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.


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 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

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 > 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.

The right talent is a differentiator

The right talent was a key differentiator for companies to gain a competitive advantage and attain future success, they wrote. They defined the right talent as “giftedness, individual strength, meta-competency, high potential and high-performance workers”.

“Employees are a crucial and valuable element of any organisation. They are the life force that drives innovation, profitability and sustainability,” they added.

Nishan Pillay, Gordon Institute of Business Science’s (Gibs) executive director for open programmes, said during an interview that it was vital for small businesses to keep their high-performing staff.

A quote to bear in mind

The master’s students’ paper included a quote that is worth bearing in mind when considering strategies to keep top people.

It comes from the former chairman of the Citicorp, Walter Wriston, who said: “Human capital will go where it is wanted, and it will stay where it is well treated.”

“In a time of…disruption, evolving technology, stiff competition, and increased demand for limited talent, no organisation wants to lose their top talent that they have invested so much in to acquire and develop,” the master’s students wrote.

Costly to replace staff that exit

Adding to the picture is that it is expensive and time-consuming to replace staff.

Alex Nieuwoudt, manager of recruitment firm Michael Page’s finance and legal team in Johannesburg, said during an interview that it could cost between R150 000 and R350 000 to fill a middle to senior role.

“Hiring people, getting them to know your culture and systems, is hugely expensive. Recruitment costs aren’t just about the agency costs of bringing someone in, it’s about the training, development and the cultural assimilation,” Gibs’ Pillay said.

Changing candidate questions

It is also worth noting that candidates that Michael Page interviewed before COVID-19 focused their questions on the job in question.

But now the critical issue for these candidates was how the company doing the hiring was coping with COVID-19, Nieuwoudt added.

It was essential to answer these questions accurately, as a new hire would find the truth once he or she joined the company and could leave if what they discover wasn’t to their liking. Thus the company would have to incur all the hiring costs again, he said.

Given this, it is essential that when small businesses advertise for a post that they have their answers ready for this burning topic.

Four strategies to keep staff

There are many strategies that companies can use to keep staff.

Nieuwoudt suggested four strategies that SMEs can consider for keeping staff. These four strategies are:

  1. Allowing staff flexible working conditions,
  2. Empowering employees,
  3. Providing virtual wellness, which is where the company gives their employees the means to operate successfully remotely while maintaining staff motivation,
  4. Promoting staff and acknowledging their achievements.

Virtual wellness is also determined by a company’s reputation, including its corporate social responsibility schemes. This measure impacts on employee mood and decisions about whether to join and then stay with the company, Nieuwoudt said.

The desire for flexible employment

Michael Page ran a poll recently, and 84% of the respondents wanted their companies to give them a permanent option to have flexible conditions of employment, Nieuwoudt said.

“This gives you an understanding of how the mind-set of employees has changed in South Africa,” he added.

“Flexible working conditions are now at the forefront of hiring conversations. It is very critical to keep that in mind,” Nieuwoudt said.

Digital working is vital

Geoff Jacobs, president of the Cape Chamber of Commerce & Industry, advised that for companies to keep their staff, it was vital for them to move to the digital way of working, especially given the COVID-19 social distancing requirements.

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.

Recruit from your pool of alumni

Karel Stanz, a University of Pretoria professor, said during an interview that hiring a company’s former employees or alumni was one of the most cost-effective ways of recruiting staff.

He is a professor in industrial psychology at the Department of Human Resource Management at the university.

Jacobs also advised that as part of the staff retention strategy, small companies should ensure frequent interaction across digital platforms.

“Build online communities that aid in social interactions for employees preferring flexible work arrangements. These online communities allow employees to interact with colleagues, superiors, and clients. It also allows the organisation to monitor the employees’ engagement levels and needs,” the University of Pretoria master’s students wrote.

These students in their paper also listed the following measures to ensure a company keeps its top staff:

  • Have a conducive company culture,
  • Provide staff with meaningful work,
  • Offer employees career advancement,
  • Provide staff with a sense of belonging.

They also referred to respect, recognition and rewards as necessary means to keep staff.

Opportunity to gain scarce skills

In a surprising turn of events, Stanz said that the COVID-19 pandemic had provided specific companies with a chance to gain scarce skills.

He said that a former student of his was working in a human resources role for a timber company in Nelspruit. Before the lockdown, it was difficult for this company to find people with technical skills such as artisans. But ArcelorMittal South Africa retrenched many people, including artisans, and this has provided the timber company with access to these skills.

Digital skills important

Dr Jabulile Msimango-Galawe, Wits Business School programme director for business and executive coaching, said in response to questions that during and after lockdown, some businesses would continue to work online.

“People in the digital space with the required skills will need to get businesses trading again, and marketing online will be in demand,” Msimango-Galawe said. These skills would include analytical and digital capabilities, she added.

Attitude is key

“From what we’ve seen in the past few months, it’s not so much skills that you need to keep, but the attitude of your staff that supports the values of the business,” Jacobs added.

Individuals with multiple skills would be in demand and the era of having one critical skill was over, Msimango-Galawe said.

Michael Page’s Nieuwoudt said that essential skills right now included candidates that helped companies achieve their employment equity targets.

Gibs’ Pillay identified types of people and critical areas of skill where small businesses needed to keep staff, and these included staff with high levels of creativity as well as those with strong people skills.

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UIF TERS Extended Once More and Certain Tax Relief Measures Have Come to an End

On 7 September 2020, the Minister of the Department of Employment and Labour announced that the Temporary Employee/Employer Relief Scheme (“TERS”), operated by the Unemployment Insurance Fund (“UIF”), will once again be extended.

The extension, starting 16 August 2020, shall remain in operation as long as the declaration of the COVID-19 State of National Disaster, in terms of the National Disaster Management Act No.57 of 2002, subsists or until withdrawn, whichever comes first.

In addition, the Minister has communicated that the UIF TERS applications for the respective claim periods of March up to July 2020 will be accepted by the online system until 15 September 2020. The applications for the July/August claim period will be accepted until 30 October 2020 (previously 15 September).

The Government Notice communicating the above can be found HERE.

This extension comes after the suspension of key management at the UIF, including the Commissioner Teboho Maruping, following the release of a report by the Auditor General stating that certain control weaknesses have been found in the payment of UIF TERS benefits.

Certain COVID-19 tax relief measures that have ended

The Skills Development Levy (“SDL”) payment holiday that has been in effect from 1 May 2020 up to 31 August 2020, has come to an end with the submission of the EMP201 by 7 September 2020.

We remind our readers that SDL will once again be payable as per normal legislation from 1 September 2020 (i.e. the first EMP201 return with SDL will be due by 7 October 2020).

The PAYE deferral relief applied to date must be repaid in six equal monthly instalments. A final amendment to the PAYE deferral legislation was made at the end of August, with very few taxpayers being able to respond in time. This amendment allowed for the PAYE deferral to apply for the month of August as well (previously the deferral stopped on 31 July 2020).

The legislation currently reflects that the PAYE deferral value must be repaid in six equal instalments as follows:

  • September 2020 – payment due by 7 October 2020;
  • October 2020 – payment is due by 6 November 2020 (last business day before the 7th);
  • November 2020 – payment is due by 7 December 2020;
  • December 2020 – payment is due by 7 January 2021;
  • January 2021 – payment is due by 5 February 2021; and
  • February 2021 – payment is due by 5 March 2021.

For our readers that did not apply PAYE Deferral relief for the month of August and paid their first instalment on the deferred value by 7 September, we suggest continuing with this payment plan and making the final instalment by 5 February 2021 (as opposed to the current deadline date of 5 March 2021).

Refer HERE for more information on the PAYE relief measure and payment details.

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Tax Incentives to Invest in Small Business: The Clock is Ticking

Creating an environment where SMMEs can thrive is inextricably linked to creating conditions in which all businesses can thrive.

National Treasury, 2019 Economic Strategy Document

The VCC (Venture Capital Companies) incentive allows a holder of shares to claim a 100% tax deduction of the cost of the shares issued by an approved VCC, provided certain requirements are met. The deduction is subject to recoupment if the VCC shares are held for less than five years.

VCCs have been investing in small and medium-sized businesses (SMEs) that include education, agriculture, renewable energy, hospitality and tourism, and student accommodation. Many of them are especially hard-hit by the strict lockdown regulations imposed on businesses.

Funding has always been a major stumbling block for start-ups, and small businesses wanting to expand. They will find it far more difficult post-COVID-19 to get access to funding.  Without the tax incentive it is possible that investments may flow offshore – investors will take their money where the rewards match the risks.

According to SARS, there were 180 registered and approved VCCs which had raised R8.3 billion at 28 February 2019.

The VCC industry body, 12J Association of South Africa, conducted its own survey on the impact investments have made to date. It released the results in June this year. 

Responses were received from 12J managers that collectively manage 106 VCCs and R9.3bn in assets under management to date.

The R9.3bn industry assets under management has been raised from over 5,500 investors, equating to an average investment amount of R1.7m per investor.

The survey report shows that the Section 12J capital raised has been invested into more than 360 small, medium and micro-sized entities which in turn support 10,500 jobs (50% of them permanent) across dozens of industries.

According to the survey the incentive has been cost-effective at an average cost per job of approximately R126,000 for each current job created. This is in contrast to current job creation focused incentives in South Africa, which allow for a required cost per job of up to R450,000.

Getting the investors

When the VCC tax incentive was introduced these companies were to be the “marketing vehicles” to attract retail investors with the tax incentive as a major advantage.

There was an initial investment limit of R750,000 per tax year and a lifetime limit of R2.25m. This limit was removed around 2011 in order to make the incentive more attractive.

However, due to several amendments to the Act, aimed at combatting perceived abuse, the incentive only really gained traction after 2015.

In July last year new caps were introduced. Investments by a natural person and trusts were capped at R2.5m and for companies investments were capped at R5m in a tax year.

Small businesses – the clock is ticking!

The regime is subject to a 12 year sunset clause that ends on 30 June 2021.

Many of the industries qualifying for VCC investments were hard hit by the impact of the COVID-19 pandemic. Survey participants expect COVID-19 to have a negative impact on the ability of SMEs to obtain equity capital over the next year and even the next two years. This is likely to manifest itself in a far higher unemployment rate and corresponding lower growth in the South African economy.

More than 75% of the participants in the industry survey said investors would not have invested their capital in SMEs, had it not been for the attractiveness of the Section 12J tax incentive.

The 12J Association of South Africa suggests that the tax incentive should be extended until at least 2027.

SMMEs will now need more support than ever before, and if your small business is struggling to find funding, ask your accountant now for advice on applying to a VCC. Unless the June 2021 sunset clause on tax incentives for section 12J funding is extended, support from investors will soon dwindle – the clock is ticking!

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POPIA (The Protection of Personal Information Act) is Now Law and the Clock is Ticking

Globally, governments are responding to the vast amounts of information flooding into the public domain due to the growth in companies like Amazon, Facebook and Twitter. As much of this information is personal, POPIA seeks to regulate how this personal information is processed and stored.

South Africa, like many countries, has a constitutional mandate to protect the right to privacy and POPIA is aimed at balancing this right with the necessity of processing personal information – employee salaries is an example.

With the Act now in effect, you have a twelve-month grace period to comply with POPIA. By 1 July 2021, all entities that process personal information need to be in compliance with the Act.

This has substantial implications for business and will be costly and time consuming to implement.

A brief overview

  • Firstly, what is personal information?  POPIA defines this as including:
    • a person’s name (including a juristic person such as a company),
    • contact details,
    • religion,
    • sexual orientation,
    • personal views,
    • private correspondence,
    • health records,
    • employment records,
    • financial records,
    • biometrics (DNA, fingerprints)
  • There are eight self-explanatory principles which govern the Act:
  1. Accountability
  2. Processing limitation
  3. Purpose
  4. Further processing limitation
  5. Information quality
  6. Openness
  7. Security
  8. Right of access
  • Further restrictions apply for the use of “special personal information” like political affiliation or sexual orientation.
  • A regulatory body known as the Information Regulator has been established with the following powers and duties:-
    • Search and seizure powers
    • May impose administrative fines
    • May sue on behalf of the subject
    • Can decide if the law is being complied with
    • Receives and acts on complaints
    • May issue notices

It is a criminal offence to make false statements to, or to not comply with notices from, the Regulator.

  • The appointment of an Information Officer. In terms of POPIA this is deemed to be the head of the organisation, such as the CEO or sole proprietor. The person may delegate this to another person. The Information Officer is to register with the Regulator.

    The role of this position is to encourage and ensure compliance with the Act, to handle queries from outside the organisation on matters relating to POPIA, to liaise with the Regulator and deal with whatever has been prescribed.
  • POPIA makes provision for cross-border uses of personal information
  • In terms of direct marketing, there is a clause requiring opt-in. This is contrary to current laws where the norm is to require opt-out. This means permission must be sought from people whose information will be used, prior to direct marketing taking place.  The only exception is in respect of existing customers/clients.

This transition period is going to be onerous on businesses. They need to determine what information falls into the Act, how it is used, protected, stored, who has access to it.  Businesses will also need to get the relevant consents from staff and other stakeholders. What privacy statements do you need to make, what protocols do you need to put in place over your information and website?

As there are onerous penalties (a fine of up to R10 million or ten years imprisonment) and these requirements concern the safety of your staff’s (amongst other) information, so it is well worth investing time and taking advice to start getting the right procedures in place now.

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Protecting your Company’s Reputation When Staff Work from Home

The number of staff working from home has surged with the lockdown, and many office-based employers now plan to keep most or all of their employees working remotely for the long term. There are of course many advantages to allowing those staff members who can work effectively from their own home offices to do so, but be aware also of the business risks that this “new normal” exposes your company to.

One of these is the increased risk of reputational harm to your business, particularly whilst the pandemic and its economic fallout continue to threaten staff morale and uncertainty is the watchword of the day. We analyse those risks and suggest some positive steps you can take to address them.

It takes a lifetime to build a good reputation, but you can lose it in a minute.

Will Rogers

Whilst many employees enjoy working from home, this is a time of uncertainty for them. They read of people being retrenched or furloughed and wonder if they are next. The isolation of working from home can fuel this uncertainty.

Yet it is these employees who daily interact with customers and other stakeholders. If staff have negative feelings about the company, this can be quickly picked up by customers. Social media can spread this quickly and suddenly management have to start undertaking damage control. Recently, an English business decided to not pay staff until the government’s wage subsidy kicked in. Following an outcry, management swiftly reversed this and paid the staff. Contrast this with Quickbooks who kept their cleaning staff on full pay despite empty offices and L’Oreal have made a point of paying small suppliers quicker than usual.

Don’t think short term

The decisions you make send out signals to your staff and they are much more likely to view you favourably if you are showing fairness to your stakeholders.

Think also of your investors – they tend to support businesses where carefully considered long-term decisions are made by management. Don’t forget having a holistic outlook and making the environmental, social and governance (ESG) criteria part of your strategies.

Communicate effectively

In a recent case, staff supported management putting them on furlough after they were persuaded by management that this was the best long-term strategy to preserve jobs in the business.

Staff are more motivated if they know they have commitment and active support from their bosses.

IBM have started a program of supporting employees who need to take out time to educate their children or look after family members. They have also encouraged their staff to raise any individual difficulties they have with their managers. Introducing this type of flexibility makes managers’ jobs harder to do and IBM have created separate online chat channels for managers to network with their peers and find solutions to employees’ problems.

Other companies with diversity in the workplace have openly supported Black Lives Matter and have made sure that when there are pay cuts or retrenchments, there is no discrimination against minorities.

The world has changed and become more uncertain and more flexible. You need to plan carefully and act to ensure you stay on top of the situation and keep the support of your staff.

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Talk to your Tax Practitioner before accepting SARS’s new auto-assessment

Last month the South African Revenue Services (SARS) announced the mass roll-out of its auto-assessment of taxpayers earning salaries, but as many tax and accounting practitioners have already discovered, this may deny clients lawful and valid claims.

SARS Commissioner Edward Kieswetter announced the mass roll-out of auto-assessment, which he said would alleviate the administrative burden on his staff. But comments from several tax practitioners cast doubt on the advisability of accepting auto-assessments from SARS.

Many tax practitioners are advising their clients not to blindly accept the auto-assessment from SARS as they may lose out claiming valid additional deductions or worse, not declare all their income, which is an offence and may land them in hot water. 

The SA Institute of Business Accountants (SAIBA) CEO, Nicolaas van Wyk, stated that, “practitioners have an ethical responsibility to inform their clients of their taxpayer rights and responsibilities. All income must be declared and all valid deductions such as travel, medical, office expenses must be claimed. Tax practitioners must ensure that taxpayers receive the best advice and guidance so that they only pay the correct amount of tax and claim all the deductions they are allowed. The auto-assessment does not necessarily capture all this data correctly”.

In August 2020, SARS will be implementing an auto-assessment to some individual taxpayers. Taxpayers may receive an SMS if they are selected to be auto-assessed. Essentially this means that SARS attempted to complete your tax return based on third party data alone (such as IRP5, medical, investments). The intention is to save costs of filing and streamline the process. However taxpayers must still ensure they agree or declare all income and expenses. They need a tax practitioner for this.

“SAIBA urges taxpayers to contact their tax practitioner first before accepting the auto-assessment”, says van Wyk. 

Tax practitioners are duty bound to act in the best interest of their clients. This means carefully reviewing their tax affairs to ensure they can claim all allowable deductions and disclose all relevant income. In this way they make sure their clients claim or are refunded the legally appropriate amount, and not what SARS says you must pay.

It may be safer for some taxpayers not to accept the auto-assessment but rather file tax returns (as before) from the 1 September. Doing so will prevent the following scenarios from happening:

  • Potentially no/or a reduced tax refund because SARS doesn’t have all the client data
  • Potential errors as SARS may not have the latest tax certificates from the employer
  • No ability to claim tax deductions which will not appear on your auto-assessment e.g. medical expenses, donations, home office, wear and tear, etc.

SAIBA’s regional head for the West Rand, Grant Richardson, says the auto-assessment could infringe on taxpayer rights. “There are several problems we have encountered with the auto-assessment. For example, travel allowances do not distinguish between business and private travel. That information must be input manually into the system, otherwise you will get an incorrect allowance and therefore pay too much tax. There are other areas that will also result in the auto-assessment throwing out a figure which is to the benefit of SARS, but not to the client.”

