and notes in its External Guide for Provisional Tax that provisional tax liability “will prevent a large amount of tax due by you on assessment, as your tax liability will have been spread over a period of time prior to the issue of such assessment”.

Two provisional tax payments are compulsory each year, one six months into the year of assessment (first period) and one on or before the end of the year of assessment (second period). There is also an option to make an additional third or top-up payment, seven months after the end of the year of assessment – unless your year end is anything other than end of February in which event you have only six months for the top-up payment (third period).

 Provisional Tax PeriodsExamples

The provisional return for the first period is forward-looking, requiring companies to estimate their taxable income for the year ahead and then paying tax on this estimate in advance.

The provisional return for the second period is retrospective, since by the year end there is more certainty regarding what exactly the income for the year was, and the tax payable thereon.

While provisional tax payments spread a corporate taxpayer’s income tax liability over two or even three payments, it also increases a company’s tax risk. It creates additional tax filing obligations such as completing and submitting a provisional tax return (IRP 6) twice per year, as well as increasing the risk of attracting penalties, notably underestimation penalties. Furthermore, researchers have found that provisional tax is the most burdensome tax for small businesses, and that penalties and interest incorrectly raised by SARS are the most onerous aspect thereof.

Given that taxpayers will find themselves under greater scrutiny and subject to more punitive measures from SARS in 2021, here are some important insights regarding what companies should – and should not – be doing to minimise their provisional tax liability and to avoid the hefty penalties and interest that can apply. 

 Provisional Tax – Do’s and Don’ts

  • Don’t file late 

A provisional return must be submitted by all provisional taxpayers. Even if your company owes no tax, a ‘nil’ return (i.e. taxable income is equal to zero) must be filed on time.  

For companies with a financial year ending on 28 February 2021, the next due date for provisional tax returns and payments is 26 February 2021, as the last day for submission (28 February) falls on a weekend.

Also remember that if an IRP6 is filed more than four months after the deadline, SARS considers a ‘nil’ return to have been submitted. Unless the company’s actual taxable income is really zero, it will result in the underestimation penalty being imposed, in addition to a late payment penalty and interest.  

  • Don’t pay late 

The failure to make payment on time will result in an immediate late payment penalty, calculated at 10% of the provisional tax amount, whether it is not paid or simply paid late. For example, if the amount payable is R150,000 and is not received by SARS on the due date, a R15,000 penalty will become due immediately.

Furthermore, interest will be levied on the outstanding amount and will continue to accrue until it has been paid in full. The interest is calculated at the prescribed rate, which is the rate of interest fixed by the Minister of Finance by notice in the Government Gazette and is currently 7% – the lowest in 40 years.

  • Don’t under-estimate your annual income  

Estimating the annual taxable income just six months into the year is rarely an easy task. Fortunately, under-estimating income for the first period does not attract a penalty, but the second estimate must be quite accurate (within 80 – 90% of the actual taxable income) to avoid the underestimation penalty.

The underestimation penalty is calculated depending on the taxable income, and the percentage of under-estimation as detailed in the table below. 

  Underestimation penalties

Interest will also be levied on the underpayment of provisional tax as a result of under estimation.

  • Do be proactive 

To avoid an underestimation penalty and interest, it is crucial to take proactively all the necessary steps to correctly calculate the estimated taxable income for the year of assessment.

Make certain that all sources of income are included. The estimated taxable income means gross income less exempt income plus all amounts included or deemed to be included in taxable income under the Act, for example, the amount of taxable capital gains.

Ensure that all rebates and amounts allowed to be deducted or set off are also factored in, including provisional payments already made for the year. 

Also make sure, if you claimed for COVID-19 provisional tax relief, that the company qualifies before factoring in this cash flow relief and ensure such relief is calculated correctly. 

Government’s temporary provisional tax relief measures came into effect in April 2020 and allowed qualifying taxpayers to defer a portion of the payment of their first and second provisional tax liability to SARS, without SARS imposing administrative penalties and interest on the deferred amounts.

Example – COVID-19 Provisional Tax Relief 

Adapted from SARS’ External Guide for Provisional Tax

Claiming this provisional tax relief while not meeting the qualifying requirements would result in normal penalties and interest being applied to the provisional account. 

  • Do maintain common sense and accurate records 

A relatively accurate estimate of taxable income for the year of assessment is expected for the second period. As SARS says: ‘the calculation must be one which has been carefully considered and is thoughtful, earnest and sincere…” and the amount of the estimate must be determined “sensibly and by careful reasoning and judgment, in a mathematical manner, and using experience, common sense and all available information”. 

Keep accurate records of all the calculations and source documents used.
SARS may ask you to justify your estimate and can increase it if they are dissatisfied with the amount. The increase of the estimate is not subject to an objection or appeal.

  • Do call in professional assistance 

The provisions of the sub-sections of Section 89 and of the 4th Schedule to the Income Tax Act are daunting and can be confusing. Nevertheless, provisional taxpayers are ultimately responsible for their tax affairs and may therefore need expert tax advice to comply with the regulations and to avoid substantial penalties and interest.

Companies with complicated returns, including various sources of income or expenses, should consider engaging a CA(SA) tax specialist, like us, to assist them in preparing and/or reviewing their income tax return prior to submission to avoid issues which may be raised by SARS at a later date. Similarly, where penalties and interest have already been imposed and levied, taxpayers may need expert assistance to successfully make a request for the remission of penalties and interest to SARS.


What Should You Do If a Creditor Tries to Liquidate Your Business?

Due to the recession, there are a rising number of local companies in financial distress and facing threats or applications from creditors to liquidate their businesses.

The latest Statistics South Africa (StatsSA) figures released in November show that the total number of liquidations increased by 33.2% in the three months ended October 2020 compared with the three months ended October 2019.

Werksmans Attorneys head of insolvency, business rescue and restructuring Dr Eric Levenstein said during an interview that a company in distress faced with the possibility of liquidation needed to get advice as soon as possible.

Get professional advice as soon as possible

“My advice is do not wait if your company is struggling, or your creditors are applying pressure, go get professional advice. If you leave it too late, then your company faces one option – liquidation,” Levenstein added.

He said it was vital for small business owners to confront the situation and take drastic action to fix their battling company and ensure it survived.

Shepstone & Wylie Attorneys head of litigation Andrew Donnelly has specialist knowledge about insolvency, business restructuring and business rescue.

He said during an interview that when the owners of a small company faced a court application from a creditor to liquidate their business for alleged unpaid debts, they must first check its legality and determine if the creditor’s claims for outstanding debt were valid.

If there was a dispute about the validity of the application, then the company owners should oppose the liquidation, he added.

Stephan Venter is a Cliffe Dekker Hofmeyr lawyer who focuses on insolvency, corporate recovery, and business rescue.

He said during an interview that when reviewing a liquidation application, it was important for small business owners to determine whether their companies were commercially insolvent, since this was what a court would focus on when deciding whether or not the court should order the company liquidated.

To answer this question, the owners must consider if the company could pay its debts as and when they became due and payable, he added.

“It is expensive to go to court, so a creditor will normally only apply to the court for a company’s liquidation once they have exhausted all other informal options, and if there is a reasonable prospect to recover amounts owing to them once the company is liquidated,” Venter said.

Levenstein said that what often happened was that the board of directors anticipated the possibility of a liquidation application because of their creditors getting aggressive about unpaid bills.

“The directors then file for business rescue by a board resolution, and that puts a stop to the liquidation application for the time being. It is a defensive strategy. It doesn’t mean that the business rescue will be successful, but at least there is an opportunity to talk to your creditors. To set aside the business rescue, a creditor would have to apply to the court,” he added.

Donnelly said that only companies and close corporations could apply for business rescue. If there was already a pending application for liquidation, then the company must apply to the court for an order allowing for business rescue, he added. Donnelly said that when the owners of a distressed company applied to the court to have their company placed into business rescue, they must have a plan to save the business. The business rescue plan would require the approval from creditors holding 75 per cent of the value of the claims, Donnelly said.

“If there is no plan, then liquidation may be the only option,” he added.

Many well-known companies have gone into business rescue

Well-known local companies that have recently gone into business rescue include Comair, Edcon, Phumelela Gaming and Leisure, SAA and SA Express.

If a creditor brought a justified liquidation application and the company was insolvent with no hope of rescue, then the courts would approve the winding up, Donnelly said.

Small owner-managed or family businesses often look at their companies emotionally, and they try to save their businesses at all costs regardless of the facts.

“The best course of action often would be to make the hard decision and close the business,” he added.

Donnelly cautioned that while creditors might use the threat of liquidation to aid the payment of their debts, they had to have rational grounds for a liquidation application.

Levenstein said that tactically a creditor wanting payment could threaten the company that owed money with liquidation.

“Creditors that are owed money would apply pressure and to ensure the repayment of outstanding debt,” he added.

Creditors see liquidation as a quick way to get their money

Creditors seeking payment for their debts were increasingly applying for liquidation rather than business rescue as they saw liquidation as a quicker way to get their debts settled, Donnelly said.

“The problem with business rescue is that it can drag on. Creditors find that very frustrating because the company continues trading, but legislation prevents them from enforcing their claims,” Donnelly said.

Larger companies have a better chance of surviving than small to medium companies because business rescue was expensive, Levenstein said. It was important for company directors to consider whether they were incurring needless debt that they could not afford to pay back, he said.

In such a situation, the company directors could face accusations of reckless trading and be sued in their personal capacities, he added. Donnelly said that before a company went into business rescue, the first person the company’s directors should talk to was their banker.

If the banker heard about a business rescue of a small company through the grapevine, he or she would get a nasty surprise and go into a defensive mode where they would focus on debt recovery rather than trying to help the distressed company, he added.

Communication with a company’s bankers was even more important if the company was likely to need post-commencement finance from their bank to stay afloat, Donnelly said.

Other options for distressed businesses

A company facing the possibility of liquidation has several options other than a business rescue or a court-sanctioned liquidation.

The first was to negotiate an informal repayment plan with the creditor bringing the liquidation application, Donnelly said.

The second option was for a distressed business to pursue an informal restructuring, Levenstein said.

An informal restructuring takes place when a company changes the structure of the company, exits from non-performing entities, sells off assets, reduces staff, and cuts costs to make the company more efficient, Venter said.

“The most important thing is to have a good relationship with your creditors when proceeding with informal restructuring options,” he added.

Levenstein said that the dangers of an informal restructuring were that all of the company’s creditors needed to agree to it.

“You cannot have one creditor disagree, and then the company pays the other creditors because then you prefer certain creditors ahead of other creditors, which the law does not allow,” he said.

“The other problem is that one of those creditors could apply to the court for the company’s winding up with liquidation. This situation would come amid the company’s admission that it cannot pay its creditors and so this could invite a liquidation. So informal restructuring can work, but the problem is that there is no moratorium on creditor claims like in business rescue,” Levenstein added.

The third option for a company in distress was to pursue a voluntary liquidation, which Donnelly pointed out could offer big cost savings when compared with a court-sanctioned liquidation.

Voluntary liquidations are much more prevalent than compulsory applications as StatsSA figures show that during the ten months ending October this year, there were 162 compulsory liquidations compared to 1,448 voluntary liquidations.

Venter said that a voluntary liquidation could involve the sale of the assets and wind-down of a distressed company by an appointed liquidator.

