Administrative Penalties for Corporate Income Tax (CIT) to be Imposed

magnifying-document-bigSARS will be imposing administrative penalties from December 2018 for outstanding Corporate Income Tax (CIT) returns.

Administrative penalties will be imposed on companies that receive a final demand to submit a return. In terms of Section 210 of the Tax Administration Act of 2011, non-compliance with regards to non-submission of required CIT returns may be subjected to a penalty, as follows:

(1) If SARS is satisfied that noncompliance by a person referred to in subsection (2) exists, excluding the non-compliance referred to in section 213, SARS must impose the appropriate ‘penalty’ in accordance with the Table in section 211.
(2) Non-compliance is failure to comply with an obligation that is imposed by or under a tax Act and is listed in a public notice issued by the Commissioner, other than:
(a) the failure to pay tax subject to a percentage based penalty under Part C; or
(b) non-compliance subject to an understatement penalty under Chapter 16.

The penalties range from R250 to R16 000 per month that non-compliance continues, depending on a company’s assessed loss or taxable income. According to our records your company has been identified as having one or more CIT returns outstanding. We request that you submit your return to SARS before the end of November 2018 to rectify your non-compliance and prevent penalties being imposed.

Please note that it is compulsory for registered companies to submit their income tax returns. If a company is dormant, it is still required to submit any outstanding returns prior to 2018 to prevent a penalty being imposed. The criteria for the exception in 2018 are set out in Notice 600 of 15 June 2018, which is available on the SARS website.

More information

Visit the SARS website on www.sars.gov.za for more information.

This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

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Get the Most Out of Your Audit While Saving Cost

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With careful planning and good implementation, you can help your auditors give you not only a cost-effective audit but one that gives you more assurance that your systems are sound and that your annual financial statements fairly reflect your economic position.

Firstly, lay a good base

  • Implementing strong internal controls and keeping up to date financial records will go a long way to ensuring a smooth audit.
  • Good internal controls mean the auditors will have faith in your systems and this will reduce the amount of testing they do.
  • Up to date financial records with monthly reconciliations of control accounts and explanations for significant variances will further enhance the audit process.
  • One of the key audit factors is determining the risk of the financial statements being misstated, so keeping abreast of your company’s financial risks and sharing this with the auditors will help reduce their audit time.

Then, communicate well

  • Have a meeting with your audit partner and advise him or her of what is happening in the business. If there is bad news, communicate this – the chances are the auditors will pick up the bad news during the audit and this could involve them doing extra work to assess how this will impact your financials.
  • At this meeting, find out which staff will be on your audit. Having auditors who have worked on your audit in previous years will save you time, as they will not need to spend additional time understanding your business.
  • The auditors plan a certain number of hours on your audit. Ask for this along with the hourly audit costs so you can plan your cash flow.
  • Usually you send the auditors a final trial balance and from this they assess what tests they will do. If you have some group companies, send a consolidated trial balance – it is easier for the auditors to understand how the business is performing if they work down from the highest to the lowest level.
  • When your auditors request information, make sure it is accurate and what they want. Once the audit starts, designate a senior finance person to liaise with the auditors and to meet regularly with them. Any queries or misunderstandings can be swiftly resolved. This person can monitor how the hours worked and audit costs are panning out, so if the audit looks as though it will run over budget, you can react before extra costs are incurred.

Your auditors’ recommendations

Your auditors will present you with their findings and suggestions as to how to correct any weaknesses they find. Most times you will implement their findings but if there are some you decide won’t work, discuss this with them and get their acceptance of your reasons for not making the proposed changes. This will save time at the next audit when the auditors check how your firm has progressed with their recommendations.

Good planning and good communications will help to keep your costs to a minimum whilst getting assurance on your accounting and internal controls.

This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

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Importing From Amazon: You Could Be Forced to Register as an Importer

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Forewarned is forearmed” (Wise old proverb)

Picture this: Gavin brings in books and DVDs from Amazon (to take just one example – this applies to anything sourced from foreign online retailers like eBay, Alibaba etc). He pays VAT and Customs Duty on the products and is frustrated when his couriers don’t deliver his purchases. He gets even more frustrated after phoning them as they tell him that his products have not been released from Customs because he is not a registered importer.