SAIBA members and practitioners point to several areas where the auto-assessment is throwing out incorrect assessments based on wrong data. These include allowable deductions for Retirement Annuity contributions, interest income and medical expenditure which may not be detailed on IRP5 forms. These must be manually entered in order to avoid a tax overcharge by SARS.

Tax filing dates

The new filing dates for the 2020 tax filing season, which cover income/expenses from 1 March 2019 to 28 February 2020, will be as follows:

  • Salary earning (non-provisional) taxpayers who file online: 1 September 2020 to 16 November 2020
  • Provisional taxpayers who file online: 1 September 2020 to 31 January 2021
  • Branch filers (By Appointment): 1 September 2020 to 22 October 2020.

Should you like assistance with submitting your tax return, contact us at  

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Retrenched or dismissed? You could qualify for UIF Unemployment Benefits

With the recent changes in the economy and with TERS benefits lasting an uncertain amount of time, we realise that retrenchments are sadly a reality.

The UIF’s COVID-19 and lockdown specific benefit, Temporary Employer/Employee Relief Scheme (TERS), has helped thousands of employers retain their staff and ensure staff earned some income during the period, however the financial strain that has been placed on employers has led to many having to lay-off their employees.

However, the UIF still offers relief to employees that have been retrenched, dismissed or whose contracts have expired through the unemployment benefits.

1. How does the Unemployment Benefits work?

The UIF will pay up to 238 days to those who have been working and contributing to UIF for 4 years. The UIF rates are determined by a scale of benefits that range between 30-60% of your salary for the first 238 credit days and another flat 20% from 239 days to 365 credit days. Low-income earners receive a higher UIF percentage.

2. Who can apply for the benefits?

Anyone who has been contributing to the Fund and has been retrenched, dismissed or contract has expired can claim. Furthermore, employees who have more than one employer and whose services have been terminated by one employer can still apply. Employees can apply up to 6 months after employment has been terminated.

We are now offering a new service for those wanting to claim for Unemployment Benefits.

Let us at Emma Pardoe Chartered Accountant (SA) assist, apply and advise you on UIF benefits available, if your employment has been terminated recently.

For businesses, it may be a goodwill gesture to assist your retrenched staff with starting these claims, else kindly please pass our details along to those employees so we can assist them directly in their personal capacities.

Should you be interested in our services or have any queries, contact us at  

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Fraudsters are Everywhere: Cybercrime up 667% since Lockdown

It didn’t take the online fraudsters long to realise that the coronavirus lockdown has opened up a whole new avenue of opportunity for them.

Malware, phishing and ransomware attacks are surging, and schemes offering some form of financial relief are particularly evident. All forms of online communication including emails, SMSes and Social Media posts should be treated with caution. We share tips on how to protect yourself and your business in these dangerous times, with news on some of the more common scams going around and a link to the latest examples identified by SARS.

There has been a surge in internet scams over the past three months – from malware, phishing and ransomware to obtaining your log-in details.

Take extra precautions such as dual authorisations for payment, carefully validate new beneficiaries and get your IT staff or consultants to regularly check that no malware is loaded onto your IT platforms.

Recently, SMSes were being sent out from the “Public Investment Corporation (PIC)”, promising money from a “Business Personal Relief Fund”. If you replied, you got an approval letter and money was promised once you paid a “handling fee”. If you Google the PIC, there is no mention of Covid-19 relief money.

SARS have reported scams whereby taxpayers get messages from “SARS” about their income tax return or about an audit on the taxpayer or asking for missing documents and you are asked to disclose confidential information in your reply to “SARS”. See some examples of the latest scams on the SARS “Scams and Phishing Attacks” page.

There are other scams involving Transnet.

Treat emails, SMSes, and Social Media with caution, particularly if you get offered some form of relief.

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Who will Emerge as Winners and Losers in the Post Covid-19 Marketplace?

As we wend our weary way through the pandemic and the lockdown’s economic fallout, let’s not lose sight of the fact that eventually we will inevitably return to some form of “normal”. As the wry Internet joke has it “This too will pass. It may pass like a kidney stone, but it will pass.” We can all of us – businesses, investors, individuals planning our futures – profit from understanding how there will be both winners and losers emerging from this period of fundamental disruption. We analyse the evolving trends that are driving and will continue to drive this process, with examples of those sectors expected to end up as big winners, and of those predicted to be big losers.

Many trends that emerged in the lockdown period will almost certainly continue post Covid-19. Technology, for example, has received a huge boost with products like Zoom now household names.

One thing we shouldn’t forget is that periods of anxiety and boredom provide a perfect platform for creativity to flourish. Hopefully, many of you have taken the extra time that lockdown gave you to flesh out the idea that you have had for many years.

The winners are…  

The big trend of the global lockdown has been the move to working from home which  has worked out well and is set to continue.

There will be many spinoffs from this:

  • Home improvements will benefit as people spending a lot more time at home  will become aware of items that can enhance their houses. Furniture companies will get more business. Redecorating businesses will also see an uptick in their sales as will TV and sound systems suppliers.
  • The businesses where staff work at home will be able to scale back on the size of their offices (there will still be a demand for offices, but it will be reduced). As rent is usually one of the high cost items that most businesses have, this downsizing will contribute to cost reduction. Another cost saving will be in reduced travel costs as staff will continue to take advantage of virtual meetings and save travel time – companies will see less airfares and petrol costs along with reduced accommodation and meal costs.
  • With the reality of climate change and the petrol industry slowly dying, there will be renewed focus on solar and wind energy. This swing to renewable energy will bring in a new surge in investment – something badly needed in the difficult economic times ahead.
  • Smaller towns stand to gain from this as people working from home realise they can relocate to a simpler, healthier lifestyle (a recent survey in New York showed that 50% of those surveyed would like to move out of big cities). Already parts of the Karoo are marketing the attractiveness of living in quieter and cleaner areas and are upgrading technology so that people can work there.  
  • Distributors and online shopping should continue to be amongst the winners as consumers see how convenient and efficient ordering online is.   
  • Health products and pharmaceuticals should also be successful post Covid-19 as people have grasped how important staying healthy is.

And the losers…

  • The property sector has already taken some body blows – the retail sector and shopping malls will need to think creatively as consumers take to online shopping and spending will remain weak for a while. Whilst an obvious solution might be to convert shopping malls into residential units, the potential trend of people moving out of the large cities could negate this. Office blocks will also be under pressure as demand for office space will likely continue to fall. Again, creative thinking may be needed, perhaps along the lines of office “hot seating” i.e. allowing different people to book a desk for say a day or a few days a week, or conversion to residential or small industrial units. Industrial properties may experience some success as distribution centres for online sales grow and companies bring crucial parts of their supply chain back from overseas production.
  • The coal, oil and gas industry will continue to decline. Before Covid-19, many financial institutions were refusing to finance projects in these fields and they expect renewables and electric cars to become more prominent.
  • Tourism and the travel industry will take time to recover as consumer spend will remain muted due to ongoing job losses. This will have knock-on effects on restaurants, hotels and bed and breakfast facilities which additionally have been struggling with lockdown restrictions.

It will take a while for the world and South Africa to recover from Covid-19 with forecasts that the first world will not get back economically to where it was in 2019, until at least 2022. In South Africa it will take even longer.

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Tax Season 2020 will be Easier Thanks to SARS’ New Approach!

SARS has announced changes to this year’s tax filing season, driven partly by its ongoing innovation program and partly by the Covid-19 pandemic. Whilst as author Margaret Mitchell pointed out there never is a convenient time for “death, taxes and childbirth”, SARS’ new changes offer time-saving benefits to taxpayers, and it is important to understand how they will impact on us in practice.

To that end we set out how Tax Season 2020 is now split into three time frames. We discuss each of them, with additional insight into the “auto assessment” notices that will be sent via SMS. We end with a table conveniently summarising the deadlines.

Death, taxes and childbirth! There’s never any convenient time for any of them.

Margaret Mitchell, Gone with the Wind

This year’s tax season will unfold in a different manner to previous years. These changes have been driven by ongoing innovation at SARS and by the Covid-19 pandemic.

The tax season is split into three time frames:

1. April 15 to May 31

This is the period when employers submit their reconciliation of employee earnings and all third party information providers (providers of interest certificates, medical aid certificates, retirement earnings are three examples) send their certificates to SARS and the relevant individuals.

All of the above had to be with SARS by the end of May.

SARS have used this time to verify information from the National Population Register, the Deeds Office and the Companies’ Register.

As all of this information becomes available, SARS have begun populating individuals’ tax returns.

2. June 1 to August 31

Taxpayers need to ensure that all their information is up to date and accurate – for example, if they have moved, they need to reflect their new address on eFiling.  Taxpayers should also be testing their eFiling usernames and passwords and ensuring they can communicate electronically with SARS. They should also verify that all third party information is correct.

SARS will be following up on third party information, checking it for accuracy. In cases where SARS finds substantial non-compliance, they may lay criminal charges against third party information providers (including employers).

Auto Assessments

During this period SARS will issue a large number of taxpayers with auto assessment notices via sms and taxpayers need to check theirs on SARS eFiling or SARS MobiApp and indicate to SARS if they accept the assessment outcome. Where the taxpayer accepts the outcome of the auto-assessment, the taxpayer will not be required to submit a return.

The auto assessment process will take a significant amount of work out of the tax season – many taxpayers benefit by not needing to submit a return and SARS do not need to assist that many people in SARS branches plus they save much admin work.

SARS will notify taxpayers whose third party data is compliant that they may file early i.e. before September 1.

3. September 1 to January 31

SARS will issue a public notice to confirm which taxpayers need to submit a return.

Those taxpayers who file manually at a SARS branch must do so by October 22. Taxpayers must make an appointment online to see an assessor and need to arrive on time for their meeting with a reference number SMSed to them by SARS. Due to the impact of Covid-19, these appointment rules by SARS will be rigidly enforced.  

Non-provisional taxpayers who file electronically have until November 16 to submit their tax return on SARS eFiling.

Provisional taxpayers who complete their return electronically must do so on or by January 31, 2021.  

To summarise due dates:


Type of Taxpayer Channel Due Date
Non-provisional and provisional taxpayers Manually at a SARS Branch 22 October 2020
Non-provisional taxpayers File electronically 16 November 2020
Provisional taxpayers File electronically 31 January 2021

Although there will be the inevitable teething problems with the new approach, it offers time saving for both taxpayers and SARS.

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Technology, COVID-19 and How the World Will Change

We must all adapt to the rapidly-changing world thrown at us by the pandemic. We have no alternative – both our businesses and our personal lives are already deeply dissimilar to what they were only a few short months ago, and there is no sign that things will start stabilising any time soon. What part is technology playing in this process, what part will it play in the future, and will it be used as a weapon or as a helpful tool? What will our post-pandemic world look like? Who better to ask than the President of Microsoft, so we share his thoughts on these questions in a discussion ranging from the impact of online crime to the future of offices and the shift to remote working, the fight against fake news, the role of Artificial Intelligence, and much more.   

“Where are decades where nothing happens; and there are weeks where decades happen”

Vladimir Lenin

In a recent seminar, the President of Microsoft, Brad Smith, gave his thoughts on what is unfolding in business due to COVID-19, plus how he saw the post-pandemic world.

Fasten your seatbelts!

Ransomware and hacking rose to high levels in 2019 and there is no sign this is abating. For example, private patient data is being hacked in U.S. hospitals with demands that unless a ransom is paid, the data will be put in the public domain.  

As many people now work from home, so vulnerability to being hacked is rising. People should “strap on their seatbelts” and take precautions – a two-pronged approach is often used now and is effective in containing the vast majority of hackers. For example, using a password and then getting an SMS to use a PIN to activate a PC.

Up your digital skills

Working from home will almost certainly continue to be widely used after the pandemic is over, so it will pay long term dividends for staff to hone their digital skills now.

These two points may seem obvious, yet in the rush to swiftly react to COVID-19, they are often being overlooked.

Keep your company culture alive

Spending most of your day looking at a screen is not conducive to fostering the business’s culture. Frequent news on how people in the company are doing plus the company’s performance and human interest stories such as how the company is helping its staff and communities in alleviating the plight of those adversely affected by the Coronavirus will help to lift the spirits of your staff.

The future of offices

The trend of working from home has been successful and Smith expects some form of hybrid between employees at the office and working from home to emerge in the post-pandemic years. The saving in travel time resulting in increased productivity plus a greener environment from less travel ensure that working from home will be a feature in future business. But there will still always be a need in many businesses for an office. Let’s not forget that man is a social animal and requires human contact.

Upheavals, history and massive changes

Great events have long lasting impacts on future generations. The Second World War transformed air travel from a small elite industry into a mass transport business which led to massive growth in airlines and the tourism sector. It also gave impetus to globalisation.

Another trend from the Second World War that has had a lasting effect was the harnessing of research at universities by governments which led to technological breakthroughs.

With the aftermath of COVID-19, Smith expects that online business will be fully embedded in businesses due to the innovation surge which has followed the emergence of Coronavirus.

Another important feature has been the rapid assimilation of data to help governments quickly understand and fight COVID-19. As the stakes in this pandemic are extremely high, the emphasis has been on providing fact-based information which is transparent and can be interrogated. The search for a vaccine illustrates this – usually it takes up to ten years to find a vaccine but there is hope that this can be reduced to ten months and be ready before the end of the year.

6 Principles to fight fake news

A bugbear for all countries that just seems to keep growing is “fake news” and the growing amount of false information on the internet. Smith says that disinformation spreaders have found it difficult to fight the massive amount of scientific data that has been put out in fighting COVID-19. Microsoft now uses six principles when developing software to support open government, which are:

  1. Fairness – all people will be treated fairly.
  2. Transparency – the system will be fully documented, and capabilities and limitations will be set out.
  3. Accountability – technology can have a significant impact on people and an appropriate level of human control will be exercised to prevent adverse consequences from occurring.
  4. Non-discriminatory – no unlawful discrimination will be allowed.
  5. Notice and Consent – people subject to the technology must consent to its use.
  6. Lawful Surveillance – Microsoft will campaign for people’s rights to not be infringed by use of software.

Smith said if these principles can be accepted as an industry standard, it will promote openness which will reduce the impact of “fake news”.  

There has been limited application for Artificial Intelligence (AI) in combating the virus, but it has been useful for example in diagnosing whether a caller needs to come into a clinic or hospital and take a coronavirus test. This allows medical staff to focus on helping the confirmed sick. AI is also being used to predict how severely affected each patient who tests positive will be and it helps tailor the treatment the person should undergo.

Lastly, and very importantly, it has shown how important co-operation is in finding answers to COVID-19. Without multilateral and bilateral approaches, it will take longer to find solutions.

Smith said technology can be used either as a weapon or a helpful tool. It is up to governments and civil societies to ensure that it is used as the latter.

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Is Passwordless Authentication the Next Big Step?

Cyber criminals are daily finding new and inventive ways to breach our online defences, to hack our websites, to defraud us (and our customers, suppliers, employees and families), and to generally force us to spend more and more valuable resources on protecting ourselves.

The question is, are passwords still the answer? We start off with some concerning stats in this regard and a discussion on how having to constantly manage passwords is impacting on both our businesses and the global economy. Which brings us to the million dollar question: “Could passwordless authentication be the way to go?”

This is an evolving topic – don’t get left behind!

Consider these facts:

  • Over 80% of hacking is password related.
  • In the first world the average cost of fixing a successful hack is $3.9 million.
  • The average person spends 11 hours a year changing or resetting his or her passwords. For a company with approximately 15,000 employees, the cost of this is $5.2 million per annum, including a cost of $1 million for password resets alone.
  • This average person has between 25 to 85 passwords for the various applications he or she uses.
  • In online retail, 90% of attempts to get into the website are by hackers who have a success rate of about 1%.

The implications for world economic growth and for business

These statistics adversely impact customers who find using the internet a stressful experience and thus often limit the time they spend on the Web. Research indicates that most consumers will pay a premium to have a pleasant online experience – no passwords expired, no one time pins etc.

For businesses the main issue is the time spent in ensuring their internet gateways are safe from hackers to avoid the reputational and other damage they will suffer if they are hacked. Invariably, this leads to more complexity which scares off customers, encourages hackers to find flaws and so the spiral continues.

Nor is this only dragging down businesses, it also has a sizeable effect on the global economy. Just look at the world’s ten largest companies:

The seven companies shown in blue above are based on a “platform model”, highlighting the importance of this issue to the world’s economy. With seven of the companies in the tech sector and two in financial services (Berkshire Hathaway, J.P. Morgan), it is obvious just how important their internet platforms are to their success.

The solution

A good solution will need to have the following elements:

  1. Security, for obvious reasons.
  2. Privacy – with the pending full commencement of the Protection of Personal Information Act this will become an even more important element.
  3. Sustainability – it needs to be robust, flexible and long lasting.
  4. Inclusive – with the rapid breakout of people into distinct groupings (LGBT, #Metoo etc), the solution must cater for all these needs.
  5. Scalability – as the world is making greater use of the internet, any new system must be able to rapidly scale up.
  6. Pleasant user experience – it needs to be easy to use.

This solution should move away from passwords towards alternatives like biometrics (facial recognition, fingerprint authentication and the like), QR code authentication and even to the system recognising unique habits you have like how you toggle a mouse.

These solutions are becoming more available and in the US companies which have moved away from passwords are finding their sales line growing, costs being reduced, productivity rising and happy customers.

Make sure you don’t lag behind your competitors in this important developing field.

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Tips for Managing your Staff Working from Home

One of our new realities in this topsy-turvy world of global crisis is the many businesses that have had to close their offices and work remotely.

The resultant explosion in the number of people working from their home environments brings with it many serious challenges for businesses. Fortunately however there is a lot of guidance available on how to maintain high levels of morale, loyalty and productivity amongst your work-from-home employees. For example, researchers at Harvard University have identified five main areas as key to achieving the best possible results from a remote working situation. Read on for some thoughts on them.