If a company filed a special resolution with the Companies and Intellectual Property Commission in line with the relevant sections of the Companies Act, then the company would be placed under voluntary liquidation, he added.

The owners of a company could place it under voluntary liquidation even though its creditors do not agree or support the initiative, Venter said. 

A fourth option is for the company directors to enter into a compromise with all of its creditors or a class of its creditors in terms of Section 155 of the Companies Act.

Venter said that a compromise was where a company comes to an arrangement with its creditors, for instance, to reduce the debt it owed them or to pay the amount owed to the creditors over an extended period. A compromise aimed to allow a company to improve its financial position, he added.

“If seventy-five per cent of the creditors in value approve the compromise, the court sanctions it and then it becomes binding on all existing shareholders. Properly used a compromise can be a very effective way of saving and restructuring a struggling company,” Donnelly said.

But Levenstein said that the problem with Section 155 was that there was no moratorium against creditor claims.

Once the court approved the liquidation application, then the Master of the High Court would select a liquidator, Levenstein said.

Liquidation was the end of the company because the liquidator would shut it down, sell all the assets and the creditors would get a final liquidation dividend, he added.

Donnelly said that liquidation would tarnish the reputations of the owners of a business and could impair their ability to win the support of clients, investors, and financial institutions for other business ventures in the future.

However, a factor of liquidation was that the liquidator could probe any allegations of mismanagement by the company’s directors, he added.


Five Mistakes to Avoid When Investing Offshore

An investment in knowledge pays the best interest”

Benjamin Franklin

It can be tempting to look at South Africa and the bad news that seems to hit us like freight trains one after another, and immediately consider moving all your money offshore. There is however far more to consider than simply your gut feel, and predictions of woe as investing offshore comes with a lot of difficulties and more than a few unique problems. 

Here we look at some of the most common errors people make, to steer you clear of losing your investments. 

1. A bank account is not an investment

Perhaps the largest mistake that new offshore investors make is panicking. In their emotional state they open an offshore bank account and start moving money overseas, but this is a mistake. 

Bank accounts, particularly in Europe, often pay less than 1% interest and any money that is sitting in one is certainly not even keeping up with South African inflation. As with local investments offshore investors should be looking to craft a diverse portfolio that includes quality global equities to ensure they aren’t just throwing money away.

2. Understand the market

Before leaping into an offshore investment, it’s important to have a clear picture of the currencies, returns, fees and taxes associated with the different options, and the respective risks that might need to be managed from the outset.

In many jurisdictions fees can end up being a significant player in the profitability of the investment, to the point where they may result in an ongoing shrinkage of offshore assets. This is particularly true if an investment is held in the name of a company, trust or pension, where director or trustee fees will usually be charged on top of the advisory fees.

On top of this, investors in many European countries often pay significantly more in fees for absolutely no added benefits, compared to local investors. 

3. Rental properties aren’t simple

Many people consider buying a rental property in a foreign country the ideal investment, especially if they are considering emigrating there at some stage. A number of countries also offer passports to investors provided they purchase property in those countries, which can also lead to this kind of investment.

There are, however, a number of ways that a rental property can end up becoming a money sinkhole instead of offering the expected stable returns. 

International property investors should not simply buy into whichever development the internet or sales agents are suggesting. Do your homework and fully understand the laws, taxes and unique conditions around the country, city and suburb you hope to invest in. Even if the property you are about to buy seems like a good deal, if it is in an area where there is too much rental housing and you struggle to find a tenant, it will end up costing you a small fortune instead. 

Investors need to also make sure they do their research on the companies they are working with to ensure they are not uncertified or unscrupulous. Fortunately for investors there is the Association of International Property Professionals (AIPP), an international body that is committed to regulating the industry. If you partner with an AIPP member, you are assured that they have been vetted and approved. 

Arranging finance in a foreign country is possible, but again comes with a need for caution. What is the track record of the company offering the finance and just what are the terms they are offering in their contracts? Laws in other countries may not be the same when it comes to finance, and there may not be the same protections that are on offer in SA relating to allowable interest rates and what happens in the event of a default. 

Applicable laws need to be checked regarding tenancy too. Are there protections in place if your tenant does not pay the rent? What happens if someone refuses to move out or damages the property? The best solution is to team up with a reputable letting agent who knows the laws, and who has your best interests at heart to ensure you don’t fall foul of some trick of local law. Of course, using an agent results in additional costs, but in the scheme of things this is likely to be money well spent.

In short, research and research again. This is not something to rush into because you saw a flashy Power-point presentation.

4. Double Taxation

With the laws around taxation of foreign income recently changing there is a lot of uncertainty, and numerous rumours have arisen as to just when tax is applicable, whether disclosure is necessary and just how much is due. The basic rule is that South African tax residents are subject to tax on their worldwide income regardless of where that income derives or whether it has already been subject to tax in the country where it was earned.

It gets more complicated though, because the South African government has numerous Double Tax Agreements (DTA) with various countries, which seek to prevent double taxation. These are not always helpful however as they don’t always protect the investor from paying two sets of taxes.

The DTA signed with the UK for example clearly outlines in Article 6(1) and 6(3) that where a South African receives rental income from letting immovable property in the UK, such income may be taxed by the UK. It does not however say that South Africa is then not allowed to also tax the income. Article 21 tries to provide protection from double taxation, but there are numerous limitations.

This is then further complicated by the fact that there are some domestic laws which seek to help prevent double taxation in some circumstances, but these laws don’t always apply and come with onerous documentary requirements. Basically, consult an accountant to go through the particulars of your case to determine if any tax is owed and what to do about previously undisclosed income to avoid falling foul of the law.

5. Waiting for the right time to invest

Perhaps the simplest error to correct is the one where, having already decided to invest offshore, the investor decides to hold onto their money, waiting for the right time to jump into the foreign market.

It may seem wise to wait for the Rand to strengthen or the global equity markets to offer up some value, but this is advised against. Commonly, when people are waiting to move funds, they place large sums of money in money market funds, sometimes for years, looking for the right time to jump in, all the while accruing local income taxes at the marginal rate. This more than undoes all the good that a small strengthening of the Rand could present.

If you are going to do it, there is no better time than the present.


Companies: How to Manage Your Greater Tax Risk in 2021

If you think compliance is expensive – try non-compliance.”

Paul McNulty, former US Deputy Attorney General

The extent of corporate taxes – from income tax, employment taxes and value added tax (VAT) to dividend taxes, capital gains taxes, transaction taxes and other indirect taxes – along with the operational aspects such as data and reporting systems and related technicalities, guarantee complexity and time-consuming processes for companies, which in turn increases compliance costs.   

This also compounds other tax risks such as under-estimation; underpayments; overpayments; not applying the correct tax savings and incentives; tax penalties – such as the 10% late payment penalty; the inability to meet tax obligations; and assessments and audits.  

Compliance costs are another growing tax risk. Studies suggest that companies spend hundreds of hours and tens of thousands of Rands each year on internal tax compliance costs such as labour or time devoted to tax activities and incidental compliance expenses, and on external tax compliance costs like tax practitioners’ fees. 

In addition, tax issues can place a company’s reputation and brand at risk. An example would be a company losing a tender on a large contract because it was unable to provide a tax clearance certificate, perhaps due to a technical or minor non-compliance issue. Companies also face the risk that a tax issue could attract negative attention from the media, civil society or competitors, as growing numbers of stakeholders ranging from customers to potential investors increasingly support only companies perceived to be contributing their fair share to the country and community in which it operates.

Why tax risk management will be even more critical in 2021

All these tax risks will be amplified in 2021 for a number of reasons, including increased tax liabilities; intensified taxpayer scrutiny; and the further entrenchment of SARS’ powers. 

In the 2020 Medium-Term Budget Policy Statement, Finance Minister Tito Mboweni announced government-projected tax increases of R5 billion in 2021/22; R10 billion in 2022/23; R10 billion in 2023/24; and R15 billion in 2024/25. Companies need to factor these tax increases into their future planning and budgeting. 

Taxpayers will also find themselves under greater scrutiny and likely to be subject to more punitive measures in 2021. Human errors and simple mistakes, which are not uncommon given the complex processes and strict deadlines involved, stand now to be harshly punished even if unintentional. The Tax Administration Laws Amendment Bill, 2020 (awaiting Presidential signature to become law) provides that for certain tax crimes you can be convicted if you acted either “wilfully or negligently”, where previously proof of wilfulness (intention) was required. This means that a court could find a taxpayer guilty of an offence without proof of wilfulness, so that even inadvertent errors could be penalised with a maximum penalty of up to two years’ imprisonment.  

Along the same lines, companies can also expect an increase in the number of tax audits, as well as more detailed, expensive, and time-consuming investigations and audits. These are likely to focus on SMMEs, business owners, trusts and high net worth individuals. Furthermore, SARS’ already extensive powers – including asset forfeiture powers – continue to be entrenched. Just two examples from recent court rulings illustrate: the Gauteng High Court confirmed a taxpayer’s obligation to be vigilant when filing a tax return and liability for appropriate penalties when falling short of this duty, while a North High Court judgement set an important precedent by re-affirming SARS’ right to liquidate a taxpayer to recover debt where an assessment is under appeal. 

How to manage your tax risk 

  • Plan for tax compliance 

A well-defined tax strategy, aligned with your overall business strategy and the specific tax challenges facing your business, is important. As the business grows, a re-assessment of the corporate vehicle or tax structure may be required.  

Detailed planning is also required for the tax year ahead, providing ample time for processes required for proper record-keeping to ensure tax returns are complete and accurate, and that the numerous tax deadlines can be met. 

Planning should also incorporate identifying and implementing relevant tax relief and incentives and assistance. Just one example is turnover tax that provides administrative relief for micro businesses by replacing Income Tax, VAT, Provisional Tax, Capital Gains Tax and Dividends Tax for businesses with a qualifying annual turnover of R1 million or less.

  • Budget for tax compliance 

Proper budgeting is required to ensure all the various tax liabilities can be met before or on the stipulated deadlines, while also factoring in the effect of the annual tax increases announced in the latest Medium-Term Budget Policy. 

Companies also need to budget for compliance costs including the internal cost of labour or time devoted to tax activities, incidental expenses, and the resources, systems and continuous upskilling required to meet ever-changing tax obligations. The budget should also provide for external costs such as tax practitioners’ fees; external reviews of the tax function; and even tax risk insurance to cover the cost of immediate expert assistance and support from a team of tax professionals in the case of a SARS’ tax audit.  

  • Call on expert professional services  

Given the increase in compliance complexity and costs, the expertise of accounting officers and auditors is vital in determining the taxable income and the amount of tax to be paid. 

Advice from a tax professional can ensure an appropriate tax strategy is formulated to proactively manage your tax risk in the long-term, saving time and money and avoiding expensive tax mistakes, while keeping in line with the ever-changing tax obligations.  

Be sure to choose a specialist who is appropriately qualified and experienced, as well as a member of a professional controlling body that enforces strict standards, such as SAICA (South African Institute of Chartered Accountants).

Benefits of professional tax risk management 

Failure to manage tax risk effectively will negatively impact on an organisation’s profitability. However, beyond managing tax liability, there are further benefits to managing a business’ tax risks. One of these is more accurate records resulting from tax compliance obligations. This improves the availability of up-to-date information and insight into the financial position of the business and its profitability – enabling accurate, timeous financial management which is crucial to business success. In addition, tax compliance has become both a corporate governance and a reputational issue and can create both shareholder value and stakeholder trust. These benefits, along with tightly managed tax liabilities, will certainly assist companies as they build back after the economic upheaval of 2020.