In this brave new world of COVID-19, many people are working from home. Even after there is a cure for the virus, this trend will likely continue. Researchers at Harvard University have come up with some good ways to ensure you get maximum productivity and loyalty from your employees working remotely.

Key Points

  • Both managers and staff miss face to face meetings – managers worry how effectively their people are working and employees miss the support and guidance they get from managers. Managers should introduce structure and discipline into their interactions with their staff – setting up a time each day (or whatever is needed) to connect to each other and, possibly, the team the employee is in. This can cover all the employee’s and team’s work requirements, bringing them up to date with events in the company. Not only does this improve productivity but it increases staff morale and loyalty.
  • Access to information can become difficult between staff members – for example, a relatively new employee asks a staff member for information who initially ignores the request until the new staff person starts sending out more aggressive emails. Managers need to be aware of this type of conflict and focus on new employees to iron out any potential difficulties.
  • Employees get lonely and can over time feel they’ve been cut adrift which is bad for their stress levels and can lead to a drop in productivity. If managers don’t have good listening skills and empathy, then they need to add these to their armoury and be on the lookout for loneliness manifesting in people who report to them. In the initial stages, it may pay to also have Human Resources contact employees working remotely.
  • Home distractions. Working from home can lead to distractions of members of staff by spouses and family. The company needs to ensure that the employee has the required technology and IT security in his or her home. Having a separate office in their homes is also important.
  • Staff need time to catch up with their colleagues’ personal lives and the manager should allow time for this when there are video calls. This will reinforce that employees belong to and are part of a team.

There is much to learn in terms of skills and keeping staff morale and productivity at high levels, when employees work from home.     

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Be Ready for a SARS Lifestyle Audit

Being suddenly subjected to a SARS “Lifestyle Audit” is a nerve wracking business with the risk of penalties of up to 200%, backdated interest, and criminal prosecution.

What external sources of information does SARS have access to? How does SARS select targets for lifestyle audit? If you are unlucky enough to be selected, what will happen and how can you be prepared? Can you refuse to co-operate and/or demand access to information from SARS before complying? We address those questions and discuss a High Court decision in which an individual faced the imprisonment for failing to answer a lifestyle questionnaire.

We read about Eskom staff having to undergo lifestyle audits so that corruption can be identified and stamped out.

SARS have been conducting lifestyle audits since 2007. These audits are conducted when SARS suspects that the taxpayer is not declaring all his or her income and thus is underpaying tax due.

SARS have access to many sources of information

Data can be accessed from:

  • Your banks
  • The Deeds Office for property transactions
  • Financial institutions for mortgage loans or motor vehicle finance
  • Vehicle registrations
  • Social and other media where your lifestyle can be ascertained
  • Perhaps most significantly jealous neighbours or “friends” who tip off SARS that your lifestyle exceeds the purported income you earn (SARS actively encourage people to tip them off when they think people they know are living beyond their means).

How do SARS select people for lifestyle audits?

SARS does not disclose the criteria it uses to start probing taxpayer’s affairs or how it selects those who have to complete a lifestyle audit. If you are selected, you have to complete the audit in the time set out by SARS.

One individual selected demanded to know the reasons why he was picked, and refused to complete the 26 page “lifestyle questionnaire” sent to him by SARS (seemingly after a ‘third party’ tip off). He had never registered as a taxpayer, nor had he ever submitted tax returns. The matter went to the High Court which rejected the individual’s right to demand “SARS confidential information” and ordered him to provide the information required by SARS, on pain of committal to prison for contempt of court until he submitted the lifestyle questionnaire.

What to expect if you are selected

You will need to provide details of day to day living expenses including rent or bond payments, groceries, entertainment, vehicle expenses, holidays – in fact every item of cost you and people related to you incur. These will be reconciled to bank statements. In addition, SARS will probe all sources of your income.

In doing this process SARS can request information going back five years. If you don’t have the necessary documentation to justify income or expenditure, then SARS can levy taxes on these amounts. Keep good records.

It pays to be honest and as thorough as possible when completing this process. As noted above SARS have many sources of information to check the data provided by you.

The bad news

If a taxpayer has been under-declaring income or cannot justify expenses that have been claimed, then SARS will issue assessments for these amounts. Penalties of up to 200%, plus interest may be levied by SARS who can also report the taxpayer to the National Prosecuting Authority for potential criminal proceedings. The only bit of good news is that SARS do not use search and seizure operations when conducting lifestyle audits – these are for criminal cases that SARS pursues.

Lifestyle audits are nerve racking and risky for taxpayers. Keep good records and consult your accountant before submitting information to SARS.

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Businesses: How to Survive the Coronavirus Panic

No one knows for certain just how serious the eventual economic fallout from the COVID-19 coronavirus pandemic will be, but at the very least businesses will face their most challenging times since 2008. Quite possibly it will be a lot worse.

For the moment you will want to concentrate on business survival, to which end we share some practical ideas on how you can respond to the crisis. Businesses that react calmly and sensibly in this time of panic won’t just maximise their chances of survival; they could even end up strengthening their position in readiness for the inevitable recovery and upturn…

“Never let a good crisis go to waste”

Winston Churchill

Globally, the COVID-19 coronavirus has spread panic amongst societies and markets. Businesses are suffering their most challenging times since the 2008 Global Financial Crisis.

This is the time for urgently reviewing how events have affected your business and how you can respond to the seeming chaos.

Cash is King

When faced with great uncertainty, conserve cash and shore up all your credit lines. This will give you greater flexibility when strategizing a response to the Coronavirus. You may, for example, be able to buy a crucial stock item for a discount from one of your suppliers, thus ensuring that you can continue operating. Apart from strengthening your position with your competitors, this could help the supplier to remain in business – relationships are important, and this supplier will be grateful to you.

Trim costs wherever you can – some of this is being done for you as many companies are cancelling travel, resulting in many meetings and conferences being called off. Capital expenditure is being pruned globally and there may be opportunities to delay some of your current capex.

Keep your Staff Healthy

Apple has already told staff to work from home to reduce the risk of catching or spreading the coronavirus. Desks are being spaced to reduce the possibility of catching the virus and meetings are being cancelled or are taking place electronically.

Make sure the risk of staff catching the virus is minimised and have a succession plan if some key members are incapacitated by the coronavirus. Take particular care of staff members who have health issues, as they could become seriously ill or die if they catch the virus. As health authorities are advising people to frequently wash their hands, ensure that you have enough hand washing dispensers.

As many of your staff will be working from home using smart phones and their own desktops, have your IT department mitigate the risks of hacking or computer viruses getting into your IT platform.

Perhaps, most importantly, communicate often with your employees and managers. Regularly follow updates from the World Health Organisation and the local Department of Health. This is a time of uncertainty, as there is no definitive knowledge on how the coronavirus will evolve and thus sharing the information you gather on the disease, will improve the health and morale of staff in your business.

The Occupational Health and Safety Act imposes obligations on employers to provide a healthy environment for their staff. Much of the above is in line with ensuring that you comply with that Act’s requirements, but you need to ensure your organisation is compliant with the legislation.

Your Supply Chain

This is clearly a key area and working out the risks of suppliers and contractors being unable to supply you is a key task. Some of the important areas will be changing your safety stock holdings, reviewing your contracts with stakeholders and assessing the risks and the consequences of default. This is where it really pays to have cash.

As we said above, keep in mind the long term relationships with suppliers.

You also need to review your insurance policies – will they pay out if certain scenarios unfold? Do you need to take out different policies?

Reacting, planning and preparing strategies will ensure you have the agility to ride out this crisis and may even strengthen your position with competitors. 

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How Different Will Our Landscape be Post-Coronavirus?

Predicting the future can never be easy, but all of us need to prepare as best we can for the future landscape that will greet us when the current COVID-19 crisis is finally over. Perhaps we can learn a lesson or two from the history of the world’s past global pandemics and their after-effects on people, societies, and economies.

With that in mind, commentators have suggested four main trends which they think likely to characterise our post-coronavirus world.

“Forewarned being forearmed”, let’s have a look at them…

“Prediction is very difficult, especially if it’s about the future”

Niels Bohr

Pandemics kill more people than wars – the introduction of the Black Death plague led to 14th Century Europe losing 40% of its population within two years. What will our world look like when normal life begins to return?

Predicting the future can never be an exact science, but the consensus seems to be that the following four main trends are, in line with historical precedent (except perhaps the 1918 Flu Pandemic which was dwarfed by the effects of the First World War) likely to await us –

1. Labour is stronger, capital is weaker

A recurring feature of pandemics is that workers get higher wages for up to four decades after the end of the pandemic. Already, a strike at Amazon has led to better benefits for workers. In South Africa, we have seen health workers demanding better protective equipment. Research shows that this increase comes at the expense of capital which means lower returns for shareholders.

2.Globalisation will be weakened

Coronavirus has exposed the flaws within global supply chains, such as an overreliance on China supplying key medical ingredients. Governments are reducing this risk by turning to local manufacture and services for such ingredients. Thus, globalisation will be clipped in favour of local production and services – creating opportunities for South African companies.

3. Slow Recovery

The end of a war is accompanied by massive investment as businesses and infrastructure are rebuilt. This usually quickens economic growth. Pandemics result in no or anaemic growth – there is no scope for massive investment and economic recovery takes a while to reboot.

This is exacerbated by people feeling down and exhausted after the pandemic. They are cautious and save money, contributing further to the economic malaise. This reduction in economic activity leads to low interest rates.

4. Victimisation

Another thread running through post-pandemic times is people looking for someone to blame for the virus – often foreigners become the targets. Here with our record of xenophobia, this is something we need to guard against.

Whilst the historical evidence of events after a pandemic points to difficult times, there may be opportunities for your business in, for example, the reduced global supply chain. You will also need to keep an eye on your staff to keep their morale up.

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COVID-19 Lockdown: Relief Programmes for Businesses and SMMEs

The National Lockdown, recently extended for another two weeks, presents businesses of all sizes with an unprecedented set of existential challenges.

Of course sooner or later this crisis will end, but for now it is a case of survival for many businesses, and particularly for those smaller enterprises forced now to close for 21 days. Don’t despair, help is at hand! We list the various relief initiatives announced to date. The list will change, as will the details of and processes for accessing each initiative, but be aware of, and take advantage of, the assistance that is out there – or will be out there shortly.

We will prioritise the lives and livelihoods of our people above all else, and will use all of the measures that are within our power to protect them from the economic consequences of this pandemic

President Cyril Ramaphosa

The President assuring the nation that their lives and livelihoods will remain a priority, has announced a variety of initiatives to assist SMMEs (Small, Medium and Micro-Enterprises) that will need assistance in surviving the three week lockdown and economic disruptions flowing from the COVID-19 coronavirus.

Please note these are new initiatives, so expect delays, changes to schemes, new proposals and differing interpretations.  Everyone’s patience will be tested!

Some of the announced measures discussed below still need to be enacted and may be different when they are finalized.  Expect ongoing changes and keep Googling for ongoing lists of proposed and implemented avenues of business relief.

1st: UIF Money

The UIF has an estimated surplus of R180 billion and this is the logical first port of call when looking at incentives, especially as money given by the UIF is not a loan, and thus doesn’t have to be repaid. There are two routes to access this money – using the traditional UIF method (National Disaster Benefit) or making use of the new Temporary Employer/Employee Relief Scheme (TERS) which is discussed below.

For either method, the employer must be registered with the UIF and be making monthly contributions. If you are behind on contributions, you can pay in any backlog you have.

National Disaster Benefit

  1. Temporary shut down

    If the employer temporarily shuts down the business, then the UIF will pay out R3 500 per employee per month for up to three months. Documents needed:
    • A letter from the employer confirming the operation is temporarily closing down due to the coronavirus
    • A copy of the employee’s ID
    • UI19 and UI12.7 (employer to complete)
    • UI2.1 – application form
    • UI2.8 – Confirmation of bank account

  2. Reduced work time

    The payout is the difference between what the employer pays and UIF benefits.

    • Forms to be Completed:
      • UI19 and UI2.7 (completed by Employer)
      • UI 2.1 (application)
      • UI 2.8 (bank form completed by the bank)
      • A letter from the Employer confirming Reduced Work Time is due to the coronavirus
      • Copy of ID document

  3. Quarantine and illness

    In cases where employees are put in isolation for 14 days or more.

    • Requirements:
      • Letters from the employer and employee that the person is in quarantine. No medical certificate is needed
      • If the quarantine is longer than 14 days, a certificate is required from the employee’s doctor, along with the form UI3

    • Forms to be Completed:
      • UI19 and UI2.7 (completed by Employer)
      • UI2.2 (a portion of which is completed by the Doctor)
      • UI 2.8 (bank form completed by the bank)
      • Copy of ID document

  4. Death benefits

    If the employee dies, the UIF will pay the funds to beneficiaries.

    • Forms to be Completed:
      • UI19 and UI 53 (completed by the Employer)
      • UI 2.5 or UI2.6 (deceased application)
      • Death Certificate
      • ID of deceased and applicant
      • UI 2.8 (bank form completed by the bank)
      • Copy of ID documen

You can also download the UIF’s “Easy-Aid Guide for Employers” here.

Temporary Employee/Employer Relief Scheme (TERS)

This applies to businesses who temporarily shut down – a three-month period is envisioned but this could be extended. The UIF then pays salaries to all staff, based on the current UIF pay outs – a maximum of R6 731 p.m. for staff earning R17 162 or more down to the minimum wage of R3 500.

There is quite a bit of documentation here – send an email to and you will get the forms to be completed and other requirements needed.

A Memorandum of Agreement is signed and the employer submits (in the required format) a spreadsheet of employee details and salary, proof of payment of the last 3 months’ salaries, bank confirmation of the applicable bank account.

You will need to open a separate bank account for this and prove each month that all staff have been paid.

There is quite a bit of work here and getting the forms accurate will prevent delays in payment.

Which of the two schemes to choose from depends on your business – there is some crossover, for example, quarantined employees can claim under the National Disaster Benefit (see Quarantine and Illness). On the face of it, TERS looks more lucrative but it is very admin intensive in setting up, and as a new scheme it may be subject to teething problems. Ask Emma Pardoe Chartered Accountant (SA) for advice in doubt.

2nd: The Department of Small Business Development (DSBD)

R500 million has been set aside to help SMMEs due to the impact of the coronavirus. The money will be in the form of loans at prime less 5%. Assistance falls into two categories:

  • Business Growth/ Resilience Facility: This applies to businesses whose products are aligned to helping to combat the pandemic. Examples are making hand sanitisers, medical protective clothing, medical supplies etc. SMME logistics companies may also apply for funding.

    Funding will cover bridging finance, asset finance, stock and working capital needs.

  • Debt Relief Fund: Companies will need to show how the coronavirus has impacted on their business. The relief focuses on purchase of stock and other operating needs. Funds will be released based on the company’s cash flow requirements.

The starting point is to register on the DSBD’s portal ( – the registration entails staff breakdown between males and females, the number of youth employees and racial classification of staff. There is also a section on who owns the business and annual turnover. The business needs to be 100% South African owned and the work force is to be 70% local.

The DSBD is setting up an SMME database which will be used in future interventions.

Once registered follow the application process which opens on 2 April. How much each business gets is still unclear.

Call the DSBD’s hotline 0860 663 7867 or email to check what kind of government support you qualify for.

3rd: Department of Trade and Industry

R3 billion assistance has been set aside with a main focus on providing funding to “vulnerable” businesses and to provide financing help to companies involved in the battle to roll back the coronavirus. It’s not that dissimilar to the DSBD’s approach but it serves all business, not just SMMEs. Of the R3 billion, R500 million will be for importing needed medical products and R700 million will be for financing equipment and working capital requirements. Guidelines as to how to apply are forthcoming.

4th: The Solidarity Fund

This has been set up with R150 million from the government ( and it is designed to help stop and detect the virus, look after the people with it, plus help those people who are vulnerable as a result of the coronavirus. Mary Oppenheimer has pledged R1 billion to this fund and Naspers has committed R500 million.

You may wish to donate to the fund or apply for help for struggling staff members.

5th:Private and Corporate Funds

The Rupert and Oppenheimer families and the Motsepe Foundation, have each pledged R1 billion. Motsepe’s money will go towards helping poor communities fight the coronavirus by supplying them with hand sanitisers etc. The Ruperts’ and Oppenheimers’ funds will be to help struggling small businesses and employees, as a result of the coronavirus. In addition, Naspers has pledged R1.5 billion (in addition to the R500 million to the Solidarity Fund) to source medical supplies and protective equipment, from China, for health care workers.  .

The Rupert funds will be disbursed by Business Partners and application forms will soon be released – although details are not yet available, the money will be a loan. 

The Oppenheimer money will be paid out from the “South Africa Future Trust” through the major four banks in the form of a five-year interest free loan – for details see SAFT’s website. SMMEs will apply to their bank which will then pay salaries directly into employees’ bank accounts. No liability will be incurred by employees – the business will be liable for repayment. Speak to your bank manager for how to apply – the system begins operating on 3 April.

Details on the Motsepe and Naspers disbursements are still outstanding.

6th: SARS Relief Measures

  • The Employment Tax Incentive (ETI) has been extended to include all staff earning less than R6 500 per month from ages 18 to 65 – they will qualify for an additional R500 per month which can be claimed via the monthly PAYE return.

All staff members currently receiving ETI benefits will get an additional R500 per month.

These measures will apply for four months from April to July this year. The ETI has been paying out twice a year but this will now be monthly.

  • Tax compliant companies with turnover of less than R50 million will be able to hold back 20% of their PAYE payments and a portion of their provisional tax payments, as follows:
    • The business must be tax compliant and using eFiling.
    • PAYE returns due May 7, June 7, July 7 and August 7, you only pay 80% of your PAYE liability
    • From September 7 and for the next five PAYE returns, the 20% reduction is to be paid back in equal amounts e.g. if you received a R30 000 reduction in PAYE for the months April to July, then you will repay an additional R5 000 each month on your PAYE return.
    •  Provisional Tax payments due from April 1 to September 30:
      • The first payment at 15% of the estimated tax liability
      • The second payment at 65% of estimated tax liability (i.e. 50% is due on the second payment)
      • In your top up payment you will be required to pay your full tax liability.

Note: the above applies to companies – measures for individuals will be announced later.

7th: Competition Act amendments re banks and retail tenants

The Competition Act has been amended to allow banks to work together to come up with solutions to help indebted companies and people. The major banks have announced cash flow relief measures – these will have to be repaid. Speak to your bank for more details and see a summary of bank-by-bank relief as announced to date here.

The Competition Act has also been relaxed to allow retail tenants to get together and present a unified negotiating position to landlords in the areas of evictions, rental discounts and rental “holidays”. This is already happening with “active” negotiation and demands between retail landlords and tenants.

8th: Tourism sector relief

A R200 million fund has been set up to help SMMEs in the tourism sector (Read “COVID-19 interventions for the tourism sector” here).

It applies to SMMEs with R2.5 Million or less. 70% of pay outs will be to Black owned Businesses with a bias towards rural areas.

9th: Other

The CIPC have extended the deadline for submission of the Annual Return, if you are required to submit during the lockdown process to April 30. 

Government is considering suspending employers and employees UIF contributions and employer payments to the Skills Development Fund.

To date most businesses are reportedly finding that Business Interruption Insurance claims are not being considered by insurance companies.

Expect more initiatives to emerge as we move deeper into the coronavirus crisis. How much these measures will cushion the shock to the economy is unknown. They are, considering how little fiscal space there is, a creative and welcome attempt to help business and people affected by the lockdown and other restrictions. Nevertheless, the economy is virtually certain to enter a deep recession, particularly following the downgrade by Moody’s on March 27.

Remember we are facing desperate times and the nation, led by President Ramaphosa, has shown courage and determination in facing down the coronavirus.

The bottom line for businesses – help is at hand if you need it!

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Lying About Qualifications – Prison Time for Employees on the Horizon

An issue that has been around for a while has been employees misrepresenting their qualifications to their employer. This has adverse consequences for the employer as the employee often proves incapable of doing the required job – this leads to wasted time in disciplinary hearings, dismissal and then a new recruiting cycle begins. That’s in addition to all the damage that an under-qualified employee can do the employer’s business before his or her duplicity is exposed.

This has been worsened by fake institutions which offer people fraudulent qualifications.

The statutory amendment and its wide reach

In a move to address the situation, a statutory amendment makes employees who mislead employers and fraudulent academic institutions liable for up to five years’ imprisonment and/or a fine. The amending Act has been signed into law but will only come into effect on a date or dates still to be determined.

The changes when in effect will provide employees and fake learning institutions with a strong incentive to be honest in the future.

So broad is the legislation that anyone can report to SAQA (The South African Qualifications Authority) any employee or any institution peddling false qualifications.

For example, if X learns from Twitter that Y has faked his or her credentials, then SAQA is bound to investigate if X reports Y to them. This can result in Y being prosecuted and facing prison time.

This all heralds good news for employers with its potential to both reduce their risk of under-qualified employees damaging their businesses, and to save them considerable administration time.  

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Directors: Be Careful, You Will Be Held More Accountable In 2020

The past few years have seen scandals emerging in both the private and public sectors. Steinhoff, State Capture, Eskom, the Guptas and Bosasa, to name a few, have revealed how endemic corruption has become in South Africa.

The National Prosecuting Authority (NPA) is now beginning to charge those who have been involved in these scandals. This has been greeted with relief by the public, who have become increasingly frustrated that perpetrators have appeared to have escaped from accountability for their actions.

Clearly, the directors and senior managers of these affected entities are being scrutinised and face potential prosecution.

Your obligations and your risks

The Companies Act places onerous obligations on directors and senior managers who are to perform their duties:

  • Having the necessary skills and experience to make informed, independent decisions,
  • Keeping themselves up to date on the plans and activities of the company,
  • Having sufficient data to make carefully considered and impartial recommendations to all issues raised at directors’ meetings, and
  • With no conflicts of interest. If a director has a conflict or potential conflict, then that director(s) shall make full disclosure of the conflict to fellow board members.

Failure to adhere to these standards opens directors to the possibility of being liable for any damages or losses incurred. In certain instances they face the potential to be held criminally liable and directors who transgress by failing to meet their obligations can also be disbarred as directors either permanently or on a short-term basis.

Additionally stakeholders, such as unions, may undertake class action against directors personally.

Other danger areas   

Now that all directors are under increasing scrutiny, you also need to bear in mind issues such as your company causing environmental damage, trading in insolvent circumstances (for example SAA directors face potential litigation here), failing to ensure your business is protected against hackers, poor accounting policies and being party to the company suffering reputational damage which leads to a collapse in the share price (Tongaat directors risk exposure to this).

As a director, remember you are in the public’s and the NPA’s sights. Be extra careful that you execute your duties in line with the dictates of the Companies Act.If in doubt, use your accountant as a sounding board and advisor.         

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Small Businesses: How to Survive and Thrive

“Why do approximately 70% – 80% of small businesses fail within five years? Why are certain entrepreneurs more successful than others?”

Extract from UWC article below

Recent research by the University of the Western Cape on the rate of failure of small businesses makes for interesting reading and provides insights that we all really need to take on board, particularly in these hard economic times.

SMMEs, their importance and their failure rates

Globally 60 to 70% of jobs are found in SMMEs (Small, Medium and Micro-Enterprises) but in South Africa this figure is only just over 28% despite more than 95% of businesses in South Africa being SMMEs.

South Africa has a higher failure rate of SMMEs than elsewhere in the world (70% – 80% of our small businesses fail within 5 years). In previously disadvantaged communities only 1% of businesses progress from employing less than 5 people to having staff of 10 or more.

6 factors that can make or break an SMME business

The research indicates that in terms of success factors, 40% can be attributed to the entrepreneur. The characteristics of this person are crucial and they need to show:

  1. Persistence, being proactive and being a self-starter,
  • That they do not react to events but are continually planning (good planning is an important success indicator), innovating, having an ability to learn and apply this learning and having a culture of achievement.

The factors contributing to failure are ones we are aware of:

  • Lack of skills – government and large corporates snap up almost all of South Africa’s limited skills,
  • Difficulty in accessing finance – lending institutions require a track record before providing funding to businesses,
  • Poor accounting records and limited information systems,
  • Late payment by state institutions and large corporates (Kenya is considering passing legislation that compels paying SMMEs on time).

There are others too like corruption crowding out legitimate SMMEs and low bargaining power.

Entrepreneurs – what can you do?

Have a look at the 6 factors listed above. Maximise the positives, and do something about the problem areas. Remember, your accountant is there to help you succeed so don’t be shy to ask for advice.

What can government do?

Clearly the country is missing a sizeable opportunity to grow the economy and to reduce our 27% unemployment rate.

One way to get this going is through mentoring and training. Government programs are having a limited impact and there is space for business to also play its part. Why not interview some SMME owners and determine if they have the characteristics as shown above? Those that have the attributes can be successfully mentored to get good accounting records and systems, skills can be addressed as well as access to finance.

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Take Advantage of the Venture Capital Company Allowance While You Can

“There are two systems of taxation in our country: one for the informed and one for the uninformed”

U.S. Judge Learned Hand

Small and medium-sized enterprises (SMEs) have limited access to capital markets. As SMEs are considered to be the cheapest and most cost-effective sector in creating jobs, the Revenue authorities sought to address this by creating an attractive allowance for Venture Capital Companies (VCC) in 2009.

The VCC allowance gave a massive boost to venture capital in South Africa, and also to SMEs who have received R6 billion in investment since 2009. Venture capital now accounts for 2% of GDP (in the USA this is 4%).

For you the taxpayer it offers an attractive way to reduce your tax as you are allowed to deduct R2.5 million from your taxable income if you invest in a VCC. This is in your own capacity or via a trust; if you use a company to make the investment, it can deduct R5 million.

How it works initially

Note: The examples below relate to an investment in your own personal name, and different tax rates and net returns will apply if you invest through a trust or company.

Assume you have R2.5 million in taxable income. It is 20 February, you have little more than a week before you will have to pay provisional tax and you want to reduce your tax liability and make a good investment.

You have researched the VCCs and decide to invest R2.5 million in a VCC which invests in solar power.

You have saved yourself R1.125 million in tax.

To avoid having this tax deduction of R1.125 million reversed, you will need to be invested with the VCC for five years.

How it works in subsequent years

The VCC onward invests the R2.5 million in a qualifying SME (the SMEs need to be registered with SARS) which then installs solar power in, say, a block of flats. Of interest here is that the SME also gets a 100% deduction on the R2.5 million.

If you cash in on the investment after 5 years, this will be the position:

In summary, you received a tax deduction of R1.125 million and 5 years later paid R450 000 in capital gains tax. Your investment of R2.5 million has been refunded to you. If you discount these cash flows, this equates to an after-tax return of just over 10% over five years which is pretty good as inflation is currently just below 4%, i.e. a real return of 6%. As a comparative the stock market delivered a return of just below 6% in the last decade.

This excludes any costs you may be charged.

Beware of costs

There are many VCCs out there and they charge varying fees, so be very careful of these costs as they come in many guises such as performance fees, administration costs, annual charge etc.

It is worth getting your accountant to check these costs.

Look for the gems

As we saw above, the qualifying SME (the entity that installs the solar power), gets a 100% upfront write-off of the investment (R2.5 million in this example for a tax saving of R700 000). Some creative VCCs have used this tax saving to return income to you the investor. Take the example of a residential complex where the qualifying company installs solar power in the complex and then charges the owners of the complex for the electricity they consume using solar power (this charge is at a substantial discount to Eskom’s rate). The qualifying company returns this charge to the VCC which then pays these amounts as dividends to you, the investor.

Thus, everybody scores:

  • Residents of the complex don’t pay for the installation of the solar power and get cheap electricity,
  • The qualifying company takes its profit out of the R2 500 000 investment and tax saving of R700 000,
  • The VCC makes money from charging you fees, and
  • You, the investor, get a return (after-tax and net of all costs) of over 20% over the 5 year period, which is excellent.

Don’t delay, the clock is ticking!

The only downside to this is that the allowances will fall away in June 2021. VCC companies are lobbying government to extend this program past June 2021, but even if they are unsuccessful, you have just under 18 months to take advantage of this scheme.

Of course this sort of investment isn’t for everyone; ask your accountant whether it might suit you.

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Junk Status Is Not The End – It Can Get A Lot Worse!

It is now widely expected that sometime in the next year or so Moody’s will downgrade South Africa’s debt to junk status. Many see this as the beginning of the process to rehabilitate ourselves. True, initially we will go through a difficult period as ±R150 billion of our debt will be sold as many offshore institutional investors cannot hold junk bonds which leads to a fall in the currency, higher interest rates and lower economic growth. But then we knuckle down and begin to reform the economy and embark on the process of returning to investment grade.

However – things can get much worse

Source : Moody’s 

We are currently Baa3 with Moody’s and are on a negative watch with them which means they will put South Africa on Ba1 (i.e. junk status) if we don’t get economic growth on an upward path and rein in our rising debt.

As you can see, we can keep dropping to Ba2 and all the way down to C which means South Africa has defaulted on its debt obligations and there’s little prospect of recovery.

It can happen – just look at Venezuela and Zimbabwe – where optimistic assumptions are made on economic growth and government expenditure but in fact the country just raises taxes, incurs more debt, until you need to borrow money just to pay off debt that falls due. Each drop on the Rating Matrix raises the cost of borrowing and the downward spiral continues.

The ultimate problem with this scenario is that it eventually becomes irreversible, which is when default on debt becomes a distinct possibility.

The reality is that until genuine reforms are put in place, we will continue to descend along the Rating Matrix ladder.

What should we be doing? 

Paying off as much debt as possible is a good start. We should also carefully consider any future expenditure and analyse just how necessary it will be, particularly if it is in foreign currency. Some analysts recommend that we should become as self-sufficient as possible (e.g. boreholes, solar power).

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How To Detect and Dodge Financial Scams

“If it sounds too good to be true, it probably is”

wise old adage

In the USA, $40 billion is lost every year to scammers. When you consider statistics suggesting that 65% of scam victims don’t report their losses (usually they are too embarrassed to admit they have been conned), as much as $120 billion could annually be skimmed from gullible people.

Scammers normally target people who are financially vulnerable (they have lost their jobs or their business has folded) or they take advantage of economic downturns where a large percentage of people experience financial hardship.

The quick con

Typically, it is difficult to fully get to grips with the scheme they sell you as the scheme’s workings are hard to fully understand. But the conmen tell you that the real issue is you will get astronomical returns and they will show you for example pictures of yachts cruising in the Mediterranean – messaging you “this is the life you will lead once you have made your quick fortune”.

Because they prey on the financially vulnerable, the conmen spin conspiracy theories – the reason you have fallen on hard times is the system has crushed you and this scheme bypasses all the financial regulation “nonsense” – and the like.

Conmen are also hard salesmen and they will pressurise you into making this “investment”.

The long con

You need to be really careful of these as you are up against some sophisticated operators. The main principle is to get assurance from people in your social circle that the scammer or the scheme is credible and achieves high returns (these people are wittingly or unwittingly part of the con). In addition, the scammers can point you to well-known financial experts who will vouch for the scheme (they typically are part of the con).

It is usually a Ponzi scheme which will operate successfully until no new funds come into the scheme. It then unravels very quickly, and the vast bulk of investors lose their investments.

Another type of scam is “pump and dump” where salesmen extol a little-known share, and this drives the price up. These salesmen make aggressive pitches to unsuspecting victims who get carried away by the upward momentum of the share. Once the share has gone way over its value, the conmen sell it short (the dump of the scheme) and the share price collapses.

Who is vulnerable to these scammers?

Strangely enough it is often well-to-do people (usually men) who are experiencing financial stress and are happy to take on risk. These people are well educated and financially literate.

The combination of factors that makes them gullible is (apart from being under financial stress):

  • Being put under pressure by the conmen (they need to get in “before it’s too late” and their friends “are making a killing”)
  • The scheme can be complex or opaque and so they rely on their intuition
  • Most of these people are decent and trusting, so they tend to believe the conmen and they don’t want to let the conmen down (no doubt the scammers are aware of this vulnerability)
  • Emotional. Greed is a very powerful emotion and can lead to impulsive decisions which you will regret later.

Sir Isaac Newton was a great genius, but he lost all his money in the South Sea Bubble scam in the 1720’s.

So before you get caught up in a scam step back and think rationally. You should also analyse yourself and if you have any of the above traits, then be very careful of any investments that are “too good to be true”.

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Your Tax Returns Are Due: Make Sure You Fill In Your Return Correctly

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

Albert Einstein

Provisional taxpayers using eFiling need to have completed and submitted their 2019 income tax return on or by 31 January.

Make sure you are prepared for this and don’t underestimate the time needed to put the return together. As a starting point you should have a good filing system which makes it easy to find documentation needed to both fill in the return and upload to SARS in terms of supporting schedules.

The income tax return form runs to more than thirty pages, so there is plenty of work to be done – don’t leave it to the last minute!

Your return must be complete

The onus is on you to satisfy SARS that your return is comprehensively and completely filled in. Thus, even if you supply SARS with all the documentation and explanations required, not ticking a box in the form that is applicable can lead to SARS deducing that you have not met your obligation of full disclosure.

This is important as if SARS deems there to be a material non-disclosure in your return (remembering that SARS tends to apply a very narrow interpretation of this) then the three year prescription period for your tax return is waived and SARS can go back and start raising queries on your 2010 return for example. This can put you onto a nightmare road, so take extra care.

We are all aware that SARS has been missing its collection targets in recent years and is under enormous pressure to maximise revenue from taxpayers.

Emma Pardoe CA (SA) is there to assist you – this is a good time to make use of her services.

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What Will The Next Decade Bring Us?

“If we can win the Rugby World Cup three times, surely it is not asking too much of this country to take the High Road twice when its future is on the line? When push comes to shove, ordinary South Africans can do extraordinary things!”

Clem Sunter

The major global trends that have recently emerged and are widely predicted to continue to dominate the world are:

A rising tide of nationalism and anger at the status quo which manifests itself in trying to stop immigration into Western Europe and the United States, an increasing move away from free trade and more and more civil unrest. If you put all this together, it will result in slower global economic growth and rising tensions within countries and conflicts between nations (India and Pakistan, Turkey and the Kurds/Syrians, the USA and Iran to name a few).

For South Africa, which is dependent on growing trade, this will put more pressure on an already struggling economy. Civic unrest is also a significant trend here and hopefully we can recreate the 1990s when we stunned the world by negotiating a peaceful transition to democracy.

Superpower tensions as China vies to overtake the USA both economically and militarily. Russia is also showing global ambitions. So far this has played itself out in US tariffs against China and sanctions on Russia, but you can expect this to hot up.

South Africa is a long way from these battle grounds and should be spared any conflicts that arise. In fact, we will probably benefit as the superpowers vie for influence which should translate into investment into our declining infrastructure.  

The last decade has been characterised by easy money and low interest rates, which opens the distinct possibility that there will be another economic crash similar to the one in 2008.

This would not be good news for South Africa as our economy is already stretched by rising debt. We survived the last crash well as we had strong economic fundamentals and were able to fight the effects of the crash with an economic stimulus program but now we have no leeway to counteract a global recession, should there be a crash.
Another factor is whether we will drop to full junk status which will be detrimental to the economy.  

  • Shadowing and shading everything is climate change which has arrived and is making itself increasingly felt. Already we have seen how a disastrous drought was one of the causes of the Syrian civil war and we know how dry parts of South Africa are. Rising levels of carbon dioxide are making the world hotter (already temperatures have risen by 1 degree centigrade and continue to rise) – if temperatures rise half a degree, it will cost the world $56 trillion to deal with the effects.

    The problem with climate change is that it compounds all the above problems like rising numbers of refugees, less food etc. Desertification will drive more people into crowded cities along with more extreme weather events

More and more climate change specialists are saying we are getting closer to a tipping point whereby climate change becomes irreversible. Why don’t we all commit in our own small ways to reduce the carbon emissions we cause and to look to ways to conserve water?

None of our problems are insurmountable!

Although we are clearly going through increasingly risky global and local times, none of our problems are insurmountable. With will and a spirit of compromise we can achieve surprising things – nobody realistically expected South Africa to win the Rugby World Cup, but we did.