Employees Working Abroad: How to Avoid Double Tax

“Every advantage has its tax.”

Ralph Waldo Emerson

The purpose of the foreign remuneration exemption, which was introduced in 2000, is to provide relief from any possible double tax that may arise where both South Africa and the foreign country taxes the same income derived from employment, according to a SAICA article on the topic, written by Piet Nel (Project Director: Tax Professional Development). 

Requirements to qualify for the exemption 

  • The employee must be a resident of South Africa, for tax purposes.
  • The employee must have been physically absent from South Africa and worked outside South Africa for a period or periods exceeding 183 full days in aggregate during any period of 12 months.
  • The employee must have been physically absent from South Africa and worked outside South Africa for a continuous period exceeding 60 full days during that period of 12 months.

However, due to recent legislative changes and COVID-19 travel restrictions, many employees who work on foreign assignments or abroad may not qualify for the exemption for the 1 March 2020 to 28 February 2021 assessment period, and face paying double tax. 

Important changes to the exemption

  • A new R1.25 million threshold applies for this 1 March 2020 – 28 February 2021 tax period, where previously, there was a full exemption for qualifying foreign sourced remuneration. The individual will, unless the foreign country doesn’t impose a tax on remuneration, be liable for a double tax to the extent that the remuneration exceeds R1.25 million, explains Nel. 
  • Furthermore, since March 2020, employers must withhold employees’ tax if the taxpayer is employed by a South African resident employer, registered as such with SARS. If not, the first provisional tax was payable on 31 August 2020 and the second payment is due on 26 February 2021.
  • COVID-19 travel restrictions around the world prevented many employees from traveling to work outside South Africa to meet the 183-day requirement, and therefore they cannot qualify for the exemption. Although some international travel became possible after 31 May, many workers remain unable to travel internationally. SARS and National Treasury recently proposed some relief through reducing the required number of days abroad by the 66 days of COVID-19 alert levels 5 and 4 (27 March 2020 – 31 May 2020) in South Africa. This would reduce the required number of days abroad from 183 to 117 in any 12-month period, for years of assessment ending from 29 February 2020 to 28 February 2021. The current requirement of 60 continuous days abroad would remain unchanged.

How companies can assist their employees 

Given that the proposed revised rules have been announced so late and that COVID-19 remains a threat to international travel – affecting employees’ ability to accumulate even the proposed reduced number of days working abroad (117) – companies need to assist their employees to plan for their foreign remuneration tax liability. 

1. Keep updated with ongoing changes 

The proposed amendment of the required number of days abroad is only expected to be finalised and approved later this year. In the meantime, South Africa has announced that all international travel can resume subject to stringent health protocols.

While this is great news, it comes at a time when a second wave of COVID-19 has sent much of Europe back into lockdown, and when South Africa is witnessing a resurgence in the number of COVID-19 cases in certain areas, which has prompted government to announce the implementation of a resurgence plan. Widespread concerns remain regarding a future return to a harder lockdown alert level, which may see travel restrictions being implemented again.  

2. Consider the individual impact 

Nel explains that the stipulated period of 12 months is not a year of assessment, but any period of 12 months starting or ending during the year of assessment. It is also not a requirement of the relevant section of the Income Tax Act that the 12-month cycles run consecutively. 

As a result, whether an employee qualifies for the exemption will depend on when their specific 12-month cycle starts, as well as how much time was spent outside South Africa before and after the lockdown. There may also be double tax agreements in place with specific countries that could affect an employee’s tax position. 

Cross-border employees, unable to work during the lockdown, should prudently consider when their new 12-month cycle should start. Those who continued earning remuneration from foreign employers while working remotely from South Africa will see their full income taxed in South Africa.  

It is possible to get credit for foreign tax to provide relief where a double tax arises. The Income Tax Act allows for foreign tax credits to be granted where the same amount was subject to tax, or partially so, in South Africa and in another country, but only on assessment, says Nel. 

In some instances, obtaining a tax directive may also be necessary. The law relevant to employees’ tax (PAYE) doesn’t allow for the foreign remuneration exemption to be taken into account by the employer on a monthly basis. SARS indicated that an employer “may at his or her discretion, under paragraph 10 of the Fourth Schedule, apply for a directive from SARS to vary the basis on which employees’ tax is withheld monthly in the Republic” and that the “potential foreign tax credit is taken into account to determine the employees’ tax that has to be withheld for payroll purposes.”

As Nel points out, there are also other practical implications to consider. Some benefits, which may be exempt from tax in the foreign jurisdiction, may not qualify for an exemption in South Africa. Examples of such benefits include free accommodation provided by the employer, security and travel services. It is also not clear how allowances, such as travel allowances, should be treated. Whilst SARS updated its practice generally prevailing in this respect, these issues are not clarified. 

3. Professional tax assistance  

In light of the ongoing changes in legislation and circumstances, and the need to consider each employee individually while taking into account the myriad factors that apply to the foreign earnings exemption, South African employers are well advised to obtain professional assistance in order to prudently assess their – and their employees’ – current tax positions and how the recent changes in respect of the foreign remuneration exemption will affect their tax liability. 


A Remote Working Danger: Independent Contractor or Employee?

The prevalence of remote working since the start of the national lockdown in March has brought to the fore the need to distinguish between an employee and an independent contractor. This topic has both labour and tax law implications.

Anli Bezuidenhout, a Cliffe Dekker Hofmeyr employment lawyer, said during an interview that a situation could arise where an independent contractor started working for a company, but ended up operating as an employee.

“It is important that both parties manage the relationship because the lines get blurred. Companies need to classify people correctly and manage the relationship properly,” she said.

Tertius Troost, a Mazars tax manager, said during an interview that small businesses could avoid an administrative burden if they dealt with an employee as an independent contractor.

“Small businesses battle with Pay-As-You-Earn (PAYE) tax, especially with complicated employee fringe benefits,” Troost added.

Having an employee defined as an independent contractor means that the employer would not need to pay the person either annual or sick leave or overtime pay, nor would the employer be required to make pension or medical aid scheme contributions.

In addition, an independent contractor cannot enforce a claim against the company for unfair dismissal, nor hold the employer to any of the many other employee rights provided by our labour laws.

The company would also not need to contribute on behalf of the contractor to the Skills Development Levy, Compensation Fund, and the Unemployment Insurance Fund.

Bezuidenhout said some companies like to have employees classified as independent contractors, because they then do not have to comply with the Labour Relations Act (LRA) and the Basic Conditions of Employment Act (BCEA). 

Often employees agree (or pro-actively request) to be independent contractors in order to avoid PAYE and to make expense deductions against their business income.

Bezuidenhout said that individuals were often happy when companies classified them as independent contractors because that gave them flexibility.

However, the South African Revenue Service (SARS) and the Department of Labour look at the actual relationship between a company and those that work for it – it is a factual enquiry and an employer that incorrectly classified an employee as an independent contractor would be liable for the employee’s tax that the company should have deducted plus penalties and interest.

However, the employer could (at least in theory) recover the tax paid to SARS from the employee.

How tax law defines an employee versus an independent contractor

SARS requires a company to withhold employees’ tax when three elements are present, namely an employer, the payment of remuneration and an employee.

SARS also provides two tests to determine whether a person is to be regarded as an independent contractor for employees’ tax purposes.

If an employee meets both parts of the first test, then the person is an employee and any earnings paid to that employee will be subject to employees’ tax.

The first part of this test is that the employee performs over 50% of the services or duties at the client’s premises.

The second part of the test is whether any person controls the employee or his or her work hours.

The second test determines whether a contractor is trading independently.

Where an independent contractor rendered services to more than one client, then the contractor needed to apply these tests in respect of each client to assess whether the contractor was an employee at each engagement.

Another test is the common law “dominant impression test” that SARS applies to determine whether an employee is an independent contractor or an employee.

How to apply the common law “dominant impression” test

The “common law dominant impression grid” sets out 20 of the more common indicators.

These indicators take a detailed look at the relationship to determine if it is an employer and employee relationship or a client and independent contractor relationship.

There are three categories of these indicators, namely:

  1. Near-conclusive, which relate most directly to the acquisition of productive capacity;
  2. Persuasive, which relate to the control of the work environment;
  3. And resonant of either an employer-employee relationship or an independent contractor or client relationship, whichever is relevant.

SARS said in an Interpretation Note that it would use the dominant impression to classify the relationship as either an employee or an independent contractor relationship.

Personal service providers, labour brokers, and expatriate employees

SARS introduced anti-avoidance measures about personal service providers or labour brokers to clamp down on those trying to avoid employees’ tax.

SARS uses common law tests to determine whether a personal service provider or labour broker is carrying on an independent business.

Mazars’ Troost said that tax law required that when a company engaged a personal service provider or a labour broker, without a SARS certificate of exemption, that company had to withhold PAYE as SARS deemed such a person an employee.

SARS would only issue an exemption certificate if the labour broker or personal service provider conducted an independent business, according to a SARS Interpretation Note.

A personal services company has to have at least three employees who were not family members in order to be considered an independent contractor, Troost added.

Expatriate employees working in South Africa may need to pay employees’ tax on local income, subject to any double tax agreements which may be in place between South Africa and the expatriate employee’s home country.

In terms of the definition of remuneration in the Fourth Schedule of the Income Tax Act, a person who is not a resident cannot qualify as an independent contractor.

A quick comparison of employee versus independent contractor

Indicative factors in determining where a person is an employee or an independent contractor, according to the South African Guild of Editors.

EmployeeIndependent Contractor
Works for only one employer at a time.Provides services to more than one person or company at a time.
Works the hours set by the employer.Sets his or her own hours.
Usually works at the employer’s place of business and uses their equipment.Works out of his or her own office or home and uses his or her equipment.
Entitled to annual and sick leave.Not entitled to any leave.
Often receives employment benefits, such as medical aid or bonuses.Does not receive employment benefits from the employer.
Works under the control and direction of the employer.Works relatively independently.
Receives a nett salary after the employer has deducted income tax and UIF.A provisional taxpayer and responsible for paying his or her own taxes.

How labour law handles the distinction between employees and independent contractors

The major pieces of employment legislation, the LRA, the BCEA and the Employment Equity Act (EEA), apply to employees and not independent contractors.

The law defines an employee to mean any person, excluding an independent contractor, who works for another person or the government, receives remuneration, and conducts the business of the employer.

There is no statutory definition of the term “independent contractor”.

As a result, several tests have evolved through case law, the presumption of employment provision in the LRA and BCEA, and the Code of Good Practice on “Who is an Employee”.

To ensure that employees do not lose their labour law protections, section 200A of the LRA and section 83A of the BCEA introduced a rebuttable presumption that everyone earning under the earnings threshold of R205,433.30 a year is an employee until proven otherwise and regardless of the contract concluded, according to an article on the EE Publishers website.

An employer who disputes that an independent contractor is an employee must provide evidence about the working relationship.

Read more about the article 6 Tips for Getting the Most from Your Tax-Free Savings Account
Piggy bank and tax concept

6 Tips for Getting the Most from Your Tax-Free Savings Account

“He said that there was death and taxes, and taxes was worse, because at least death didn’t happen to you every year.”

Terry Pratchett, Reaper Man

Tax-free savings accounts (TFSAs) have been around for just over five years, and yet many people still do not know about them, are unfamiliar with the benefits or don’t know how to take maximum advantage of this unique investment opportunity.

Amidst the chaos of early COVID-19 and lockdown many may not have noticed that as of 1 March 2020, the annual limit in these types of investments was increased from R33 000 to R36 000 a year with the overall lifetime limit standing at R500 000. The National Treasury introduced these investments to encourage South Africans to save and as a result there are no taxes payable on interest or dividends received, and no capital gains tax (CGT) on funds withdrawn.

Clearly with such an attractive offer a TFSA must be a part of every person’s future investment strategy, regardless of their income level. So just how does one take maximum advantage of these accounts and stand to gain the most future benefit?

1. Long term investment

The real power of a TFSA is in the long-term compounding of the investments. Due to the fact that a TFSA contribution is not immediately tax deductible (as for example a retirement contribution is) the benefits only kick in later when the interest that is being achieved starts overtaking the amount that would have been saved on taxes through other contributions.

Director of advisory services at Investec Asset Management, Jaco van Tonder says, “From a tax benefit perspective, it appears to not make sense for an investor to utilise a TFSA for an investment horizon of less than five years. This picture changes dramatically though after ten years due to the well-known compounding effect of long-term investment returns”.

This is an important aspect for investors to consider, especially as money in a TFSA can be accessed and withdrawn at any time. While that seems attractive there is a further large catch in that once the money has been withdrawn, returning it to the account will be regarded as part of your annual contribution. What this means is that if you have invested R12 000 in the account this year, then withdraw R3000, and return it a month later, the tax man will view this as you having already invested R15 000 in that account.

2. Saving for retirement

Due to the long-term nature of a TFSA, they are commonly used as a way to save for retirement, alongside, and sometimes as an alternative to, a Retirement Annuity (RA). 

While the income tax benefits of investing in an RA still makes them an extremely attractive proposition, a TFSA has a number of other benefits, which those investing in an RA should consider. Firstly, investors can withdraw from a TFSA at any time, and there is no tax on those withdrawals, while RAs are only accessible at retirement (under normal circumstances), and, when you access them, you need to buy an annuity with at least a part (currently two-thirds) of the accumulated value. 

Further, there are absolutely no restrictions on asset allocation in the TFSA, whereas restrictions apply to RAs in terms of Regulation 28 of the Pension Funds Act, meaning the investor may have more choice as to how aggressive they want to be with that investment. 

There are however some complicated considerations which need to be taken into account, and it’s not as simple as cashing in the one to buy the other. In order to protect them from creditors, RA’s are excluded from a deceased person’s estate, and the investor is often encouraged to nominate a beneficiary to whom the benefits will accrue after death. The nomination process for a beneficiary may come with caveats, and instances where pay-outs may not happen, but even if the pay-out is set to be made, this can involve another level of administration and difficulty for the beneficiaries who may not want to deal with two separate companies to wrap up their loved one’s estate. There are, however, often tax benefits to doing so at that stage. 

The issues around which is the superior investment between an RA and a TFSA will therefore ultimately come down to your unique situation, and investment strategy, and it is highly recommended that you speak to your accountant before making the leap.

3. Saving for an education

Despite the powerful points in tip two, one need not necessarily consider a TFSA as only being an alternative to an RA. There are many other investment choices someone may need to make and one of the most important is education. If you intend on sending your children to University one day you might be thinking about starting a fund to pay for the fees. If you do not already have a TFSA think twice and examine all options closely. 

Due to the long-term nature of education savings, a TFSA is the perfect tax-sheltered way to save for your children’s education. With regular education funds, part of the withdrawal may be subject to taxation, but when it comes time to finally cash in the TFSA there are no taxes payable at all and given the long term nature of the investment a TFSA could be the ideal investment tool. 

As an example, if you invest just R620 a month in a TFSA at the relatively common interest rate of 6% for a period of 10 years, you could build up almost R100 000 during this time. This sort of payment is exactly what is needed when it comes time for your child to move from school to an institution of higher learning.

4. Invest your lump sum as soon as possible 

Many people wait until the end of the year to put whatever savings they have left into their TFSA as a lump sum. Sometimes they use their end of year bonuses for this same benefit. Investment strategists suggest that it is wiser to either increase your monthly contribution to as close to R3000 a month as you can, or to pay the lump sum at the beginning of the year. What this does, is allow you to enjoy a full year of tax-free growth, which can add up dramatically over the lifetime of the investment.

A R36 000 lump sum investment on 1 March can grow by R3 600 over the year (assuming a balanced fund investment with CPI+4% return). Tax on interest, dividends, and capital gains in such a portfolio would amount to roughly R600. By rather allowing this lump sum to grow in the TFSA from day one, the investor gets to keep and further grow this R600. Compounded over time this relatively small amount can grow to make a significant difference.

5. Invest in growth assets

Like other funds, TFSAs come in many shapes and sizes. SARS currently says the following kinds of accounts can qualify as Tax free investments: Fixed deposits; Unit trusts (collective investment schemes); Retail savings bonds; Certain endowment policies issued by long-term insurers; Linked investment products and Exchange traded funds (ETFs) that are classified as collective investment schemes.

In order to take the maximum benefit from your TFSA you should ensure that there are as many growth assets included as possible to maximise your long-term growth. Remember, no limits apply as to your asset allocation and as such you are free to make bold choices.

6. Don’t over-contribute

Seeing all of the above, and realising the benefit of a TFSA, one may be tempted to invest more money into TFSAs than is legally mandated. Don’t. The annual contribution limit of R36 000 per individual is strictly enforced, and any contributions in excess of this annual limit can be subject to penalty tax of 40% of the excess. There is no limit to the number of TFSAs you can have, but it is important to manage them closely to ensure that you don’t exceed your annual contribution limit. This R36 000 applies to the sum of all contributions to all your TFSAs so be very careful not to accidentally stray over the line. 

While powerful, a TFSA is not a one-size-fits-all investment opportunity. Investors need to carefully evaluate their different life situations and investment strategies with reference to long-term returns and volatility measures and see how they stack up. There is little doubt that the TFSA should form some part of an overall investment portfolio, but what that role is, needs to be tailored to the individual. 

Speak to us at Emma Pardoe Chartered Accountant to evaluate your personal circumstances and see just how you can take maximum benefit from a tax-free investment. 


Accounting Tips For SMMEs And Rocketing Tax

“The avoidance of taxes is the only intellectual pursuit that carries any reward”

John Maynard Keynes

While there are diverse reasons why SMMEs ultimately fail, financial mismanagement and poor performance are two of the most often-cited explanations.

Being that the increases are projected to be an ongoing imposition over the next five years at least, here are some expert accounting tips for SMMEs on how to best manage future projections and targets in our volatile local tax environment.

A financial forecast as a tool, allows businesses to plan their finances for the future – with the consideration of their present and past performances. This implement should be mindful of the looming tax increments within the South African context, if it is to be effective in steering the company to a state of readiness and efficiency, particularly during the ongoing COVID-19 pandemic.

 1.   Appropriate and timeous management of the tax predicament

SMMEs are advised to manage their expectations within our rocketing tax context, in order to prepare themselves in dealing with their future successes and failures. Understanding the context, timing, various tax implications and what is projected at company level is vital in preparing for the inevitable pinch on the pocket.

The COVID-19 trial hasn’t come at the best of times for our government as it can’t afford to be as giving as others around the globe. There are governments that have given deferrals on payroll taxes, VAT and corporate income tax as a collective package. In South Africa, tax compliant businesses have been allowed to defer 20% of their employees’ tax liabilities and a portion of their provisional corporate tax payments – ask your accountant for details.

2.    Pick the right forecasting model for your business

Picking between the right qualitative and quantitative forecasting approach should be determined by the core data of the company being dealt with. The projected tax increments should be factored in, as the overall objective is to forecast profitability and not just actual sales. For example, in the Qualitative Model, there is Trend Projection, where the accountant looks at the trajectory of what is happening at that point in time, while following the trend in the publicised increases.  

3.  Adaptability and reducing costs where applicable

According to Johnny Yong, who is technical manager with the International Federation of Accountants’ (IFAC) Global Accountancy Professional Support (GAPS), and Robyn Erskine, who is partner at Brooke Bird in Australia, SMEs should evolve with the times.

“Death and taxes are the two constants in life. It is therefore not surprising for SMEs to be asking this question. In other instances, the corporate vehicle or tax structure may need to evolve as the business grows. [Accountants] can discuss this with their clients – at a certain point of the SME’s evolution. Preparation (for the entrepreneur) is important to ensure long term success of the business,” they penned for the IFAC website.

4.  Charitable contributions as a means of getting tax breaks

This is a tool that can be achieved through manoeuvring and strategy. The South African treasury has announced tax breaks which might help soften the tax pinch.

The tax-deductible limit for donations (currently 10% of taxable income) will be increased by an additional 10% for donations to the Solidarity Fund during the 2020/21 tax year.

The bona fide donations have to be made to an approved organisation, agency, institution, or department of government listed in section 18A (1) of the Income Tax Act and there must be a receipt to prove the donation. Make sure of course that you can afford the cash outflows involved.

 5.  Planning accordingly and compliance

The benefits of forecasting can never be overstated. The thoroughness of forecasting gives the organization insight into the possible future performance of the business and how to prepare. 

A specific benefit is that forecasting can lead to better accuracy in budgeting. This includes accounting for future tax spend. The complete forecast can serve as a framework for developing new strategies. 

Don’t be left scrambling for cover at the last hour, ask us at Emma Pardoe Chartered Accountant (SA) for help with this – don’t let high taxes kill your business!


Leaving a Legacy: Ensure Your Business Survival with a Succession Plan

“A leader’s lasting value is measured by succession.”

John C. Maxwell

Succession planning is preparing for the future of your business, ensuring the people and resources are available for its ongoing success beyond the lifetime of the current key players. It is especially critical in small businesses where the loss of a key person can bring the business to a sudden halt. 

A formal succession plan details exactly what happens if the owner or a partner or another key individual in the business is no longer there, for both expected and unexpected reasons. These reasons range from the sudden or unexpected death or disablement to a planned and expected exit, for example, due to retirement.

Some of the options for succession include grooming the owners’ children and heirs to take over the reins; training loyal employees to take over key roles; bringing in high level expertise from outside the company; or selling the stake in the business to family, to the other partners, to a loyal employee or a group of employees, or to an outside buyer.

Why is succession planning so important?

Succession planning is crucial to ensure the viability of the company over the long term, and to unlock many benefits in the short term.

A good succession plan can secure a business owner’s legacy, and their retirement or their family’s well-being, instead of the business simply becoming one of the estimated 70% of inherited businesses that don’t survive.

It also ensures that what happens after the loss of a key person is planned and structured, rather than forced on the business by circumstance or by the courts.