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Important: SA’s Rankings on the Ease of Doing Business Index, and an Exciting New Business Registration Platform

In his recent State of the Nation Addresses, President Ramaphosa vowed to speed up economic growth. He has set several key milestones to measure how effectively he is putting South Africa back on a positive economic path, such as attracting R1.2 trillion in investment in five years (in less than two years well over half of this has been raised).

One of these milestones is to improve South Africa’s position in the “Doing Business Index” (often referred to as the “Ease of Doing Business Index”) which ranks 190 countries around the world – the higher up you are on this World Bank scale, the easier it is to trade in your country which will attract businesses to enter the local market.

Where South Africa stands   

The President has set the goal of South Africa climbing into the top fifty of the Index in the next three years. Currently, we sit at number eighty-four and unfortunately slipped two places in the 2019 survey. In Sub-Saharan Africa, we rank fourth behind Mauritius, Rwanda and Kenya.

How the Index works

It compiles several measurements for businesses like:

  • Ease of getting a construction permit. Here our ranking is 98.
  • Getting electricity where we are number 114.
  • Registering property – ranked 108.
  • Obtaining credit. South Africa is just in the top half at number 80.
  • Protecting minority investors – in this field we are ranked 13th mainly due to the excellence of our Companies Act.
  • Paying taxes which sees us at number 54.
  • Enforcing contracts, number 102.
  • Resolving insolvency which is not too bad at 68.
  • Cross border transactions where we are down at 145. This is something we are working on with our trading partners.
  • Starting a business which is disappointing as we are number 139.

A new online one-stop business registration platform

Clearly, there is quite a bit of work to do and one recent initiative launched by the President is the creation of CIPC’s “Biz Portal”. This is a one-stop online platform whereby you as an entrepreneur can register a business, can register for tax, UIF and the Compensation Fund, register a domain name, open a bank account and get a BEE certificate. All for R175. The aim of the Biz Portal is that all these tasks can be completed in one day whereas it otherwise takes forty days to open a business in South Africa.

This will be a significant step forward in moving South Africa up in the Doing Business Index.  

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The CIPC to Intensify Compliance Enforcement from January 2020

The Companies and Intellectual Property Commission (CIPC) has announced new requirements for companies and close corporations when completing their Annual Returns.

From 1 January 2020 it will be mandatory to complete a compliance questionnaire when submitting the Annual Return.

The rationale for the questionnaire

The CIPC will use this questionnaire to assess areas of non-compliance with the Companies Act (“the Act”) and will take action where it sees the need to address any weaknesses.

It also serves to ensure that directors and officers of companies know and understand the mandatory compliance aspects of the Act.

If you don’t complete the questionnaire, then you won’t be able to file the Annual Return.

What is in the questionnaire?

You are asked to state whether you comply with a list of important areas of the Companies Act (for smaller companies, you can mark quite a few of these as non-applicable).

The main areas covered are:

  • Have you satisfied yourself that the company meets liquidity and solvency requirements?
  • Does your Memorandum of Incorporation, a new shareholders’ agreement or changes to one, or changes to company rules comply with the Act?
  • Have you compiled Annual Financial Statements in line with the Act’s requirements?
  • Do you handle financial assistance to directors correctly?
  • Is your shareholder register compliant?
  • Do directors run the company along with the stipulations set out in the Act?
  • Do you have a company secretary?

It is an offence to make a false declaration to the CIPC, so when doing this for the first time, make use of your accountant’s services.

When to submit the Annual Return

Companies are required to submit their Annual Return in the thirty business days after the anniversary of their date of incorporation – i.e. if the company was incorporated on 10 June then you have thirty business days from 11 June to complete the return.

Close Corporations have the two months from the first day of their month of incorporation to submit their returns i.e. if your date of incorporation is 10 June, then the Annual Return needs to be in on or by 31 July.

Don’t forget Annual Financial Statements (AFS) must be submitted, in XBRL format, with the Annual Return. If the date for your Annual Return falls before you have finalised your current AFS, then submit last year’s AFS.   

If you fail to submit an Annual Return, the CIPC will take this to mean your company is no longer active and will begin company deregistration proceedings – the last thing you need is to find your company effectively doesn’t exist so make sure you acquaint yourself with these new requirements and ask your accountant for advice in any doubt.

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How to Prepare Your Business Plan

“If you fail to plan, you are planning to fail!”

Benjamin Franklin

Previously we discussed why a business plan is so important, this month we look at the mechanics of compiling it.

There are many templates available (most banks have pretty good ones), and by using one you can ensure you cover all the relevant topics involved –

  1. Plan and research
    A business plan involves a considerable amount of work and is a structured process.
    This phase of the business plan, typically, takes about 65-70% of the time in putting together the document. The better your planning and research, the better will be the business plan.
  2. Do a company overview
    When you visit a new website, you look for a “who we are”, and a “what we do” section, so you can quickly ascertain if it is worth looking at the rest of the website. Then you look at products and/or services, then the management of the business, followed by financial history (if available). A good website will have captured the essence of the business and will give you a good idea of it and more importantly how focused and how well it is run.

    Doing an analogous exercise for your business puts it into clear focus. By now you have carried out your research and preparing the company overview establishes just how well you know your business and can also show up any potential flaws in your venture that you will need to address.
  3. Document your business
    This is the detail part of the plan. Having completed research and done a high-level overview now you drill down into the various aspects of the company, such as production, sales, marketing, finance, human resources plus other areas unique to the business.

    Don’t forget you will need to show investors, bankers or whoever the business plan is aimed at just how well you know your venture.
  4. Prepare your Strategic Marketing Plan
    This is important to investors and stakeholders – what products/services you intend to launch and in what areas (Africa or Europe etc), how you will promote them, how you will make use of social media, your pricing strategy, how you will stretch your brands by line extensions etc, what market segments you are in and plan to get into, what customers you plan to attract and how you plan to grow your business through them.

    As all this will cost money, show how you plan to invest this money into making your business profitable.
  5. Prepare your Financial Plan
    This is really the summary of the business plan. You will need to do income statements, balance sheets and cash flows. Set out key data such as margins, detailed cost breakdowns and so on. It is important to demonstrate the mastery of your business by showing a well thought out financial plan.

    Finally, your commitment and passion for the business should come through; if you know your own business, explain it in your own words.
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Sometimes the Best Management Is To Take a Back Seat

“When the best leader’s work is done the people say ‘We did it ourselves’”

Lao Tzu

Management is probably more of an art than a science – sometimes you need to get actively involved in an issue and other times you need to stand aside and let your staff get on with it.

Significantly, if you do not get it right, your staff can become demotivated and few companies perform well when their staff is unhappy.

First, recognise that you are not always right

It is natural to think that as the leader you have been put there because you make the correct decisions. Research shows that this is not always true.

Currently, one of the big fads is “Management By Walking Around” (MBWA) whereby you spend a lot of time observing your staff at work. Whilst doing this you usually engage in a running commentary on the best way of doing their tasks.

When the matter is relatively simple, your instructions are normally correct (but ask yourself do you really need to intervene here?) but when the matter is complex, you are just as often wrong with the advice you are dispensing. Complicated issues take plenty of thought and study before the optimal solution is discovered.

Spontaneous orders should not be issued in these cases unless you have dealt with this problem before. When you give your staff an incorrect instruction, it undermines your credibility apart from the cost of setting your remedy aside.

In a recent study of 56 managers, it was found that performance improvement was higher with managers who do not practice MBWA.

How do you know when not to intervene?

One example in a case study is a manager who deliberately spends time with hostile employees.  She believes that even if they don’t openly confront her, she will get a good idea of whether they think she is interfering too much.

Another method is to actively cultivate frank dialogue with your staff. This is not always easy to do but if you make a point of accepting their criticisms, they will be encouraged to speak their mind. We always speak about being open and transparent in our day to day interrelations with employees, so try to practise it.

A good leader makes every effort to understand his or staff so that they respect and work for the good of the business. Look for the little signals your staff send out when they have doubts about your management.

Being attuned to your staff and knowing when to step in decisively (e.g. in a crisis) or when to take a step back (unlocking a multi-faceted problem) will yield better results and will make your business a place where your employees are happy and positive.

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5 Reasons To Never Overlook Your Business Plan

“How can I be so stupid?”

John Cleese recalling when he pitched the BBC to start the Monty Python’s Flying Circus show without a business plan

When setting out on a new venture or adding a new section to your business, it pays to have a strategy as to what you want to achieve and how you want to go about accomplishing your vision.

Be thorough when doing this and do a comprehensive business plan.

Why a business plan is important

  1. Starting a business or changing your operation invariably requires funding from either a bank, investors or both. Unless they can see a clear-cut plan of action, an in-depth knowledge of the marketplace and what you plan to achieve, it is unlikely you will be able to get any money for your business.
  2. Doing a business plan is a substantial commitment as it involves research plus giving every section of the proposed venture deep thought. Your efforts will be rewarded as your new venture will be a much smoother process if you have done a business plan. By considering all the risks and pitfalls in your plan, you will avoid making some costly and potentially ruinous mistakes. In the long term, your business will be more profitable and sustainable.
  3. A good business plan will enable you to focus on the important areas of the company, something you will be grateful for as many issues will arise as the business unfolds and having good knowledge of the sector you are in will more easily allow you to realise which of these issues is important and requires your attention.
  4. Having a good roadmap of the business will also let you effectively measure the progress you are making – measurements of how a company is performing are important and a business plan will give you a baseline to rate how you are doing.
  5. A good business plan will greatly increase the chances of your new venture being successful. On an ongoing basis, you can update this plan to continually assess how the company is performing.
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Cut Your Electricity Bills!

Electricity has become a bane in our lives – not only does it increase in price by double digits each year, but we also face the ongoing possibility (perhaps probability) of load shedding.

But we can be proactive as there are many ways to cut costs and with some research and a good plan you can cut electricity costs by 40%, by taking steps such as:

  • There are several things you can do you with your geyser. Turning the thermostat down can save 150kwh (kilowatt-hour) per month, putting in a timer can save even more (although it does cost up to R1,250), whilst putting on an energy blanket also saves money.

    A heat pump can reduce 60% of the geyser’s energy consumption but they are expensive (up to R16,000) and noisy.

    Solar geysers are slightly more expensive than heat pumps, are quiet and operate well (assuming your area has plenty of sunlight).

    Remember that a geyser makes up 40% of your monthly electricity bill
  • Switch off unnecessary lights as these costs add up. Get into the habit of turning off lights you aren’t using.
  • LED lights are big savers – it’s common sense that moving from 40 watt to 3 watt bulbs will drive power costs down – up to 2000 kwh per month. Prices for LED bulbs have also dropped rapidly, and you can purchase them for R20. Don’t forget downlights and outside lights when considering LED as these latter two use 40 to 45 watt bulbs.
  • Washing in cold water also yields savings as do new fridges which can save up to 150 kwh per month but cost from R7,000 upwards.
  • Use of gas for cooking also saves as a 9-kilogram gas cylinder only costs R200 for up to 6 months.
  • Finally, there is solar which is expensive (costs vary depending on requirements and scale). If your local authority allows you to sell back your excess solar power to them, then solar becomes an attractive investment.

    Solar power is getting cheaper and more sophisticated and offers you the possibility of reducing or eliminating your exposure to load shedding.

There are many ways to save on electricity – why not start now?

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Businesses: Think Strategically When Cost Cutting

We all know times are tough and many companies are embarking on cost-cutting exercises. Unfortunately, this is a necessary procedure but think of the impact on staff morale and the potential loss of productivity when undertaking cost reduction. You don’t want to end up leaving your business worse off.

A few tips

  1. Communicate effectively. Cost-cutting is not a pleasant experience, so be open with staff – why it is necessary, how much you plan to save and how this exercise will make the business more sustainable.
  2. Be fair. If you plan to stop business class travel for some employees but keep it for senior executives think of the possibility of staff resentment and the potential for an “us versus them” situation to develop.
  3. Keep perspective. A company recently stopped funding junior staff’s cell phones. Not only did this cause widespread anger but the actual saving was too small to have a real impact on reducing expenses.
  4. Think it through holistically. In another example, a business made significant cuts to travel expenses and used video conferencing for team members to communicate with each other. This reduced team ethos, effectiveness and productivity was lost.
  5. Think of the side effects. In another travel cost-cutting scheme, staff were not allowed to use taxis. This, in effect, stopped travel after hours as staff then opted to travel during business hours. Thus, the company lost up to two working days a week when staff undertook business trips.
  6. Don’t skimp on contractors – such as not letting them use your canteen. They do important work for your company, so don’t put this at risk by treating them badly.

Use common sense as your guide when you undertake cost cutting.

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Crunch Time for SA – The Medium Term Budget Policy Statement and What it Means to You

There is a tide in the affairs of men, Which taken at the flood, leads on to fortune. Omitted, all the voyage of their life is bound in shallows and in miseries. On such a full sea are we now afloat. And we must take the current when it serves, or lose our ventures.



For several years commentators have been sounding alarm bells about South Africa’s steadily rising debt whilst economic growth has stalled. As the Minister himself put it: “Our problem is that we spend more than we earn. It is as simple as that”. On top of that State Owned Enterprises (SOEs) have been poorly led and even more poorly governed as President Ramaphosa recently said that R500 billion has gone missing due to state capture.

This has put our debt past 50% of GDP (from the low twenties a decade ago), nonproductive government spending has risen, salaries now account for 35% of state expenditure and low economic growth stifles tax collections. In addition, Eskom has received extra funding of R52 billion this year. As they say, something has to give.

There have already been consequences as two of the three major ratings agencies (Fitch and S&P) have downgraded South African debt to junk status and Moody’s (as we discuss more fully below) are closely watching.

South Africa is also in a delicate socio-economic position with rising social unrest, growing unemployment and it is recovering from state capture. Thus, drastic spend cuts or growth in SARS income are unrealistic. That leaves selling state assets as the most viable alternative to arresting the ongoing rise in our debt.

It is not just ratings agencies that have been anticipating the MTBPS but also business which could throw large resources into the economy if it sees that government is committed to turning around the slide of recent years.

So, how did the Finance Minister do?

The initial reaction to the MTBPS was one of disappointment, symbolized by the rand shedding 2.5% against the US dollar and bond yields dipping. It was not just that the Minister painted a picture of a sliding economy over the next three years but there were few specifics as to how the South African economy is going to get out of an increasingly nightmarish hole.

For example, Minister Mboweni was expected to provide some detail as to how Eskom’s debt (R450 billion) was going to be restructured but all he said was that Eskom must implement meaningful reforms before tackling its debt. In the Minister’s own words: “In addition to low growth, South Africa’s biggest economic risk is Eskom … Over the medium term and beyond, government will manage the massive risk to the economy and the fiscus associated with Eskom.”

The main indicators – bad news and good 

  • GDP was forecast at 1.5% for 2019 in the February Budget, it is now forecast at 0.5% for this year, rising to 2.4% in 2023.
    This is disappointing as population growth is 1.6%, so in reality GDP will grow by 0.8% in 2023 and be negative this year.
  • Inflation will remain benign throughout this period staying in the 5.3% average.
    As inflation hits the poor the hardest, this is good news.
  • Debt/GDP which is a key ratio for ratings agencies will progressively deteriorate, a function of low economic growth and rising costs. This is 56.8% for the current year and increasing to nearly 69% in 2023. This is before support to State-Owned Enterprises (SOE) like Eskom and South African Airways.

    If we look back a few years, government were saying that Debt/GDP would peak at around 50%. We have gone through that and are now looking at 70% and beyond. The nation is in danger of falling into a debt trap – rather like the consumer who, unable to borrow more money, finally maxes out his credit cards and spends most of his time paying off debt.

So, what does that mean for us?

The Finance Minister showed a bleak scene and clearly the government is struggling to get consensus as to how to address what is becoming a very serious problem. The Minister highlighted that in the next three years R150 billion has to be found either in tax increases or spending cuts. In the February budget, he will give the nation concrete measures to be taken.

For the man in the street expect more tax increases in the February budget.

Moody’s and our junk status risk

On 1 November, Moody’s changed its outlook on South Africa from stable to negative. In a blunt statement, it gave the government notice that unless it comes up with “a credible fiscal strategy to contain the rise in debt” in the budget in February, Moody’s will most likely downgrade South Africa to junk status. That will trigger overseas financial institutions selling an estimated US$15 billion of South African bonds.

That would, of course, hurt us all and leave our nation, as Shakespeare put it, “bound in shallows and in miseries”. Let’s hope we dodge that one – on average it takes a country five to six years of hard slog to get out of junk status.

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Our Economic Outlook: Good News or Bad?

“Prediction is very difficult, especially if it’s about the future” (Niels Bohr, theoretical physicist and Nobel Prize winner)

After shrinking sharply in the first quarter, the economy rebounded to show “record” 3.1% positive growth in the second quarter. Does this mean that quarter one was an aberration driven by load shedding or is there ongoing bad news awaiting us?

Let the positives speak

Some sectors were very strong in quarter 2, mainly mining which grew by more than 14%. Part of this turnaround was due to the absence of load shedding but there was also a steady rise in the price of key minerals like platinum and gold. Whilst manufacturing also was positive – up more than 2%, it has since come under pressure with the Purchasing Managers’ Index (PMI) declining sharply in August. The PMI is a key indicator of manufacturing activity.

Another argument is that the Medium-Term Budget is working on the assumption that all departments of government will cut their budgets by 5, 6 and 7% over the next three years. This will help the government to restore the fiscal discipline that had been ebbing away.

Capital investment grew by 6.1% in the second quarter – this is undoubtedly good news as this will translate into economic growth in the coming months.

Another positive is consumer expenditure held up well in quarter 2, mainly driven by growth in durable goods. However, durable goods are usually one-off purchases, like cars, so one can question just how sustainable this is.  

Perhaps the best news came from Moodys who announced they have no immediate plans to downgrade South African debt.