A clear and fair succession plan can also:

  • Prevent confusion and uncertainty after a sudden and unexpected loss,
  • Avoid family disharmony and conflict between heirs and employees, 
  • Allow for continuity and a smoother transition, reducing the impact on the business and its stakeholders
  • Ensure that successors, whether a promoted employee, a newly appointed manager, or a son or daughter or another family member, or a buyer, are qualified, skilled, and groomed to take over
  • Provide opportunities for employee career growth internally
  • Ensure you can get fair value if selling the business or a stake in it 
  • Prevent the forced sale of assets to settle the estate.
How to plan

Succession planning involves a combination of financial planning, estate planning and wealth planning and therefore requires the expertise of qualified advisors including your accountant.

The details of a succession plan depend on a range of issues, such as the ownership structure of the business, whether succession involves handing over to the next generation or an employee or an outside buyer, and the unique financial and legal aspects of the business.

As just one example, many businesses are sold to family or staff who may not have cash up front, and this requires special planning, for example, staggered payments over time and a slower transition. 

However, here are a few common characteristics of a successful succession plan:

  • All stakeholders are included in the planning and decision-making process
  • Suitable, practical and gives the best outcome from a family and business perspective
  • Documents and puts in place formal mechanisms and clear procedures for governance, conflict, and dispute resolution  
  • Contains a short-term emergency plan for each key position
  • Details a full long-term succession plan for each key position
  • Considers the financial, estate duty and tax implications of the decisions
  • Takes into account legal compliance and commercial and practical considerations
  • Ensures continuity by providing essential liquidity through, for example, key man insurance, life insurance for the partners and contingency policies
  • Creates a viable and sustainable business operation now and for the future through modernised business systems, clearly documented and automated processes, fully trained people, and accurate up-to-date financial data – all of which will add immense value to the business now and in future.

If you consider for a moment what your death or retirement could do to the business’ success and to your family’s livelihood, you will realise how important it is to put in place a well-structured succession plan.

It will ensure that your time, effort and investment to grow a business in South Africa is not lost in a statistic, but rather that your legacy lives on, surviving beyond the current key players into the next generation.


Six Tips for More Effective Online Meetings

“Meetings should be like salt – a spice sprinkled carefully to enhance a dish, not poured recklessly over every forkful. Too much salt destroys a dish. Too many meetings destroy morale and motivation”

Jason Fried (Entrepreneur and author of “Rework”)

While the capacity for digital meetings and interviews has been around for some time, they have only truly gained popularity this year. Covid-19 lock downs around the world have forced companies to make alternatives to their usual systems and digital meetings have become an everyday occurrence for most in the workplace. The question is, do they work as well as regular, face-to-face meetings and when it comes to interviewing for new appointees is there something being lost in the system?

In April, one of the world’s leading research and advisory companies Gartner conducted an in-depth analysis of hiring in the digital world and found that while the capacity for digital meetings and interviews to be as effective as real world arrangements does exist, they often are not as effective, because simple errors are made which decrease their efficiency.

Consequently, meetings that eat up time without achieving much are more common online. Participants can experience connectivity problems and communication delays. They can also face problems in holding the discussion in a structured manner, and multiple people can start speaking at the same time.

When it comes to interviewing potential employees, these problems can exacerbate an already tense scenario for the candidate thereby resulting in a less than ideal interview.

“There are several important strategies HR functions must use to effectively conduct virtual interviews so as to ensure a positive candidate experience and effective assessment by the hiring manager or other interviewers,” says Lauren Smith, vice president in the Gartner HR practice.

So just what can be done to make your online meetings and interviews more effective?

1. Invite as few people as possible

Researchers at one of Europe’s largest independent research organisations SINTEF stress that it is important to keep meetings as small as possible. Their work has led them to conclude that when meetings have more than twelve participants, most will be unable to speak, may disengage and will leave the meeting unsatisfied. Remember, the more participants, the shorter the time available for each to be an active part of the conversation.

2. Use video chat when possible

While our primary method of communication is our voice, one should never underestimate just how much is “said” non-verbally. Being able to see one another goes a long way to gaining trust and rapport with interviewees and meeting attendants and is also an important part of getting good data. According to research scientist Nils Brede Moe, it’s much easier to feel a human connection when you can see someone’s face, and it helps both of you read the situation and each other’s feelings better.

The person conducting the meeting is also better able to control the flow, and time issues if people can see these non-verbal cues.

3. Have a clear agenda and defined goals

Holding meetings with vague agendas is never a good idea, but this is even more true online. Structure is vitally important online so be sure to prepare a formal agenda with all the key issues to be discussed in the meeting and sort them according to your business needs. Also clearly mention what role you expect from each participant in the meeting and just how long the meeting will take. This agenda should be sent to each participant well in advance, so they are able to accurately prepare.

Setting a time limit for each agenda point will help to extract a lot more value in the limited time you have. If participants know a point only has ten minutes for discussion, they will stay focused and the meeting will not go off track.

4. Open the meeting room early

Most meetings begin punctually at the appointed time, but SINTEF suggests that the meeting room should rather be opened 15 minutes before the indicated start time so that participants are able to test their audio and video before the meeting starts. Participants who log on after the meeting commences quickly disrupt the flow and interaction of the meeting and everyone should be in place and ready to go at the appointed time.

5. Share notes and record the meetings

Given that employees are now conducting meetings from home and may therefore be distracted, or have sound or connection problems, it’s a great idea to simply record every meeting and send people links to the recording at the end. Some online meeting services have a record function built in, whereas others may require you to download an extra app such as Pio Smart Recorder or GoToMeeting.

Another good trick for the end of the meeting is to send each person a list of the action points identified for each agenda item along with the name of the person responsible for its delivery. This way everyone knows exactly where they stand and can look up the relevant areas that apply to them if necessary, on the recording.

6. Appoint a moderator

Whether conducting a panel interview or a meeting, chairing the discussion can be much harder online, particularly if not all participants have their video on. It is therefore a good idea to appoint a meeting moderator who will give people permission to speak and keep the conversation on topic.

The moderator should also be aware of the words they are using and attempt to be as clear and concise as possible. They should use people’s names when addressing them as it is not always clear who is being spoken to directly, and instructions should be repeated at the end of each agenda point to ensure everyone is on the same page.


The Five Most Common Tax Pitfalls That Small Business Owners Should Avoid

There are five common tax pitfalls that owners of small businesses should look out for and avoid.

These hazards include three value added tax (VAT) issues, one provisional tax matter, and the fifth item deals with the tax implications for owners of small businesses when they draw money from their company.

Failing to avoid these pitfalls can cost small businesses dearly in terms of time, stress, and money, including fines. The cost of sorting out these hazards can even destroy small businesses.

Failure to register for VAT

The first issue is that many owners of small businesses fail to realise that the VAT Act requires that they register for VAT. This requirement becomes necessary once a business has made taxable supplies exceeding R1 million during twelve consecutive months.

Once a small business reaches this threshold, then they need to charge their clients VAT for the goods or services sold. “When small businesses manage their tax affairs, they often neglect to do this because they are not aware of this requirement,” Jean du Toit, head of tax technical for Tax Consulting South Africa.

If it comes to light that a company failed to register for VAT, then SARS could impose penalties, including understatement charges and late payment fines and interest. These penalties will be back dated to when a small company should have been accounting for VAT.

Small businesses can register for VAT with SARS by applying online, and the process is reasonably straightforward and quick but ask for professional help in any doubt.

For micro businesses, it may not initially be viable to register for VAT, as they may be mainly dealing with suppliers and clients of a similar size.

However, the larger a business grows, the more it would lose out on the opportunity to deduct input VAT that they pay over to VAT vendors that supply them with goods and services and so miss out on lower costs. Input VAT is the tax that a VAT vendor can claim back as a deduction from SARS. The output VAT is the tax that a VAT vendor levies on the supply of goods and services and then pays over this tax to SARS.

The advantage of registering for VAT is that it gives a company greater access to business opportunities, including tenders and contract, which usually require a company to have a VAT number.

The only way to rectify the lack of the required VAT registration was to apply for SARS’ Voluntary Disclosure Programme (VDP), Du Toit said. Such a VDP application could see SARS waive any penalties, but it would require the company to pay over the VAT due and interest on late payment of this tax. Ask your accountant to help with any VDP application.

A business can voluntarily register for VAT if over twelve months its income exceeded R50,000. Tertius Troost, a Mazars senior tax consultant, said it might benefit a small business to register voluntarily for VAT if they have many suppliers. But companies must know that there was a cost that went with complying with the VAT Act, he added.

Failure to obtain valid tax invoices

The second pitfall relating to VAT was that small business owners often fail to secure valid tax invoices for their VAT input claims, Troost said. Input VAT should have a neutral impact on a company, but if SARS disallows specific claims, then the input VAT becomes a cost, and that will reduce a company’s profitability.

When a small company claimed input VAT from SARS, it was required to keep records, including specific invoices from their suppliers. “If a company’s administration is not up to scratch, they might not have these documents, or these documents may not meet SARS’ requirements as prescribed in the VAT Act. At that point, SARS won’t allow you to claim back your input VAT,” Du Toit added.

Ettiene Retief, FTR Tax and Corporate Administration partner, said that SARS usually focussed on the invoices a company received from its suppliers when reviewing VAT input claims.

The VAT Act specifies that the following details should appear on an invoice for any amount greater than R5000:

  1. The word “tax invoice” or “VAT invoice” or “invoice”,
  2. The name, address, and VAT registration number of the supplier,
  3. The name, address and, where the recipient is a registered vendor, the VAT registration number of the recipient,
  4. The unique number of the invoice, and
  5. An accurate description of the goods or services supplied, and the volume or quantity of goods or services provided.

For invoices of less than R5000, only the supplier’s information needs to be included on the invoice and not the recipient’s details. Here the supplier need not specify the quantity of goods or services supplied.

Trying to claim input VAT for the wrong items

The third issue regarding VAT is that small companies often try to claim input VAT on entertainment, petrol, and rental of motor vehicles. But the VAT Act makes it clear that companies cannot claim these expenses for VAT purposes.

If a company bought milk, coffee, and sugar to offer to its clients when they visited, the company could not claim VAT on these items because SARS viewed these as entertainment costs, Retief said. “When I’m in my boardroom, I’m selling my time and the coffee is not part of what I’m selling,” he added. “However, if I own a coffee shop, then I can claim VAT on the coffee beans that I buy,” he added.

If SARS finds that a person or company claimed goods ineligible for VAT purposes, it will reject these claims. In addition, if SARS finds that a person or company has overstated their input VAT, then that means understatement penalties and interest would apply.

Misunderstanding about income received in advance

The fourth common issue was that small businesses often forgot that income received in advance was taxable, Du Toit said.

A common area where companies required deposits was for major construction contracts, he added. An advance payment like this was immediately taxable in the hands of the recipient of that money. Retief said that an exception to this rule was when a company was paid a deposit as security.

This knowledge is vital for small businesses when they need to make their provisional tax submissions. SARS requires taxpayers to make these submissions twice a year in February and August.

Small companies had to include income received in advance in their provisional tax disclosure to SARS or face penalties.

Implications of drawing money from the business

The fifth prevalent tax issue of which small businesses are often unaware is the tax implications of drawing money from their company through interest-free loans or withdrawals that SARS would deem to be dividends or remuneration. This situation arises with small companies which have a sole director or owner, and he or she makes loans from the company to themselves.

Another problem is that small companies rarely establish a formal loan agreement between the company and the director.

If a company director takes a loan from the company without charging interest, then SARS would view that interest as a dividend in specie paid by the company to the director and the company would have to pay dividends tax on that amount.

Another way that directors of small companies try to avoid paying tax on their remuneration is to have their company issue them with a loan, instead of being paid a salary. “The company should classify the loan as a salary. What often happens is that the director never pays back the loan, or they pay it back slowly over many years to avoid paying income tax,” Du Toit said. “If SARS does a full audit of a company’s books and they see that in substance that loan is not a real loan but a salary, then the agency can reclassify that item, and there will be tax consequences such as penalties and interest,” he added.

Troost said that usually, the most tax-efficient way for a director or owner of a small company to withdraw money from their company was to receive a salary rather than to withdraw money as a dividend or to receive an interest-free loan.

Retief said that owners of small businesses often make withdrawals from their business by paying for personal items. But the problem was that the owner and the company are separate legal entities. Directors of small companies often used this means of withdrawing money from the business to avoid paying tax, he added. “With small businesses, the temptation is not to show a big salary because of the tax is payable on that money,” Retief said.

At the end of the financial year, the company puts payments for personal items through the director’s loan accounts. But it is often difficult to untangle all the transactions and split the personal items from the company transactions, Retief said.

Keep this list of common pitfalls in mind and ask your accountant for advice on your specific circumstances in any doubt.


SMMEs: Preparing for the Second Wave

Forewarned is forearmed.

Samuel Shellabarger, Prince of Foxes

The daily covid-19 infection rate has decreased considerably over the last month or so. South Africans have found a way to live with the risk of infections and have in the recent past become generally more active. This has increased the fear that there might be a second wave of high Covid-19 infection and mortality rate. Western Cape government, for example, has warned a resurgence is highly probable considering the second wave of mass infections sweeping across internationally.

Explaining why it is still important to be cautious against Covid-19 for the next few months, the National Institute for Communicable Diseases (NICD) warns that “Coronavirus is not going away any time soon”.

“We are seeing second waves in European countries three to four months after their first wave. We don’t know if this will happen in South Africa, but it is possible, and even likely. Also, we know that once you get Coronavirus you are not immune from it for life, and you could become re-infected in the future,” it says in a statement on its website.

SMMEs, like the citizens, have to protect themselves from the possible re-emergence of high numbers of infections, which have crippled a considerable number of them earlier this year.

Based on advice from a collective of experts, here are some tips for SMMEs looking to prepare for the possible second wave of high Covid-19 infection rates:

General working conditions and workplace policies have to be reviewed

According to the Centres of Disease Control and Prevention in the US, the working conditions and policies must be reviewed in order to best assist companies in protecting themselves against the full blow of the virus. Companies are advised to “examine” working conditions and policies in order to protect employees, and ultimately themselves.

“When possible, use flexible worksites (e.g. telework) and flexible work hours (e.g. staggered shifts) to help establish policies and practices for social distancing (maintaining distance of approximately 6 feet or 2 meters) between employees and others, especially if social distancing is recommended by state and local health authorities,” said the organisation.

Consider remote working more as an option than a forced situation.

On the local front, Accelerate CEO, Ryan Ravens, recently spoke on a survey conducted on remote working due to Covid-19.

Inventory and stock

He told radio station Cape Talk, that “increasingly, it (remote working) works better for companies as well as employees. I think there has always been a resistance by our very traditional corporates because they felt employees would not be as efficient and/or wouldn’t deliver more, but I think that notation has been turned on its head. Employees have actually showed up and shown that they can work far better when working from home.”

Consider stocking up on supplies and raw material reasonably, knowing that replenishing them can’t be guaranteed ahead should the stricter lockdown regulations be reimplemented by government. The stockpiling process should be ideal to each business, considering aspects like expiration dates in certain goods, for example, and access to market. Careful management of the inventory is necessary.


The importance of having quality insurance in general can never be overstated, and the same thinking prevails in business. Policyholders are encouraged to relook at the fine print of their business insurance policies to refresh their memories and for better understanding, bearing in mind the unusual circumstances the world is operating in. Insurers on the other hand are encouraged to “pick-up the pace”. However, the global scourge is seen as a challenge that should motivate insurers to put customer-care first.

A jointly authored blog by Price Waterhouse Cooper’s global insurance advisory leader, Abhijit Mukhopadhyay, and leading practitioner in “customer experience”, John Jones, expounds on this narrative. The two expert authors express that “Policyholders will want to know their claims will be paid. But it doesn’t always work out that way — especially with a pandemic, which is not generally covered by insurance (except possibly through costly business continuity insurance). Customers are bound to be confused and anxious, and they need to feel that their questions and concerns are addressed with honesty and empathy.

Understand the seasonal cycle of business

Businesses prepare and operate with attention to their annual business cycles. They are advised to prepare knowing that the unidentified length of the possible viral resurgence might overlap their business season, i.e. quarters and other periodic demarcations of business. 

Minimise spending

SMMEs are advised to minimise spending in order to have as much in the piggy bank as possible. Reserves will be critical in a period where there is minimal income. Careful budgeting could be the possible rabbit out of a hat for successful businesses during the dreaded possible re-emergence of stricter lockdown restrictions.             

Get familiar with the government’s Covid-19 Relief Fund for SMMEs

This could be critical for SMMEs. Understanding the qualification process and benefits described by the Department of Small Business Development (DBSD) can be the determining factor between relief aided continuity and capitulation. The current amount given to businesses that qualified for the Covid-19 Relief has eclipsed R500 000, according to the department.

The department supposedly updates information related to the relief fund on its website for entrepreneurs to peruse, according to the set business classifications of the SMMEs.


The Feasibility of a Freelancing Business in Uncertain Times

Business start-up planning has been extensively covered over the past twenty years and longer, and without understating its importance or re-inventing the wheel, perhaps it has been overplayed. Much training is available on the Internet, including templates and guidelines provided by banks and the SA Department of Trade and Industry. To start a freelancing business can be a challenge – and then some. Thus, following a business plan infrastructure with the use of a project planning tool is the best route to follow.

Why perform a feasibility study?

The feasibility study is a vitally important step in the well-known business planning process, not only pre start-up. In fact, it is the most important step because, if the business idea is not feasible, there is no point continuing with it. There are often more reasons for the business to fail than to succeed. Many renowned business analysts believe that only one in forty new businesses succeed and materialise in accordance with their original plan. Another good time for doing a feasibility study is when a business needs to be restructured to increase profitability, improve production, reduce production costs and overheads, increase sales/services income, expand the market reach, and many other valid reasons.

In the normal scheme of business planning, one deals with deciding on what type of business entity one wants to set up such as a Sole Trader, a Partnership, a Private Company, a Close Corporation, and then the drafting of various reports are needed in order to gauge the feasibility and to make the right decisions going forward.

What information do you need to prepare a feasibility study?

The list of matters to be decided and the necessary analyses needed follows, such as are usually covered in the typical business plan.

  • The services or products to be offered.
  • Establish the professional standards and qualifications required to operate as a freelancer in your field of expertise.
  • The equipment and tools needed.
  • Start-up expenses, including legal and business analysis services.
  • Initial capital requirements.
  • The target market to be accessed and establish whether there is space for you in it.
  • The economy relating to that market, current demand, future growth opportunities.
  • Determine what barriers exist at present which may hinder your success.
  • How best to promote your products or services.
  • Distribution channels and agencies.
  • Operational plan.
  • Legal environment and statutory requirements
  • Establish a system of record keeping
  • Bank services needed – a separate bank account for the business is strongly advised.
  • If staff need to be employed, establish the Human Resource policies and SARS requirements.
  • Do the costing of each product and service very accurately.
  • Calculate selling prices based on all costs plus mark up.
  • Establish the total you personally need to earn per month. When an hourly rate will be charged for your work, you will need to calculate your hourly rate. 
  • Compare your prices to those pertaining to the freelance industry of your services.
  • Draft the projected financial plan, a detailed budget for twelve months.
  • Draft the projected cash flow for twelve months.
  • Draft a Break-Even analysis.
  • Draft a starting balance sheet.
  • Draft a SWOT Analyses – Strengths, Weaknesses, and Opportunities.

Some business plans have the feasibility study way down in a list similar to the above list, but perhaps a better view is that most of these tasks need to be done in order for the feasibility or viability of a business plan to be ascertained.

Assistance and collaboration

For an aspiring freelancer, these are all important steps to follow. It is also important to search for organisations and associations that provide vital services and advice for those in the various freelance fields. Let’s take as an example SAFREA (the Southern African Freelancer’s Association). They advocate for and support freelance workers in the communications fields. They also provide resources, tools, training, and networking to strengthen freelance careers. Their network includes hundreds of talented writers, editors, proof-readers, graphic designers, illustrators, researchers, translators, photographers, and other experts in media and communications. Another good example would be Project Management South Africa for freelance and professional project managers.

Membership associations like these are great for collaborating with fellow freelancers and professionals for professional advice, current industry standards relative to their professional fields, the current going rates for different work, up to date market research, training courses, and to finding available work.

As noted earlier in this article, the Internet is packed with valuable information such as from the DTI, SARS, the banks, and other websites through which one can glean the necessary information and assistance in one’s quest.

Freelancing is normally a challenging type of business to operate, but as business start-up and functionality are even more so during the pandemic and state of disaster, it is very important to ask your accountant for guidance and for help in drafting an accurate feasibility study and business plan. Wasting time and finances in going it alone would not be the preferred route to take.

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Employee Health and Wellbeing: A Strategic Priority for COVID-19 and Beyond

It goes without saying that no company, small or large, can win over the long run without energized employees who believe in the mission and understand how to achieve it.

Jack Welch, former CEO of GE

The health and wellbeing (HWB) of employees has a substantial impact on business success and sustainability, and this has never been more pronounced than during the lockdown.

Employee HWB is vital for a company to sustain itself during the lockdown, but making your employees’ HWB a strategic priority creates a competitive edge that will be crucial for success now and beyond COVID-19.

Why is employee HWB a strategic priority?

Employee HWB delivers significant benefits, which are well-documented and widely-known. These benefits, some of which are listed below, provide a company with a competitive advantage in a very constrained economic environment.

Benefits of Employee HWB 

  • Decreased rates of illness and injury
  • Reduce direct costs, such as providing healthcare
  • Reduce indirect costs, such as absenteeism and reduced productivity
  • Enhanced recruitment and retention of healthy employees
  • Reduced absenteeism
  • Increased productivity
  • Improved employee morale
  • Improved employee loyalty
  • Improved employee resilience during organisational change
  • Improved employee motivation
  • Increased employee innovation
  • Positive impact on business performance
  • Achieved company objectives

“Most successful and innovative organisations today make employee health and wellbeing a key focus of their business strategies. It is not something to which they simply pay lip-service: they spend a lot of time, energy and money in developing workplaces that enhance wellness and consider those to be a crucial component of their organisational business strategies,” says Freeman Nomvalo, CEO of the South African Institute of Chartered Accountants (SAICA). “These companies would therefore probably be more resilient during the pandemic, as employees are able to remain productive due to a supportive workplace environment.”

Employee HWB also provides an opportunity to make a positive difference, playing a leadership role in our communities and in our country.  