And the bad news…

No one can argue that the last decade has seen a progressive slippage of government’s policy to keep fiscal policy within an acceptable framework. Just over a decade ago the government showed a budget surplus. Since then state expenditure on salaries and wages has considerably increased. Not surprisingly this has been accompanied by low growth as spend on salaries of public servants crowds out investment and thus is a drag on economic growth. In turn, this has led to a significant growth in government debt which now has led to a 4% budget deficit which continues to grow. Our borrowing to Gross Domestic Product has more than doubled to more than 50% and the reality is that just paying off South Africa’s sovereign debt has risen by 23% and now not only threatens not just infrastructure investment but our ability to continue to finance the growth in social grants. 

If you layer the steady decline in State-Operated Entities (SOEs) onto this, then one can appreciate why economists and businesses have become increasingly worried about our economic predicament. Eskom, for example, now has a debt of R500 billion and its two new power stations, Medupi and Kusile, are struggling to generate electricity. We have already seen the impact Eskom had on the economy in the first quarter and critics are pointing out that little progress has been made in restructuring Eskom. Other SOEs are also non-performing and South African Airways and the Public Broadcaster also need bailouts.

Can our economy be fixed?

With will and sensible policies, the economy can be restored onto a growth path. The difficulty is the fact that without some severe cost-cutting, the path to growth will be extremely hard. Economists estimate that with the current cost structures in government and SOEs the economy will need to grow 6.8% just to be able to absorb these cost pressures; this is clearly not feasible, so cost reductions are needed.

A major stumbling block is said to be the unions which grew their power base in the years when Jacob Zuma was president.

Without a credible plan to put the economy on a new growth track, the ratings agencies will almost certainly, over time, further downgrade South Africa’s debt.

Muddling through?

For the last decade or so there have been dire warnings about the need to restructure the economy but somehow or other we manage to muddle through. Quite possibly we will continue to do so for a while longer – the most urgent need to fix the economy was driven by the potential of a Moodys downgrade, but this is off the table for the immediate future. It seems quite likely that the economy will remain on a low growth path.  

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Businesses: Let’s All Practice Corporate Sustainability to Remain Competitive and Successful

“Sustainable development is development that meets the needs of the present without compromising the ability of future generations to meet their own needs” (Gro Harlem Brundtland)

The word sustainability is seemingly on everyone’s lips. What does it mean and what can you and I do about it?

Deconstructing sustainability

The above quote encapsulates what it means. It is a holistic concept and is a mix of many actions and ideas.

If you want your business to be sustainable, then you are thinking long term and planning that your business will still be operating for future generations. This means no short cuts but well thought out plans with a clear vision. In addition to this, you will need to set strong values for your company to stick to, such as always being transparent, fair and ethical.  The company needs to have leaders who will live by the vision and values.

These values will be used in dealing with all stakeholders – shareholders, employees, suppliers and customers.

Whilst technology may have a sizeable impact on processes, a strong strategic framework accompanied by the vision and values will put in place strong foundations to allow future generations to continue to remain competitive and successful.

With climate change becoming increasingly real, part of this vision needs to include that your company will minimise its carbon footprint.

No doubt your business is based on strong platforms, so continue to tweak it to make it more sustainable, competitive and resilient.

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A Break for Taxpayers on Interest Received From SARS

Until last year taxpayers had to accrue interest owed to them by SARS. This proved difficult for taxpayers as SARS can take a few years to refund the interest to you. This is exacerbated by the fact that SARS frequently adjusts the interest due to you, which can relate to a prior year.

Thus, taxpayers have found it difficult to correctly account for the interest owed to them.

The accrual concept

This is well established in tax law and frequently we are obliged to show even income still to be paid to us as received because it is legally due to us although not necessarily paid. Property development is a good example – when a developer sells off-plan, the income from the sale falls into taxable income even though it may be a year or two before full payment is received.

But SARS have been proactive

To clear up these practical difficulties for taxpayers, the Income Tax Act was amended with effect from 1 March 2018 so that taxpayers only have to show SARS’ interest due in the year it is received. This will make it easier to complete your tax return and will also assist with your cash flow as now tax is only due on actual receipt of the interest, not on accrual.

Transitional arrangements   

One issue is how do you account for tax accrued in previous years? For example, if you had to include R1,000 in interest due in 2018 but now in 2019 this interest is paid to you. Including it in your 2019 assessment will mean you have paid tax on the interest twice (in 2018 and now again in 2019). 

SARS has yet to issue a final Binding General Ruling (BGR) on this but the draft BGR addressed this by stating that interest need not be included in taxable income if it had been accrued in prior years. Hopefully, SARS will soon release this BGR in its final form and resolve this problem.

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A Tip for Anyone with Too Much Debt – Try the ‘Snowball Method’

Owing high amounts of debt and not being able to pay it off is one of the most demoralising things a person can experience. You feel you are dangling out of control as you watch your debt grow month on month. You know it’s unsustainable but what do you do?

Try the “snowball method”

In the United States people with various types of debt like a mortgage, motor vehicle instalments, some credit cards and, say, an unpaid hospital bill have started to pay off the smaller debts first. These smaller debts are usually credit cards where the interest rate is the highest. They pay off these credit debts one by one and then move to the next highest interest rate debt which is probably the medical bill which they systematically pay off – until just the motor car and mortgage bond are left.

This makes financial sense paying off the higher interest rate amounts first.

It is called the “snowball method” as by paying off the credit card debt, then moving to the medical owing, you start to build up a momentum of paying debt off. As you keep paying debt, so the reduction in your debt is likened to a snowball rolling down a hill and getting bigger as it speeds up. Paying off debt thus becomes a habit and the feeling of helplessness progressively eases off.

Be careful, as not all indebted people are suited to the “snowball” concept. For example, if your credit card debt exceeds your mortgage, it doesn’t follow that you should pay the mortgage off first – remember the credit card interest rate is usually double that of the bond.

Our South African situation  

Consumer debt to disposable income stands at just below 73%. This means that only 27% of net income (the amount of salary after income tax) is not spent on paying debt. This is growing over time (the prior year’s figure was 72%). This greatly increases the risk that consumers are facing debt restructuring or insolvency – hence the feeling of helplessness alluded to above. The consumer is also more at risk when interest rates rise which is a highly likely outcome if Moodys put South African debt on junk status.

As 60% of the South African economy is dependent on consumer spending, this partly explains the low growth situation the country currently is experiencing.

If you are an employer, why not encourage any staff members who are heavily in debt to look at the “snowball method”? Lifting the cloud under which many South Africans operate will improve their peace of mind and help put the economy back on a growth path. It will assist employees and makes sound business sense all round.

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Why do we celebrate Heritage Day?

Heritage Day is one of the newly created South African public holidays. It is a day in which we are encouraged to celebrate our cultural traditions in the wider context of the great diversity of cultures, beliefs and traditions that make up the nation of South Africa.

As South Africans, we celebrate Heritage Day by remembering the cultures that make up our population. This national holiday is steeped in history, a day when all South Africans reflect on what it means to be part of the rainbow nation – celebrating our diversity.

Heritage Day was not originally intended to be an official South African public holiday, but when the Public Holiday Bill presented in 1995, did not have 24 September included as a proposed public holiday, the Inkatha Freedom Party (IFP), objected. In KwaZulu Natal (traditionally an IFP stronghold), the day was observed as Shaka Day, after the legendary King Shaka Zulu. After negotiations, a compromise was reached and the day was given to its present title and recognised as an official public holiday.

Spend this Heritage Day, by celebrating our diversity and all that makes us unique as a country

National Braai Day is coming

In 2005, a media campaign sought to ‘rebrand’ the holiday as National Braai Day, in recognition of the South African culinary tradition of holding informal backyard barbeques or braais. On 5 September 2007, Archbishop Desmond Tutu, celebrated his appointment as patron of South Africa’s Braai Day, affirming it to be a unifying force in a divided country – by donning an apron & tucking into a boerewors sausage.

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Music for Productive Work

“If I were not a physicist, I would probably be a musician. I often think in music. I live my daydreams in music. I see my life in terms of music.” (Albert Einstein)

Music, science tells us, really can help us work, and learn, and be creative.

Earphones mean you can listen to your favourite tunes all day with zero disruption to your fellow employees (and clients waiting in Reception!), and you’ll never be short of new music with a streaming service and a high-memory smartphone. But what should you listen to?

“Create the perfect playlist for productive work” on Quartz discusses how music can enhance workplace performance (employers take note!), and what musical tempo (beats per minute) can help induce the alpha state in your brain so that your mind becomes calm and alert, with heightened concentration.

Different types of music, it turns out, are ideal for particular tasks in four categories –

  • Simple tasks
  • Learning
  • Work you love
  • Creative work.

Happy (and productive) listening!

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Small Claims Courts – From 1 April You Can Sue For Up To R20,000

The monetary jurisdiction of Small Claims Courts has been increased from R15,000 to R20,000 from 1 April 2019.

Not all claims can be pursued in a Small Claims Court –

  • Claims over R20,000 must be pursued in the ordinary courts (you can if you like reduce a larger claim to the R20k to avoid having to do that).
  • Only individuals can sue in a Small Claims Court, i.e. not companies, close corporations etc.
  • The State and local authorities can only be sued in the ordinary courts. Other than those exclusions, you can sue anyone including companies and the like.
  • Certain types of claim (such as divorce matters, some damages claims, interdicts, will disputes etc) must also go to the ordinary courts.

Even if your claim qualifies for the Small Claims Court, think of asking your lawyer for guidance on whether it is your best course of action. Sometimes even seemingly minor claims can have wide ramifications, and there is no substitute for professional advice!

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Losing Your Licence with AARTO Demerits: More Danger than You Thought, and The Wheels are Turning

“The one thing that unites all human beings, regardless of age, gender, religion, economic status, or ethnic background, is that, deep down inside, we all believe that we are above-average drivers” (humourist Dave Barry)

AARTO (the Administrative Adjudication of Road Traffic Offences Act) has been partially in force for years, but its demerit provisions have been on ice for so long now that many of us have lost sight of just how seriously it will impact both ourselves as individuals, and our businesses.

Every individual and every business is at risk

Law-abiding motorists will no doubt welcome the crackdown on serial traffic offenders, but we also need to manage the risks. 

Every motorist, every vehicle owner, every professional driver and every transport operator will be at serious risk of losing their licences/permits/operator cards.  Even businesses outside the transport sector will need to manage this – what happens if your sales people are grounded or your office staff can’t drive to work?

The wheels are turning fast now, with amendments to the Act at long last passed by Parliament, and set to come into law when signed by the President.

Will it be delayed yet again?

The demerit proposal has been bouncing around for a decade, with several false starts and there is talk of court challenges, plus the commencement date may or may not be delayed.

But at long last the wheels are definitely turning, and turning fast.

Be prepared!

Unlucky 13 – easier to reach than you thought

The demerit system is complicated, but in a nutshell you will in addition to paying a fine incur demerit points for a whole range of offences.

And anyone with 13 or more demerits will have their driver’s licence/professional driving permit/operator card automatically suspended (3 months’ suspension for every point over 12).  And 3 suspensions will result in full cancellation. 

Don’t think that 13 demerits will necessarily take the average driver a long time to accumulate. Consider the demerit points applicable to some sample offences (there are many thousands of them – the table below gives just a few examples).

Sample offences and demerit points

Reducing demerit points, and discounts on fines

You are also rewarded for obeying the law –

  1. Any demerit points you have picked up are reduced by one point per 3 month period you remain offence-free.
  2. Early payment of fines will earn you a 50% discount. Set up a payment control system so you don’t miss payment deadlines.

Businesses and employers – manage your risks

Think now about how you will manage the risk of your employees (especially those employed as drivers) repeatedly offending –

  • How will you monitor your drivers’ demerit points?  Although for many offences both driver and operator will incur demerits, some driver offences will apply to the driver only.  
  • Are your employment contracts correctly structured to ensure you have access to your employees’ demerit points’ status? And to deal with the consequences if they have their licences suspended or cancelled?
  • Check your insurance policies – must you disclose any changes in your employees’ demerit status?  Are you at risk of losing cover?
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Neighbours Building? Know Your Rights Re Plan Approval

“You can be a good neighbour only if you have good neighbours” (Howard Koch, “Invasion from Mars” author)

Your neighbours apply to the municipality for approval of building plans. You object strongly – if allowed, you say, the new building/addition/alteration will seriously impact on your property’s appeal and value. It will be unsightly and objectionable. It will ruin the neighbourhood.

How must the municipality’s “decision makers” assess the plans in light of your concerns? A long-running legal fight over just that question has finally been resolved by the Constitutional Court.

The Court’s decision is a vitally important one for all property developers and owners planning to build, as well as for their neighbours, for the simple reason that no construction work can proceed without municipal approval of the building plans (although note that some categories of “minor work” may not require plan approval – ask your local authority for details).

Passed plans and blocked off balconies

  • The owners of a seventeen story city building had been allowed to build balconies right up to the neighbouring four story building’s boundary.
  • The neighbouring building’s owners applied for approval of plans to add another four stories. The problem was that the balconies on three floors of the first building would touch the top stories of the new additions.
  • Predictably, strenuous objections to the building plans were lodged, but in the end result the municipal decision makers approved the plans, and building commenced.
  • Had the plans been properly approved? A string of court battles later, the highest court in our land has had its (final) say on the matter.

3 disqualifying factors and the “legitimate expectation” test

Central to this decision is a statutory protection for buyers and neighbours in regard to various “disqualifying factors”. The proposed building cannot be (our emphasis) “erected in such manner or will be of such nature or appearance that–

  1. The area in which it is to be erected will probably or in fact be disfigured thereby;
  2. It will probably or in fact be unsightly or objectionable;
  3. It will probably or in fact derogate from the value of adjoining or neighbouring properties”.

The Court’s decision – the building plans had not been properly approved. They must go back to the municipality for re-assessment, and the developer is accordingly back to square one. Presumably a demolition order will be on the cards if they are ultimately unsuccessful in having their plans passed.

A decision maker must, held the Court, in assessing the 3 factors above consider the impact of the building proposal on neighbouring properties, from the perspective of a “hypothetical neighbour”. In a nutshell, will it probably, or in fact, be so disfiguring of the area, objectionable or unsightly that it would exceed the neighbour’s “legitimate expectations”?

And whilst it has always been clear that neighbours have to be considered in regard to the “derogation of value” (i.e. reduction of value) aspect, this decision for the first time confirms that their viewpoints are relevant, and must be considered, in regard to all three aspects.

Stronger rights – but not for “sensitive neighbours”

That certainly doesn’t mean however that neighbours can willy-nilly object to plans and expect the municipality to back them regardless of the facts. On the contrary, the Court made it clear that “The legitimate expectations test is not a subjective test determined by the whim of a sensitive neighbour.  The test is objective and based on relevant facts, which would, in the ordinary course, be placed at the disposal of the decision maker”.

The important thing remains that your rights as the “non-building neighbour” just got a lot stronger. Protect them!

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Your Dog, Cat or Cow (Even Your Bees) Could Cost You Millions

“Ignorance is Bliss Dangerous” (Internet meme)

Our law will generally hold you liable for damages only if someone else can prove that you caused them loss/damage/injury through your “fault” (intent or negligence). That seems fair and logical – if it’s your fault, you pay.

If however the loss was caused by your animal/s, you are in a much more dangerous position – you can be sued on a “no fault” or “strict liability” basis. And that’s a sobering prospect. It means that bad behaviour by Maxie the Mongrel, Skollie the Cat, Daisy the Cow, or even (per an old 1926 case) your “domesticated” swarm of bees, could leave you with a bill for millions without your being in any way careless or at fault.

Ignorance of that risk is very definitely dangerous rather than bliss.

A recent High Court case illustrates.

R2.3m claimed by a dog attack victim

  • The claimant was walking down a public street, minding his own business and with every right to be where he was, when three large “Pitbull type” dogs attacked him, viciously and without provocation.
  • He was very seriously bitten and ultimately had his left arm amputated at the shoulder. He escaped more serious injury or even death only through the courage of a passer-by who fought the dogs off (and was himself attacked for his trouble).
  • The victim claimed R2,341m in damages from the dogs’ owner.
  • The dogs had no history of biting or attacking people and were treated as house dogs. They had the run of the owner’s house and garden/yard, which was walled and fenced off from the street. Access to the street was via a gate which was (said the dogs’ owner) normally kept locked, and was on the day in question double-padlocked.
  • An intruder, claimed the owner, had in his and his family’s absence broken the gate open and left it open – giving the dogs access to the street and to their victim.

Liability and the law

  • The victim was unable to prove that the dogs’ owner rather than an intruder had left the gate open, so had failed to show that the owner had been negligent in any way. 
  • But, held the Court, the owner was still accountable on the basis of an old Roman law – the “pauperian action” or actio de pauperie – which makes you strictly liable for the consequences of your domesticated animal’s behaviour. The thinking behind this ancient law incidentally was that “an animal (being devoid of reasoning) is incapable of committing a legal wrong” and there have been suggestions that it be scrapped in our modern law. But as of now it is still very much enforced by our courts, and you remain at risk.
  • Pauperian liability is a complicated subject (involving much Latin and learned judicial interpretation of ancient laws) and you will need specific legal advice if you find yourself on either side of a claim. But in a nutshell you are liable only if your domesticated animal (different rules apply to wild animals) acted from “inward excitement or vice” and against its natural behaviour.
  • You do also have several defences available to you, such as the victim contributing to his/her loss through their own actions (provoking an attack or trespassing for example) or – the defence raised in this case – where the loss results from the negligence of another person. Again, a complicated subject needing specific legal advice, but out of interest let’s have a look at how the Court in this case dealt with the particular defence raised.
  • The defence in question is available if you can prove that a third party had control of the animal but negligently failed to exercise that control properly. The dog owner in this case asked the Court to extend that defence to cover his situation where the intruder had no control over the dogs, but negligently gave them the opportunity to attack the victim.
  • The Court refused, holding that the defence only applies where the third party has control of the animal. The dog owner must therefore pay the victim whatever level of damages he can prove. So – bottom line – you are liable even when the fault lies with someone else, and even when you are completely without fault, unless that other person had control of the animal at the time.

Protect yourself!

First step obviously is to reduce the risks your animals pose to others. Then check that your insurance will cover you if you are sued. Disclaimers of liability need careful wording to afford any hope of protection.