According to SAICA’s Health and Wellbeing Advisory Group (HWAG): “Measuring employee health and wellness provides an indication of the wellbeing of the organisation. It is also a direct indicator of the wellbeing of a country’s workforce, making health reporting a national priority and not just a corporate one. Health reporting can help organisations create and promote environments for healthy behaviours, which will extend not only to employees but also to their families. This can result in healthier workforces, as well as healthier cities and countries.”

“Such reporting also meets the government’s call to action for the private sector to partner with the public sector in responding to the challenge of NCDs [noncommunicable diseases]. This helps organisations fulfil their shared value and corporate citizenship obligations, and will have profound positive effects on individuals, companies and societies as a whole.”

So how can a company go about tapping into all these benefits of an employee HWB? As the saying goes: What is measured is managed… 

Non-communicable diseases or NCDs, also known as chronic diseases, include cardiovascular diseases (like heart attacks and stroke), cancers, chronic respiratory diseases (such as chronic obstructive pulmonary disease and asthma) and diabetes, and are responsible for a staggering 41 million deaths each year, equivalent to 71% of all deaths globally.  

What is measured is managed…

Reporting on employee health has largely been neglected, but this element of company reporting has never been more important than it is now. 

HWAG believes that companies should report on the following components:

  • Occupational health and safety;
  • Provision of medical benefits for full-time workers;
  • A smoke-free workplace;
  • Mental wellness programme (e.g. Stress management, resiliency programmes, managing depression);
  • Employee assistance programme (EAP) access for counselling and intervention for those already at high risk (e.g. Stress, depression);
  • Family-friendly policies (e.g. Flexible work schedules or working remotely);
  • Access to healthy office design components based on special needs (e.g. Sit-stand desks in case of back pain);
  • Communal spaces where employees can eat, relax, interact with co-workers, or hold private conversations; and
  • Assessments of the health and wellness of its employees, such as a health risk assessment (HRA) survey or biometrics screening assessment or self-reported general health status of employees using a confidential survey or assessment tool.

This list of components also serves as a list of key focus areas. These components, many of which may have only received passing attention previously, may be prioritised and elevated as companies strive to ensure a safe and sustainable working environment for their employees during COVID-19 and beyond.

Integrating these components into the business is vital for sustaining the company and its employees.

Employee HWB: What works best?

A comprehensive survey conducted by HWAG was completed by 172 companies, of which more than 50% are involved in the financial sector, and approximately 70% had less than 500 employees.

What seems to work best for large companies are the core and more traditional issues, including occupational health and safety; medical benefits for full-time workers; having a dedicated person responsible for employee health and wellbeing; a smoke-free workplace; and communal spaces where employees can eat, relax, interact with co-workers or hold private conversations.

Programmes, policies and practices around a smoke-free workplace received the most positive response from smaller companies, followed by the same issues raised by larger companies: regulatory requirements and policies for occupational health and safety, as well as medical benefits for full-time workers.

The survey also points to room for improvement: the majority of companies do not believe it is necessary to get involved in the following areas at the moment: incentives for a healthy lifestyle, physical exercise, reduction of alcohol consumption, tobacco use cessation, sleep management, health coaching, health risk assessment, and the extension of available programmes to family members and other dependants. This is despite the fact that these areas are key to the management of NCDs, which poses a significant threat to workforce productivity.

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How to Protect Yourself and Your Company after the Experian Data Leak

Cyber-security is much more than a matter of IT.

Stephane Nappo, 2018, Global Chief Information Security Officer of the year

According to official communications from Experian, a consumer, business and credit information services agency, an individual in South Africa claiming to represent a legitimate client fraudulently requested services from it and was simply given the  personal information of clients including cell phone numbers; home phone numbers; work phone numbers; employment details; and identity numbers. Information was also leaked for 793,749 business entities and included: names of the companies; contact details; VAT numbers; and banking details. Experian said that the data had then been placed on a third-party data sharing site on the internet, but added that subsequently that third party had “disabled the links” and that the data had “been removed” after Experian was successful in obtaining and executing an Anton Piller order. This does not, however, mean that the danger is over.

Steps to take to protect yourself and your business

While the breach has been reported to authorities, and South African banks have been working with Experian and the South African Banking Risk Centre (Sabric) to identify which of their customers may have been exposed to the breach and to protect their personal information, the investigation has not yet been concluded. As a result businesses are advised to take numerous steps to prevent any damage that may result from the leak.

The first thing to do is to simply not panic. Despite how bad it sounds the breach does have one very clear silver-lining.

“The compromise of personal information can create opportunities for criminals to impersonate you but does not guarantee access to your banking profile or accounts,” said CEO of the South African Banking Risk Information Centre (SABRIC), Nischal Mewalall.  “However, criminals can use this information to trick you into disclosing your confidential banking details.”

What this means is that you, and the staff who have access to your finances and accounts need to be extremely vigilant when it comes to dealing with phone calls from people claiming to be from banks and financial institutions, or who are eager to get additional details or sell you services that may require you to divulge any further personal information.

The Southern African Fraud Preventions Services (SAFPS) has advised companies and individuals to take the following precautionary measures:

  • Do not disclose personal information such as passwords and PINs when asked to do so by anyone via telephone, fax, text messages or even email.
  • Change your passwords regularly and never share them with anyone else.
  • Verify all requests for personal information and only provide it when there is a legitimate reason to do so.
  • Experian themselves take this advice further, suggesting that anyone who is afraid they may have been affected to “Visit their online bank and financial accounts, and set up any alert features they may have, if they have not already done so. This could help save some time and keep them notified of any unusual events when they occur”.

The company also recommends that everyone checks their credit report as regularly as possible.

“You can check your credit report for free once every twelve months by visiting AnnualCreditReport.com. Checking your credit report can help you identify any unusual activity, such as new accounts, new personal information or inquiries,” says Experian CEO, Brian Cassin.

Additionally, should you suspect that your identity has been compromised, notify your bank and apply immediately for a free Protective Registration listing with SAFPS. This service alerts SAFPS members, including banks and credit providers that your identity has been compromised and additional care must be taken to confirm they are transacting with the legitimate identity holder.

Consumers wanting to apply for a Protective Registration can email SAFPS at protection@safps.org.za.

If you are uncertain as to how to proceed or if you don’t understand any of the processes, get professional help to evaluate and protect your accounts as soon as possible.

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Six Important Business Lessons From The Coronavirus Pandemic

The coronavirus pandemic arrived like a thunderbolt and the unique situations it created found many companies unprepared and disorganised. Around the world, organisations began closing as it was found their emergency planning was not up to scratch and basic functions of the company could not exist in the new world.

Now that we are half a year into the outbreak some companies are still playing catch up and many will never manage. For those who have survived and even thrived, there are plenty of lessons to take away from COVID-19 that will hopefully change the way we do business and future proof our endeavours for the inevitable coming emergencies. We discuss six of the most important business lessons we can all benefit from.

“Given the nature of the crisis, all hands should be on deck, all available tools should be used”

Christine Lagarde, President of the European Central Bank

1. Working from home is possible

Ever since the creation of the internet employees have been pushing for more opportunities to work from home and the vast majority of companies have been resisting it, worried that productivity would plummet or that team culture would suffer. With their hands forced many will now admit that working from home is not only possible but also saves the company money.

Some of the largest businesses in the world are leaning into the trend. Twitter and Square have both notified employees that they may work from home permanently if they choose, while Google and Facebook have extended work-from-home options through to the end of the year.

South African Business and Automation Analyst Grant Buchanan explains, “We are going to see a shift towards shorter and more flexible leases as firms realise they actually require significantly less floor space than before. There will be an emphasis on collaboration spaces and desk sharing and this is going to have an impact on the demand for commercial office space.”

2. Understand your whole supply chain

What the pandemic has made abundantly clear is that businesses do not operate in a vacuum. Your suppliers, in turn, have other suppliers and a disruption to one link in the chain can result in your whole business suffering. It has therefore never been more important to understand just who your suppliers are, how their businesses operate and just what sorts of emergencies may impact them down the line.

Knowing what to expect is half the battle won, as you cannot plan for emergencies you were not expecting. It’s easy to control the issues and items within your own company only to be let down by the actions of others.

Buchanan says it’s important to understand which suppliers you are dependent on for your most critical goods and services. Do you understand how many supply options you have, and do you have plans in place for if they fail to deliver? How capable are your service providers of delivering when they are ill, trade wars kick in, or their key suppliers hit snags? What sort of emergency procedures do they have in place to ensure you will not be negatively affected?

3. Communication and crisis planning is essential

During the scramble of early lockdown a number of companies realised there were flaws in their communication and crisis management systems.

While email works perfectly well in an environment where in-house emergencies can be dealt with on a quick walk across the office, employees at home required other solutions.

Does your company have a way to communicate with all employees quickly and efficiently without relying on email? There are many stories of IT managers breaking curfew to try to fire up servers that had frozen, resulting in significant delays.

The same goes for crisis management. How do you secure your premises and assets? How do you notify your staff? What systems are in place to protect them in the event of a catastrophic incident? And how do you minimise the damage from a future pandemic or related drama?

Leaders need to put plans in place, introduce new technology and train their staff in these new processes before they become necessary.

4. Use the available technology

It’s easy to get caught up using systems that have always been in place. In smaller businesses particularly it’s common to use manual systems for accounting, payroll and other functions, and companies that did this were badly exposed by the virus.

Many smaller, local retailers and restaurants were caught off-guard by the pandemic. Where they should have been at the ready to serve online customers, and provide delivery or curbside pickup to keep afloat, they instead took many months of lost income to get there.

Technological uptake has been phenomenal over the past few months. The need to meet up has seen collaboration apps booming with Zoom experiencing a 1,125% spike, Webex 560%, and Microsoft Teams 108%.

The trick is to take that collaboration app approach across the board, look closely at what solutions are already out there and find innovative ways to use that technology to make your business work away from your desk before the next event strikes.

5. Build relationships with your accountants, bankers and lawyers

Some people only see their accountant, lawyers or bankers during a crisis or tax season but these relationships have recently played an integral part in the survival of many companies.

The COVID-19 business rescue loans were implemented via the banking system, and banks, which are overloaded with applications, are giving first preference to their current customers. Those companies that have a good working relationship with their bankers appear to have more luck with these applications and get them processed faster due the banker’s familiarity with their accounts.

Similarly company accountants and lawyers have been working overtime helping their clients interpret the regulations for obtaining disaster loans and TERS funding, as well as guiding them on seldom-used aspects of business such as suspending rent payments, delaying vendor invoices, and chasing non-paying customers.

“Understanding our clients’ businesses has been integral over the last few months,” says Robin Gerhold of Gerhold & van Wyk Attorneys in Sandton. “Knowing the details of how they operate has allowed us to tailor solutions and secure aid much more easily, efficiently and ultimately, cheaply, than if we were coming in cold without that information”.

6. Broad-based skills are important

The tendency when hiring is to focus on getting in highly-trained niche experts for each position. The pandemic has, however, shown us that the organisations which were able to rethink their business model and pivot quickly had a much better chance of adapting to market conditions and surviving, and these organisations were also full of employees with broad skills, emotional agility and a wide range of competencies.

It is a well-known fact that companies should constantly be innovating, and the pandemic has shown us just why. Being able to shift quickly relies on an employee base of innovative and creative thinkers who are empowered by company culture to take risks and develop new ideas.

According to one of the world’s leading management thinkers and award-winning Harvard Medical School psychologist Susan David, organisations today, “operate within unprecedented complexity resulting from many forces including technology, globalisation, and strong competition. At present, organisations are also feeling the added impact of the COVID-19 crisis. All these pressures require companies to offer swift responses.”

However, she says, “organisations themselves can never be truly agile unless the people who work within them are agile.”

David advises hiring and rewarding out-of-the-box thinkers and supporting those who are risk-takers.

It’s impossible to ignore the difficulties of doing business in 2020. The lessons learnt this year have been hard won, but by putting them into practice, and reaching out for help when we lack the expertise, we can ensure the next set of challenges won’t be our last.

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Your SME and the Economy – Prepare for the Long Way Back

The South African economy could take as long as seven years to get back to the size of R5.1 trillion it was at the end of 2019 before Covid-19 and the national lockdown.

This forecast is according to Citadel chief economist Maarten Ackerman, who expressed this view during an interview.

Long way back

Christopher Loewald, South African Reserve Bank (SARB) head of economic research, told the Tax Indaba that it was going to take a long time to get back to a real activity level of 100% again.

During the same event, Ismail Momoniat, National Treasury Deputy Director-General for tax and financial sector policy, said that it wouldn’t be an easy road to get the South African economy back to its 2019 level.

“We need a Covid-19 vaccine, and we need to ensure that sufficient people get vaccinated. I think we need to be careful about talking about post-Covid. I think we are years away from that,” he added.

Advice for SMEs

Economists suggest that small businesses gear themselves for tough times, keep costs low, and ensure they are highly innovative.

“Small businesses need to be lean and mean. They need to have a buffer to get them through difficult times,” Ackerman said.

Every business needed to think carefully about how they expanded, he added.

Make your plans in the context of the forecasts we discuss below…

The local economy has contracted

This advice comes amid a local economy that has stagnated since 2015 and contracted for the past year, including a 51% contraction, on an annualised basis, in the second quarter because of the nationwide lockdown that started on March 27.

Sanisha Packirisamy, MMI Investments and Savings economist, said during an interview, that she was expecting the local economy to contract by 8.1% this year, followed by a muted rebound of 2% in 2021 when anticipated Eskom power cuts will constrain the economy.

Ackerman said that an 8% contraction of the local economy would be the biggest decline since 1920 when there was a 12% contraction.

A worrying sign

A worrying sign was that the outlook for fixed investment and household consumption, both key to the long-term economic health, were both bleak, Packirisamy added.

For 2022 and 2023, she is forecasting growth of about 1.5% for both years.

“We are stretched on the fiscal side, and confidence is extremely muted. We face policy uncertainty and slow structural reform. It is that combination of factors that makes it very difficult for us to grow faster,” she added.

Mild inflation outlook

The inflation outlook is positive.

Packirisamy is forecasting inflation to average 3.2% in 2020 and 3.8% in 2021 before rising to 4.5% in both 2022 and 2023.

Economists forecast that interest rates will stay low.

Packirisamy said that the SARB could cut interest rates further, but interest rates were likely to increase from the second half of 2021.

At the end of 2021, Packirisamy expected the prime interest rate to be 7.5%, and by the end of 2023, the prime interest rate maybe 8.5%.

Credit rating to fall even further

In March this year, Moody’s Investors Service cut the South African government’s credit rating to “junk” status or sub-investment grade, which is the grade that its two rivals, Fitch Ratings and S&P Global Ratings had the country on since April 2017.

“We are probably going to see more downgrades, and by 2023 the country’s credit rating will be two or three notches lower,” Ackerman said.

He said that the government was facing a fiscal crisis, and the only way for the South African state to avoid that was to embark on big expenditure cuts, but the state was baulking at doing that.

Public finances are dangerously overstretched

“Public finances are dangerously overstretched. Without urgent action…a debt crisis will follow,” the National Treasury said in July.

The government budget deficit, which is the amount by which revenue fails to fund expenditure, will widen to 15% during the fiscal year ending March 2021, according to Ackerman.

Then in the fiscal year ending March 2022, the budget deficit will recover to 10%, he expects.

In five to seven years, Ackerman forecasts that government debt will climb to 100% of GDP, he said. By comparison, the National Treasury estimates that national debt will reach 81.8% of GDP by the end of March 2021.

Unemployment rate to soar

According to Packirisamy, the unemployment rate would climb because South Africa was not growing fast enough to absorb the new people entering the labour force.

Ackerman predicts that the rate of unemployment would rise to 35% by 2023 from 30%.

South Africa needs growth of at least 3% before the unemployment rate declined, he added.

How to get out of the debt trap?

South Africa needs to get out of its debt trap by igniting economic growth. In the meantime, it needs to find international or other funding to plug the gap in the state budget.

There are fears that the state might force managers of pension funds to allocate a portion of their clients’ money to fund the running of the government and state-owned enterprises.

But Treasury’s Momoniat told the Tax Indaba that the state was not looking to put in place any prescribed asset regime.

Could an IMF bailout follow the loan?

In July, the International Monetary Fund (IMF) approved a US$4.3 billion loan to the South African government.

The state intends to borrow US$7 billion from multilateral finance institutions, including the IMF, the National Treasury said in early July.

There is a possibility that the South African government will be forced to go back to the IMF in the future for further debt in the form of a wider-ranging bailout.

“I think an IMF bailout would be very positive for markets, because it installs a bit of a policy anchor, and it forces the government to do things that it may not feel comfortable to do otherwise,” Packirisamy said.

About the value of the rand, Packirisamy said that she expected the rand would maintain its long-term depreciating bias because of South Africa’s high level of inflation when compared with its major trading partners and the deteriorating local economic fundamentals.

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August 2020 Employer Interim Reconciliation Submission: 14 September to 31 October 2020

This year, the August 2020 (202008) Employer Interim Reconciliation submission period will commence on 14 September and end on 31 October 2020.

During the Employer Interim Reconciliation, employers need to reconcile their Monthly Employer Declarations (EMP201) for the first six months of a Reconciliation Year (March to August) with the tax values of the interim IRP5/IT3(a) certificates for the same period and submit their Employer Reconciliation Declaration (EMP501).

SARS is constantly enhancing its online offering to make it easy and simple for employers to comply with their payroll tax obligations. For clarity and certainty, we introduced the following changes.

New source codes for the 2021 Year of Assessment

The following new source codes are applicable for the 2021 Year of Assessment:

  • Income code 3618/3668: Fund Administrators must use these codes to declare regular pension or purchased annuity payments originating from provident or provident preservation funds.
  • The following income codes differentiate between pension or purchased annuity payments originating from the following sources respectively:
    • 3603/3653 – pension or purchased annuity payments originating from pension or pension preservation funds,
    • 3618/3668 – pension or purchased annuity payments originating from provident or provident preservation funds,
    • 3610/3660 – pension or purchased annuity payments originating from retirement annuity funds, and
    • 3611/3661 – taxable portion of a purchased annuity paid by long-term insurers not from a retirement fund.
  • Income code 3724: Employers must use this code to declare any payment received by their employees from a COVID-19 Disaster Relief Organisation. These payments do NOT include payments received from the Unemployment Insurance Fund (UIF) Temporary Employees Relief Scheme (TERS).
    • Payments from the UIF TERS are exempt from tax and must not be reflected on the IRP5/IT3(a) certificate issue by employers to their employees.
  • Deduction code 4055: Employers must use this source code to declare any donations made by employers on behalf of employees to the COVID-19 Solidarity Fund.
    • Donations made to other qualifying COVID-19 Disaster Relief Organisations must be declared under existing deduction code 4030.
  • Information code 4587: Employers must use this code to indicate the value of the section 10(1)(o)(ii) foreign remuneration exemption taken into account for calculating PAYE.

Excessive Liability Change Workflow

SARS have found that some employers do not capture the correct PAYE liability on the monthly EMP201 returns. The incorrect calculation of the monthly PAYE liability may result in imposition of penalties and interest. This includes corrections done on the EMP501 reconciliation and any shortfall is attributed to the last month of the reconciliation period.

As from the 2019 Year of Assessment, SARS is comparing the PAYE liabilities captured on the EMP501 with the PAYE liabilities declared in the EMP201 returns and processed in the accounts for the relevant months. If the liabilities captured on the EMP501 is significantly reduced, SARS will inform the employer of the said excessive liability changes per letter. SARS will request the employer to amend its EMP501 submission. If the employer chooses not to amend the EMP501 submission, SARS will route the EMP501 for manual intervention. SARS will determine if the changes are correct based on the reason provided by the employer. If the employer did not provide sufficient motivation, SARS will engage with the employer to resolve the issue.

Employment Tax Validation

The Employer Reconciliation process is a crucial first step in the wider income tax reconciliation process enabling SARS to issue individuals with their personal income tax return prepopulated with payroll data. This, together with information from other providers of third party information, makes it easier for individuals to fulfil their income tax obligations.

Therefore, it is important that the information contained in IRP5/IT3(a) certificates is correct. SARS will validate the employment tax liabilities declared on the IRP5/IT3(a) certificates and if inconsistencies have been identified, notify employers per letter on eFiling or e@syFile™.

New Notice of Non-Compliance Penalty Assessment

From the end of September 2020, a monthly Notice of Non-Compliance Penalty Assessment will be issued to employers showing all the imposition of penalties on the account for that specific month.

e@syFile™ changes

  • Enhanced resubmission function – When a resubmission of an EMP501 reconciliation is done, e@syFile™ will include all IRP5/IT3(a) certificates instead of only the amended certificates.
  • Time-out issue resolved – The time required to download the e@syFile™ Employer varies due to network and PC configurations. In some instances, employers get a time-out notification while the download is running and they have to login again. To address this, SARS had introduced a pop-up message to advise the user that he/she cannot use e@syFile™ functions while downloading the new version.
  • Summary report – SARS will provide a summary report to employers with big payroll systems or use e@syFile™ to merge data from multiple payroll systems to verify the certificates included in a reconciliation submission. This function will be available under the EMP501 Reconciliation and will allow employers to extract a pipe delimited file for a specific period of reconciliation.

Compliance is encouraged

We thank all employers who heeded the call for compliance and successfully submitted their annual reconciliations during April/May 2020. By submitting the interim Employer Reconciliation Declaration (EMP501) for the period 1 March 2020 to 31 August 2020, you are paving the way for the submission of the annual EMP501. Any issues that may arise may be addressed timely. We encourage employers to comply and meet all their tax obligations. For information and clarity, please contact SARS through the various online channels at www.sars.gov.za > Contact Us.

Jacobs also suggested in response to questions that to allow for easier retention of staff, SMEs should review all expenses, especially rent.

A third retention tactic that he suggested was that small companies remodel the roles of their staff, so they take on extra duties or get the employees to help the company offer new services and products given the opportunities because of COVID-19.

If a company had to retrench staff, it was critical that the business part with its staff on the best possible terms so that when the economy grows again, these former employees would be keen to re-join the business.

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Tips and Ideas to Retain Your Best Staff and Skills During COVID-19

Small businesses across South Africa face the challenge of keeping their best staff and skills during the COVID-19 pandemic to ensure that they can survive these hard times and can thrive when the economy picks up again.

For small and medium enterprises (SMEs), keeping top talent is vital to ensuring that these companies deliver effective products as well as services to their clients.

This comment comes from a “thought paper” published in June this year about talent management and penned by six University of Pretoria master’s students.