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Traffic Fines and Admissions of Guilt – Will They Earn You a Criminal Record?

A criminal record, even for a minor offence from decades back, comes with very serious and lifetime consequences. It will hang around forever, just waiting to ambush you when you apply for a job, or a travel visa, or a firearm licence.

So acquiring a record inadvertently is the stuff of nightmares, and the question is whether you can land yourself in that position by paying an admission of guilt fine? The reality is that we are beset by so many laws and regulations covering every aspect of our lives that most of us have paid admission of guilt fines at one time or another. Usually it’s just to avoid having to defend ourselves in the unpredictability and delay of an over-burdened court system. Sometimes it’s the more serious matter of avoiding a stay in a police cell.

A remedy, but it’s not ideal

The remedy, once you do have a record, is to apply for “expungement” of the record to remove it from the CRC (SAPS’ Criminal Record Centre)’s database. Expungement is however only available to you after 10 years and for certain “minor offences” – plus your application will take a long time to process (“20 – 28 weeks” per SAPS). Note that some specified minor convictions fall away automatically after 10 years – ask for specific advice.

All in all, prevention is very definitely better than cure.

When are you at risk?

  • You will acquire a criminal record if you are arrested, if the police open a docket and take fingerprints, and if you are thereafter convicted of a crime.  
  • Does that apply to admission of guilt fines? Firstly, with traffic offences find out what section of the Criminal Procedure Act (CPA) is involved. Minor offences – speeding, licence offences, illegal parking and the like are normally “Section 341/Schedule 3” offences, where there is no actual prosecution and therefore no criminal record to end up in the CRC.
  • Other offences however will likely be dealt with as “Section 57/57A” offences. An admission of guilt in those cases lands you with a “deemed” conviction and sentence, and until recently, that deemed conviction and sentence could well have ended up in the CRC database. In practice you would probably still have been in the clear if you weren’t actually arrested and fingerprinted, but several years ago there was talk of convictions being captured with just a name and ID number. If you want to be sure, apply for a clearance certificate – see “Applying for a Police Clearance Certificate (PCC)” on the SAPS website.
  • A “Section 56 Written Notice to Appear in Court” may also give you the option of paying an admission of guilt fine to avoid appearance in court – in which event section 57 would apply as above.
  • The point though is that a recent High Court decision means that any admission of guilt fine – even a section 57/57A one and even after an arrest and fingerprinting – should not lumber you with a “permanent conviction”.

In other words, the new position is that while a court-imposed conviction and sentence will end up in the CRC, an admission of guilt fine should not.

Let’s illustrate with a look at the case of the roadside grass seller…

A grass seller’s R500 admission of guilt fine comes back to haunt him

  • In 2010 a roadside seller of instant grass quarreled with another grass seller about use of a particular spot on the road. The other seller laid assault charges against him, alleging he slapped her twice and pushed her.
  • Arrested, detained and fingerprinted, the accused paid a R500 admission of guilt fine when given the option to do so. Per standard procedure a magistrate then “examined” the documents and the accused’s “deemed” assault conviction and sentence were entered firstly into the court’s record books and then into the CRC database.
  • The accused learned of his criminal record for the first time when in 2018 he applied to become an Uber driver (a police clearance certificate being an Uber requirement).
  • He turned to the High Court to set aside his conviction and sentence on the basis that he thought signing the admission of guilt was his only way of obtaining release from custody and that his rights had not been explained to him. Effectively he denied the assault, and took the chance that the State might still decide to pursue the prosecution in court.
  • The Court set aside our grass seller’s conviction and sentence, characterising this type of admission of guilt as “not a verdict” but rather “essentially an agreement between the State and the accused” intended only for “trivial offences”, and involving no consideration as to “whether the accused was in fact and in law guilty of the offence”.
  • The Court: “A conviction and sentence following an entry into the admission of guilt record book by the clerk of the criminal court in the magistrates’ court is not a conviction whose record is permanent” nor “to be entered in the Criminal Record System”.

The bottom line

The Court found that this accused had been pressured into admitting guilt and ordered that the Minister of Police be served with a copy of its order with a view to taking advice from the Commissioner of Police in “devising policy to address the criticism that the SAPS use arrest and detention to force vulnerable members of society who fear being locked up, to admit guilt on petty crimes using arrest and the threat of continued detention.”

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Trustees at War: The Removal Remedy and Its Limits

“Animosity and difference of opinion are not sufficient to have a trustee removed from office and/or for the majority of trustees to unilaterally force another to vacate his/her office…” (Extract from judgment below)

When family infighting impacts a family trust, an early casualty is often the relationship between the appointed trustees and beneficiaries, and/or between the trustees themselves.

And if that results in irreconcilable differences and conflict between the trustees, the only answer may be for one or more of the trustees to be replaced. First prize of course will always be to achieve this with a voluntary resignation – but what happens if a trustee refuses to resign? Can the majority forcibly remove him/her?

A recent High Court decision dealt with just that question.

3 professionals v the beneficiary’s mother

  • A “valuable property” in Knysna is owned by a trust created for the benefit of a couple’s daughter (11 years old at the time, now 30). There are four trustees appointed by the Master of the High Court (“the Master”) issuing “letters of authority” to two auditors and an attorney (“the professionals”), and to the beneficiary’s mother. The father farms the property through a company and a close corporation. Although no family feud is specifically mentioned in the judgment, it seems clear that the father is in one camp, and the mother and daughter in the other.
  • The trust deed contained this clause – “The office of a TRUSTEE shall be vacated if …. the majority of TRUSTEES request a TRUSTEE to resign.” 
  • The trustees fell out in a dispute over the father’s loan account, with the professionals proposing that the trust should pay the father interest on his loan, and the mother objecting on the basis that payment of interest had never been agreed to.
  • This was discussed in a telephonic trustees’ meeting, and resulted in the professionals writing to the mother to say she was removed as trustee for three reasons – “1) all items discussed were either rejected or opposed; 2) she made false allegations against the applicants and 3) she admitted that she did not have sufficient knowledge to fulfil her duties as trustee”. The Master then pointed out to the professionals that they could not resolve to remove the mother, only to request her to resign. They did so in a second letter to the mother.
  • The mother refused to resign and the professionals asked the High Court to order that the mother “has lost her office as trustee”. Their attitude was that they were acting in terms of the trust deed, no reasons for the decision had to be given, and the Master had no option but to issue new letters of authority. 
  • The clause itself might seem pretty clear, the professionals clearly believed that they were acting entirely within their mandate and they presumably commenced their litigation with high hopes of success. But it was not to be…
  • The Court, for the reasons we discuss below, held for the mother, who accordingly remains a trustee.

Ambiguity, showing good cause, and ubuntu

The Court’s reasons for its decision contain some important principles that anyone involved in a trust would do well to take note of (with some thoughts on how to deal with each issue in brackets) –

  • The trust’s removal clause, held the Court, was ambiguous when it provided that a request (involving a choice) for resignation shall (peremptory – no choice) lead to vacation of office. The clause, said the Court, “must be interpreted to read that there must be good cause for such a request and that the trustee shall vacate his/her office only in the event of an acceptance of the request”. (Make sure the trust deed is clear and unambiguous).
  • Secondly, an implied term should be read into the clause requiring good cause to be shown – to allow trustees to remove another without producing reasons “would be against public policy and the principles of ubuntu, reasonableness and fairness”. (Make sure you can show fairness and good cause for decisions).
  • Thirdly, the professionals had failed to prove any justification for their action. They could not rely on the clause without giving reasons for their decision and proving that they took their decision “based on the discretion of a good person acting reasonably”. (Make sure you can justify your actions as reasonable).
  • Fourthly, the resolution to request the mother’s resignation “should have been taken on a properly constituted trustees’ meeting and upon proper notice of their intention”. Instead, they took decisions “secretly and without notifying [the mother] in advance.  They also “failed to give proper notice in compliance with the provisions of the Trust Act.” (Comply with all procedural formalities).
  • Finally, said the Court, there was no deadlock between the trustees – “Decisions in the interests of the trust and trust beneficiary can be taken by the majority of trustees during a properly convened meeting on condition that sufficient notice of all matters to be considered is given.  It is not necessary to remove the first respondent in order to conduct the business of the trust in a lawful manner.” (Be sure that removal is actually necessary).
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Employers: When Should You Sue Rogue Employees? A R33m Example

“It is the duty of an employee when rendering his or her services always to act exclusively in the interest of the employer … an employee is not entitled to use his or her employment relationship with the employer without the employer’s permission to make a profit or earn commission for his or her own account” (Extracts from judgment below)

Employees have very strong rights in our law, but employers also have effective remedies when employees “go rogue”.

A recent case, in which an employee was ordered to repay his employer R33m in “secret profits” including R9m in damages, provides a good example.

Diverted sales opportunities and secret profits

  • A manufacturer employed a “Key Accounts Manager” as its agent in dealing with customers. He was trusted with an “almost unlimited discretion” and minimal management oversight to act in his employer’s interests.
  • His employer sued him in the High Court on allegations that he breached both his employment contract and his duty to his employer, firstly by selling product to customers at below-minimum prices, and secondly by selling through his own companies to secretly profit thereby.
  • The employee’s denials of wrongdoing cut no ice with the Court, which held that he “was clearly under a general obligation to do his best for his employer and to conduct the plaintiff’s business in good faith and for its benefit” but “was in breach of his fundamental obligation of loyalty and good faith which he owed to … his employer”.
  • The secret profits claim. Ordering the employee to “disgorge” his secret profits of R33,291,599.24 (less any “amounts paid in making such profits” which the employee is able to prove), the Court held that the employer had proved the three elements needed to succeed in such a claim –
    • The employee owed it a “fiduciary obligation” (a duty to act honestly and in utmost good faith),
    • In breach of that obligation he placed himself in a position where his duty and his personal interest were in conflict, and
    • He made a secret profit out of corporate opportunities belonging to the employer.
  • The damages claim was for losses on product sold to customers at prices well below the employer’s base price “in order to further [the employee’s] secret profit-making activities.” Finding that but for the employee’s wrongdoing the customers would have bought product at no less than the base price, the Court awarded the employer R9,407,651.05 in damages (to be allocated, when paid, to the R33m claim).

Rubbing salt in…

To really rub salt into the employee’s wounds, he was ordered to pay costs, and the bill will be a big one, including –

  • Costs on the punitive “attorney and client” scale, an appropriate order said the Court “given the secret and unlawful nature of the scheme which the defendant ran for four years at the expense of his employer”,
  • The cost of audio visual equipment used in the trial, and
  • The (no doubt substantial) travel and subsistence costs of both the employer’s legal team and its six witnesses, all of whom travelled from Gauteng to Cape Town for the trial.
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Websites of the Month: Your Selection of Budget 2019 Tax Calculators (And a Tax Guide)

 “People who complain about taxes can be divided into two classes: men and women” (Anon)

  • How long will you work for the taxman today?
    Input your salary into the 2019 Tax Clock calculator and find out how many hours you will spend today working for the taxman, and at what time precisely you will finally start working for yourself (warning – it’s not pretty!).
  • How will your income tax change?
    Put your monthly taxable income into Fin24’s Budget 2019 Income Tax Calculator to find out.
  • How much extra will your sin taxes cost you this year?
    Work out how much more you will be shelling out for spirits, wine, beer and cigarettes (or how much you will be saving if you don’t indulge!) with Fin24’s Budget 2019 Sin Tax Calculator.
  • Your Pocket Tax Guide “From the Horse’s Mouth”
    Download the official SARS Budget 2019 Tax Guide from the National Treasury website here.
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Property Buyers: Beware Unlawful Occupiers!

“The time of maximum pessimism is the best time to buy, and the time of maximum optimism is the best time to sell” (Sir John Templeton, billionaire investor)

You are it seems in good company if you view times of depressed property prices and general uncertainty as a great buying opportunity.

Just be aware that if it is a house you are after, whether as an investment or to live in, you should do your homework if the property is (or might be) occupied. Generally speaking, buying a property with occupiers is fine if you know about them and have a binding deal in place with them (see the end of this article for more on that).

But, as a recent High Court decision illustrates, if you aren’t aware of occupiers and/or don’t have a proper agreement in place with them, you could find yourself unable to evict them even if you buy the property “free of lease”.

Before we discuss the case itself, it is important to know that to get an eviction order from a court, you need to prove in terms of PIE (the Prevention of Illegal Eviction From and Unlawful Occupation of Land Act) both –

  1. That the occupants are “unlawful occupiers” and
  2. That it is “just and equitable” to grant such an order after considering all the relevant circumstances.

The Bo-Kaap flat, the sale in execution, and the occupiers

  • A property investor bought a flat in a sectional title development on a sale in execution. As we shall see below, the history of the flat’s ownership, and its location in Cape Town’s historic Bo-Kaap area, were relevant to the outcome of this matter.
  • The Sheriff of the High Court sold the flat for R375,000 “free of lease”, but also with “no warranty that the Purchaser shall be able to obtain personal and/or vacant occupation of the property or that the property is unoccupied and any proceedings to evict the occupier(s) shall be undertaken by the Purchaser at his/hers/its own cost and expense….”
  • The people living in the flat refused to leave or to “legalise … their rights to the property”, and the investor applied to the Court for their eviction.
  • The eviction order was refused firstly because the investor was unable to prove that the persons it was trying to evict were “unlawful occupiers” for lack of information as to –
    • Who the occupants of the flat actually were, with the result that “the court has scant knowledge of essential details of the occupiers of the property in circumstances where these are material to the exercise of the court’s discretion under the provisions of PIE”. Crucially, there was nothing before the court as to the ages or circumstances of the occupiers, so it was unable to consider “all the relevant circumstances including the rights and needs of the elderly, children, disabled persons and households headed by women”.
    • When and under what legal right the occupiers originally took occupation (lease, right of habitation, usufruct etc), when that right was terminated and under what circumstances. Note that timing is important here because once unlawful occupation has lasted for more than 6 months, the question of relocation to land supplied by the municipality or government becomes relevant.
    • Whether or not the occupants had any form of written or verbal lease. That’s important because of our law’s “huur gaat voor koop” principle – literally “lease goes before sale”, meaning that you are generally bound to honour an existing lease (there are a few exceptions – take specific advice).
  • Secondly, the investor failed to convince the Court that it was “just and equitable” to grant the eviction.

Again, the lack of information as to the occupiers was relevant, and the Court’s comments on the particular facts of this matter are worth noting in full (our emphasis): “The residents of the area are, generally speaking, not wealthy and Bo-Kaap is home to many poor and working-class people. An eviction of the type sought in this matter, in which a group of related persons appear to occupy a family home that was acquired from the City of Cape Town some time ago, might well render them homeless or at the very least require them to relocate to one of the outlying suburbs that are now home to the many who fell foul of the Group Areas Act. If those circumstances obtain, a court would be required to think long and hard about the justice and equity of ordering people to vacate a dwelling, long occupied, which has been snapped up by a buyer distant to the neighbourhood for investment or development potential. Certainly, it is to be expected of such buyers that when they seek to move established families out of their homes, they do their homework properly and place all relevant facts before the court.

Do your homework, and do it properly!

Investor or not, the Court’s warning to do your homework applies to you. Establish whether anyone is living in the house, exactly who they are, how long they have been there, and on what basis.

Bear in mind that because leases need not be in writing, you could find yourself battling occupiers who claim to be tenants under a verbal lease. Without a written record they could well claim to be entitled to pay minimal rent and to have many years left on their “verbal lease”.

So first prize will always be to reach a written, water-tight deal with any occupants before buying – ask your lawyer for help.

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Property Developers Beware: Deemed Accruals Can Seriously Disrupt Your Cash Flow

“Never take your eyes off the cash flow because it’s the lifeblood of business” (Richard Branson)

A recent Supreme Court of Appeal (SCA) judgment has confirmed that when a property developer enters into an agreement with a buyer to transfer the property, even if the developer only actually gets paid in a subsequent tax year, the income is deemed to have accrued to the developer at that date. The developer must therefore include the full proceeds of the sale in its income tax return for the year the agreement was signed. 

This has the effect of the property developer paying tax before receiving the proceeds of the sale, putting the developer out of pocket until transfer to the purchaser takes place.

A R1.9m tax assessment challenged

A property developer in Cape Town entered into sales agreements for 25 units. Each agreement called for a deposit of R5,000 with the balance of the money to be paid on completion of the development. Purchasers could take possession once the full sale price had been secured or within 60 days of the sale. By the end of the first year 18 purchasers had taken possession and in all 25 cases the purchase price had been fully secured.

Transfer of the properties took place in the next tax year. The developer did not include the sale proceeds in his tax return for the year of concluding the agreements but showed the proceeds in the next tax year.

The Court upheld the decision by SARS to tax the developer in full in the first tax year. The assessment at just under R1.9m was based on taxable income of R6.8m.

Why the developer lost

Property developers assume a substantial risk when they undertake a development – they spend millions of Rand upfront and if they can’t sell the developed properties they make a considerable loss. They mitigate this risk by selling the properties upfront – usually before they commit to building. Clearly they will not get paid until the property is transferred, so they accept a deposit plus a guarantee (usually from the purchaser’s banker) for the balance of the selling price, or alternatively the buyer placing the funds in the conveyancer’s trust account. 

Once the developer is assured of selling the properties it then proceeds with the development. On this basis, banks will advance the cost of the development to the developer.

However, in terms of the law as now confirmed by the SCA, the proceeds of the sale of the properties are deemed to have accrued to the developer and are taxable in the year the agreement is signed.  

Developers need to be aware of, and plan for, the cash flow implications.

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Victims of Corruption Take Heart – “Big Chief” Gets 15 Years Behind Bars

“… it is necessary for an unequivocal message to be sent out that corruption on the part of politicians, especially those holding high office, will not be tolerated and that punishment for those who act as Mr Block has done in this case will be severe” (extract from SCA case below)

We are all of us tired of reading about the rampant corruption in our society, and even if you aren’t one of the many businesses or individuals directly affected, everyone is ultimately a victim.
Let’s take heart then from two recent Supreme Court of Appeal (SCA) decisions.

Firstly, to set the scene…

Minimum sentences for corruption

  • Corruption in terms of the Prevention and Combating of Corrupt Activities Act is an offence which, when more than R500,000 is involved, carries a minimum sentence of 15 years’ imprisonment, even for first offenders, “unless there are substantial and compelling reasons justifying a lesser sentence”.
  • The R500k threshold is reduced to R100k where a “common conspiracy” is at play and to only R10k where a law enforcement officer is involved.
  • Confiscation orders are also common, being designed to deprive criminals of the benefits of their corruption. In the case below for example, a R60m confiscation order (and +R1m fines) accompanied the jail sentences.

“Big Chief” gets 15 years for a corrupt relationship

  • The first SCA case involved a former high ranking politician and provincial Finance MEC (known to at least one of his subordinates as “Big Chief”) on the one hand, and on the other a businessman with interests in a property group.
  • Both were convicted of corruption relating to “gratifications” paid to the politician for using his “considerable political clout” to help the property group lease premises to government departments on favourable terms and at inflated rentals, without following proper tender procedures.
  • It was irrelevant, held the Court, that the gratifications were only paid after the event, they were “paid and received as part of an on-going corrupt relationship where it was accepted by both sides that one hand would wash the other, so to speak, in respect of other favours already made or anticipated in the future.”
  • Neither did claiming that the payments were made for “consultancy services” and “business assistance” cut any ice at all with the Court.
  • An attempt to appeal to the Constitutional Court having failed, the 15 year sentences must now be served.

Beyond the grave: Still payback time

The second SCA case involves the same matter but another politician and former provincial Head of Department, who faced much the same charges as the others but died before her trial ended.

That didn’t stop the state from obtaining a High Court order forfeiting to the state both the shares given to the deceased in one of the property-owning companies (worth R28m at the time), and her R2m house.

On appeal the SCA upheld the share forfeiture order but, on the principle that forfeiture is designed to remove the incentive for crime rather than to punish it, set aside the forfeiture of the entire property and instead ordered the executor of the deceased estate to pay R758k to the state’s criminal assets recovery account.

Victims of corruption – what to do

Whether you have lost out on a tender, are on the wrong end of a bribe solicitation, or are in any other way a direct victim of corruption, report it!

Our laws and our courts are behind you.

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Beware the Building Deadlines When Buying-to-Build

Here’s yet another warning from our courts to take seriously the building deadlines commonly imposed on buyers of plots in residential estates. Failure to comply with them could expose you to heavy fines, recurring penalties and even the risk of losing your plot altogether.

  • A Home Owners Association (HOA) imposed “double levy” penalties totalling R105k on the owners of a plot when they failed to start development before deadline.
  • Taken to court, the owners challenged the validity of the penalties on a variety of technical and other grounds, but failed on every count.
  • The end result is they must now pay the penalty levies, late payment penalties, and attorney-and-client legal costs for both the original magistrates’ court hearing and for the unsuccessful appeal to the High Court.

3 lessons for HOAs and buyers

The HOA’s victory in this case highlighted several important factors that both HOAs and buyers would do well to take note of –

  1. The HOA’s power to raise “recurring penalties” was upheld only because of the wording of its articles of association. They specifically gave the HOA the power to “impose a system of fines or other penalties”.  Had the wording only allowed “a fine”, its attempt to impose a recurring penalty would have been shot down (exactly that happened to another HOA in an earlier case).
  2. Penalties must be proportionate to the prejudice suffered by the HOA, but courts are unlikely to interfere unless “the penalty is unduly severe to an extent that it offends against one’s sense of justice and equity”.  Here, the double-levy penalties were upheld because the “ongoing delay in developing their property in accordance with their obligation … prejudiced the underlying rights of other owners … to enjoyment of a fully developed estate.”
  3. The title deed gave the HOA the right to claim the plot back for breach of the building clause, but, held the Court, that right did not replace the right to claim penalties; it was an additional right available to it.

The bottom line for “buy to build” plot purchasers is this – make absolutely sure before buying that you will actually be able to build by deadline.

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Paternity Leave and Minimum Wages – How Will The New Laws Affect You?

Employers and employees need to know about four new Acts which will usher in important changes to our labour laws.

The summary below is a short one of only those changes likely to affect a significant number of people and businesses, so take advice on your specific circumstances.
In a nutshell –

Parental leave extended

Until now, mothers have been entitled to unpaid leave when welcoming a new child into the world, in the form of 4 consecutive months’ “maternity leave”. Plus they can claim maternity benefits from the UIF if they are contributors. New fathers, however, have been limited to at most 3 days’ family responsibility leave.

That will now be extended to –

  • “Parental leave”: “Parents” (i.e. including fathers and same-sex partners) – 10 consecutive days’ parental leave.
  • “Adoption leave”: Adoptive parents of a child under 2 years old – either 10 consecutive weeks’ adoption leave or 10 consecutive days’ parental leave (where there are two adoptive parents, they decide between them who gets 10 weeks and who gets 10 days).
  • “Commissioning parent leave”: Commissioning parents in a surrogacy agreement – same provisions as for adoptive parents.

Parents taking unpaid leave as above also become eligible for UIF benefits.
Employers with maternity leave policies, and those who offer paid as opposed to unpaid maternity leave, should take advice on reviewing these policies.

Minimum wages introduced

The new national minimum wage is set as follows –

  • Farmworkers – R18 per hour
  • Domestic workers – R15 per hour
  • Workers in an ‘expanded public works programme’ – R11 per hour
  • Other employees – R20 per hour.

Separate allowances apply to those in learnership agreements.
Employers who cannot pay the minimum wage will be able to apply for exemption for up to a year, but draft (at time of writing) regulations allow for only a 10% exemption.
Failure to pay the minimum wage will expose employers to fines of the greater of 2x the value of the underpayment, or 2x the employee’s monthly wage (going up to 3x for second or further non-compliances).

Strikes, lockouts and picketing

An “advisory arbitration panel” can be (and presumably will be) appointed to help resolve protracted or violent strikes or lockouts, and those causing or exacerbating an acute national or local crisis.
New picketing regulations are also in the wind.

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Communicate with Candour – the “Oracle of Omaha” Speaks

Companies that are sustainable in the long term are honest with themselves and with all the businesses’ stakeholders.

The starting point is candour

If you are open and honest in your dealings with people you will gain their trust and once you have this people will follow you. The word “candid” comes from the Latin candeo which means to illuminate – the candid person is not afraid to shine a light on and confront the problems facing the business.

Make this a key aspect of your leadership

Train yourself to show candour in all your dealings. Doing this will mean you will deliver a consistent and increasingly trustworthy message to the company’s stakeholders. You will also find that your staff will follow this example which in turn will result in a tightly focused business. In the long term this will make the company more sustainable and profitable.

It works! The Candour Analytics Survey

In the United States one consultancy has attracted a lot of attention by drawing up and publishing such a survey. It has developed a model that measures the various communications issued by the company along with financial numbers and looks at a company from several angles:

  • Capital Stewardship;
  • Strategy;
  • Accountability;
  • Vision;
  • Leadership;
  • Stakeholder Relationships; and
  • Candour.

This model looks at the clarity of the communication and gives negative marks to what it considers “FOG” (Fact deficient, obfuscating, generalities). What is interesting about the Candour Analytics Survey is that the higher corporations score in this survey, the more they outperform the market – the top 25% Candour-ranked companies outperformed the S&P Index nearly threefold in 2017-2018 (29.7% versus the 11% return of the S&P Index).   

As the consultancy says, candour is a proxy for trustworthiness.

Does it have credibility?

One of the biggest fans of this survey is Warren Buffett who has now made candour one of his key principles and as he stated in a communication to his shareholders: “…We will be candid in our reporting to you, emphasizing the pluses and minuses important in appraising business value. Our guideline is to tell you the business facts that we would want to know if our positions were reversed. We owe you no less.”

There is strong empirical evidence that the survey is meaningful and the endorsements it has obtained show it is well worth making Candour one of your key principles.

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Spying On Employees Is Becoming A Big Industry

In a recent UK survey 72% of employees felt that their employers were eavesdropping on them.

Why are employers doing this?

A good example of how keeping tabs on employees can be beneficial is the destruction of the World Trade Centre on 11 September 2001, where many firemen died needlessly searching for people who were not in the buildings. Technology is available that pinpoints who is in an area and how long it will take to get everyone to safety.

It is also possible to determine when people enter sensitive areas or try to access confidential information.

An employer also needs to know if its staff are passing on business secrets or running down the company to friends, fellow employees and the public – damage to a firm’s business reputation is one of the biggest existential risks faced by a company.

Employer versus employee

The most important issue is to maintain trust between employer and employee. Once this is undermined the harm to both parties can be lasting and severe.

Management need to be open with their staff if they intend to monitor them. Tell the staff what you plan to track (emails, social media, telephone conversations etc) and that any employee can request the information you have gathered and how you will use it, and destroy it once it is no longer needed. Update staff contracts and conditions of employment with these measures.

An open process with staff will help to clear up uncertainties they have and will keep the trust between you and your employees. It will also enable your business to protect itself against reputational damage from employees leaking negative information about your business.

Protection of Personal Information Act (POPIA)

POPIA awaits the announcement of a commencement date before the one year grace period starts running and among other things will allow staff to compel employers to give their staff access to all the information that the business holds on them.

Technological advances have made it feasible to intercept and analyse your employees’ communications. In view of the arrival of POPIA and more importantly the relationships you have with your staff, think about this carefully, particularly as there will be harsh penalties for any material POPIA lapses.

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Don’t Let a Death or Disablement Destroy Your Business

The greatest need in many small businesses is for cash flow. Picture this scenario: 

Three people start a business and after a few years it is beginning to make profit – in a year it will go cash positive. One of the shareholders is killed (or disabled) in an accident, leaving the spouse and children desperate as neither the company nor remaining shareholders can afford to buy the dead shareholder’s equity.  The family put his or her shares up for sale. The other two shareholders now face the prospect of a new shareholder who may not agree with their strategies. The outlook for the business is suddenly very uncertain.

Buy/sell policies   

Had the shareholders put in place a buy/sell policy when they started the company, the death of the one shareholder would not have threatened the business. The policy on the death (or disability) of the shareholder results in the remaining shareholders acquiring the shares and proceeds of the policy going to the family of the dead shareholder.

In this way the shareholders keep control of the business and the family of the shareholder receive a pay out which will help remove the financial uncertainty they face.

Generally, buy/sell policies are governed in terms of a shareholders’ agreement. 

If the shareholders have loans then make sure they are covered in the agreement – they will need to be dealt with anyway on the death or disability of the shareholder. 

Also ensure the agreement is aligned with your Memorandum of Incorporation (MOI) as the MOI has preference over a shareholder agreement.

Key person insurance

If you have shareholders who are active in your company or you have a key manager(s) and the loss of any of these people could have a detrimental impact on the business, then the company can take out insurance on these key people. Proceeds from key person insurance flow into the company.

Suppose, for example, that you recruit a marketing executive who substantially grows your business. Should this executive be killed or disabled, it will lead to a material loss in sales. Taking out key person insurance will give your company the financial space to recruit and train a new marketing manager and will give you time to make up the lost sales.

Many companies have failed by not providing for the loss of a shareholder or key manager.

Take expert advice when taking out either of these policies as there are legal, potential tax and or death duty exposures.

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If Artificial Intelligence Is Not That Intelligent, Should We Be Worried About Our Jobs?

Artificial Intelligence (AI) is being rolled out in many guises throughout business. One instance of this is voicemail with some amusing results. One person recalls getting a voicemail message which said “I’m a user music to reach an audience” and, another example, ” — working with the Russian” but “I got killed”.

As the person said it’s hard to feel your career will be threatened by AI when you come across examples such as these.

In another irritating situation, a colleague recently got a call from a cell phone company which asked “will you pay your arrears in three days. Press 1 if this is correct.” When the person tried to say “what arrears?”, he was told that this is not a valid response. The colleague then phoned the company only to find a robot answered the phone. At this stage you feel you are probably having an Orwellian nightmare.

Will AI get “intelligent”?

There can be little doubt it will rapidly advance and predictions as to where it will go vary widely – some say that by the end of the next decade, robots will be as smart as humans.

Another school of thought maintains that as AI will not be able to learn creativity, real human emotion or have a human personality, so it will never replace humans. 

AI relies on mountains of high quality data for it to be able to effectively run its algorithms. There is a relative dearth of this data at present. 

Effectively, the sceptics say AI will always just be software and don’t be fooled by your robot declaring its love for you. It is software trying to mimic human behaviour. 

It must also be remembered that there are many tasks that don’t need human intervention.

So, what happens to our jobs?

AI is one of the drivers of the fourth industrial revolution and it is instructive to look at the first three industrial revolutions to understand what we can learn.

The first one came in the late eighteenth century when man began mechanizing factories and agriculture. Urbanisation began to develop rapidly (from displaced farm workers) and there was social unrest as many jobs were lost and professions weakened. This led to substantial inequality of incomes as a few industrialists made fortunes, a middle class began to slowly emerge but the vast majority remained in poverty.

The second industrial revolution came a hundred years later and was led by inventions that made the ordinary person’s life much easier – electricity, the aeroplane, the washing machine, the vacuum cleaner and many more that created a surge in living standards. Universal franchise and recognition of unions also came into existence in the developed world. So significant were these changes, such as housewives spending 42 hours less a week on household chores, that they enabled women to enter the jobs market. In turn this rapidly grew the middle class and inequality decreased substantially. Clearly this second revolution grew employment and living standards. 

Another important aspect is that the second industrial revolution was a work enabler whilst the first industrial revolution was a job replacer.

The third industrial revolution began in the 1980s with the rise of digitization and it has been similar in some areas to the first industrial revolution – the middle classes have regressed in the developed world whilst the top 1% has become wealthier. However, in developing countries, mainly Asia, hundreds of millions of jobs have been created as industrialization has rapidly rolled out there.

The fourth industrial revolution is expected to automate just under half of the jobs in the United States and thus be similar to the third revolution. How it will fare in places like China and India is difficult to predict. In South Africa business will benefit from the new technologies but the poorer communities will not have the skills to take advantage of opportunities offered by AI. Thus, inequality will continue and may get worse.  

Overall, the last two hundred and fifty years has seen a massive upward change in the number of jobs created. The problem lies in the uneven timing of these changes – it took three generations in the nineteenth century for there to be real progress in growing jobs.  

Whilst AI may sometimes seem comical at the moment, it is going to reduce and/or eliminate many jobs. But it will also create new employment opportunities. As a business owner, upskill your workers so they can be prepared for the changes that are already happening.

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The Big Mac Index Says the Rand is Way Undervalued

For decades the Economist has been publishing its Big Mac Index to give an estimation of how under- or over-valued a currency is. This is done by comparing the price of a MacDonalds Big Mac Burger in a country to the price of the burger in the USA.

Although this began as a lighthearted attempt to establish currency values, it has gained traction and credibility.

Purchasing Power Parity (PPP)

It is a tenet of economic theory that over time currencies will equate to the cost of goods and services in other countries. Thus, if a basket of goods and services costs, say,  $20 in the USA and costs R100 in South Africa, then the Rand to US dollar rate should equal R5 to 1 US$. 

The Big Mac Index

The cost of a Big Mac is $5.74 in the U.S. whilst the cost in South Africa is R31 which translates into the PPP rate of US$1 = R5.40. As the actual rate at the time the index was measured was R14.18 to the dollar, so the Rand is 61.9% undervalued (14.18-5.5/14.18).

How do we compare worldwide? 

The Economist looks at approximately 60 countries in compiling its index and we rank as the third most undervalued currency, ahead only of Malaysia and Russia. 

Whilst some will dismiss the Big Mac index, it does underline that South Africa faces many headwinds with a potential downgrade to full junk status (Moodys is expected to announce its decision on South Africa’s debt in October after the Medium Term Budget), a stalled economy and uncertainty as to how to re-ignite economic growth. As economic growth is dependent on investment another key issue is how to make South Africa an attractive place to invest.

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How Many Days Did You Work For The Taxman In 2019?

“Tax Freedom Day is calculated by dividing general government revenue by GDP at market prices, then multiplying the result by the number of days in a year, and finally adding a day” (Free Market Foundation)

In the current year it will take the average South African 137 days to pay off his taxes and only from the next day does the taxpayer then work for himself or herself – this day is known around the world as Tax Freedom Day (TFD). The 138th day of 2019 was 18 May.

So, what does this tell us? 

The news is not good – in 1994 TFD was 101 days. Last year TFD was on 13 May, a slippage in one year of 5 days. 

Looking at the Free Market Foundation’s formula, if GDP rose then TFD would drop. Broadly speaking, this tells us that not enough tax revenue is being channelled into investment as investment leads to a growth in GDP. This is hardly surprising when you consider that salaries are the largest component of government expenditure. 

On the other side of the equation, we are being increasingly taxed. In the last few years VAT and income tax have risen whilst new taxes such as the Sugar Tax and now Carbon tax have been implemented.

The President has promised that he will reform the economy to make it more attractive to invest in South Africa – let’s hope he succeeds.

Where does South Africa stack up globally?   

We are in the middle of the scale – it depends on the structure of the country. Welfare states like Norway and Germany approach 200 days whilst countries like the USA and Australia are just over the 100 day mark. 

The question we have to ask ourselves is whether South Africans enjoy sufficient economic benefits to compensate for being approximately 5 weeks behind the USA and Australia? 

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Youth Employment Tax Incentive Extended for Ten Years

There is chronic unemployment in the country and it is especially felt by the youth where up to 50% cannot find a job. The Employment Tax Incentive (ETI) is designed to encourage companies to employ “youths” (between the ages of 18 to 29) for 1 to 2 years.

Incentives for employers to make use of the ETI are attractive. You can deduct from your monthly PAYE owing the amounts shown below in the third column. In addition, these deductible amounts are exempt from Income Tax i.e. you get a double benefit.

The monthly calculated ETI amount per qualifying employee is determined as follows:

There are conditions – the employer must be in good standing with SARS and employees (apart from being aged 18 to 29) must have valid ID documents (or be a legal refugee).

This is a good incentive and it helps to address one of South Africa’s intractable problems. Another advantage is you can over the two year period identify employees with potential who will fit into your business.  Speak to your accountant to ensure you claim this incentive correctly. 

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