When must you register?

If you bring in more than three shipments (or if your imports cumulatively are more than R50,000) per calendar year, then you are required to register as an importer with SARS. This has been a requirement since 2013, but SARS have only been enforcing it this year. This is in spite of the fact that VAT and Customs duty is already being recovered.

That’s bad news…

Registering as an importer is not easy. You have to:

  • Complete a DA185 and a DA185.4A1
  • Show proof of address
  • Have a tax clearance
  • Have a certified ID
  • Lodge a bank statement
  • Lodge an affidavit stating that all the above information is correct.

The Customs Act and Regulations pertaining to importers are more than 6,000 pages long! Be warned, if you want to import a lot of books, DVDs or other goods, your life will get a whole lot more complicated. Don’t take chances here; ask your accountant for help if you fall into the net.

This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

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Directors Beware! You Could Be Held Personally Liable For Data Breaches

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Hacking into computers has become common place. In the United States it grew by 45% in 2017. Yahoo, one of America’s largest Internet search engines, was recently the victim of cyber crime and disgruntled shareholders are suing the directors for dereliction of their fiduciary duties.

Hacking is a reality in South Africa also, which raises the issue of your personal liability as a director in the event of your company being exposed to cyber crime.

What do the Companies Act and King IV expect of directors?

Directors need to have “taken reasonably diligent steps to become informed about the matter” – in other words directors would be expected to know cyber crime has become commonplace and to take steps to ensure the company takes all the necessary actions to prevent outsiders getting access to company information. King IV specifically charges directors to “identify and respond to incidents, including cyber attacks…”.

Your risk is that as a director you are personally liable for any costs, losses or damages resulting from a breach of your duties.

How to protect yourself from liability

If a company suffers loss from a hacking incident, then directors need to show they have addressed the issue to the best of their ability if they want to avoid attracting such liability.

Whilst many of us may feel lost when it comes to technology, it is clearly an issue that exposes a company to significant risk. Make sure you and your board of directors gain an understanding of how to protect your business. You need also to ensure that in need you can show documentation to a court to prove that you acted with diligence to counter the risk of being hacked.

This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

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Surviving a Business Crisis: Consider Your Turnaround Options

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Turnarounds seldom turn” (Warren Buffett)

In the life cycle of any business, it will almost inevitably experience a crisis. This is always a very difficult time and it will be a test of judgment and experience how senior management respond. Usually, it will be some issue that is solvable and the business will continue to operate.

Sometimes however it is an existential threat and this will need careful thought and planning.

Stress drains your energy

Deciding whether to try and turn around a business or put it into liquidation is enormously stressful. Many careers and the family of staff and key stakeholders could suffer depending on the outcome.

It is unlikely there will be a second chance if the first decision made by management turns out to be incorrect.

What is the problem?

So the first thing to do is identify the core problem. There are many things to look at:

  • Is your business in a mature to old stage?
  • Are there disruptors like Uber in the industry?
  • Is there still demand for the product or service your business provides?
  • What sort of shape is your business in? Are systems and infrastructure creaking or worse?

Money, planning and analysis

Once the problem and a solution have been identified, don’t forget that turning around a business will take resources. Plan your cash flow carefully.

Business turnarounds are also high risk – remember they will often not work out. But careful planning and analysis will improve the odds of success – ask your accountants for their specialist help and advice at this crucial time.

This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

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Will the 21st Century Really Be Africa’s Time to Flourish?

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We really need to have a third wave, and it needs to happen in sub-Saharan Africa” (Bill Gates)

Two factors often cited as to why “Africa’s time is coming” are:

  • Demographics – the huge populations of India and China are cited as a key factor in their rapid growth. Currently Africa is the fastest growing continent and its population is set to double by 2050.
  • Leapfrogging technology – for example, developing countries have set up banking in remote areas of East Africa by using cell phones powered by small solar panels. They have thus bypassed the whole process of setting up banking and electrical infrastructure.

Is it likely that these predictions will materialise and if so what impact will all this have on South Africa?

Demographics – the unseen flaw

It is accepted that large populations create a large potential market as has happened in Brazil for example. However to reap this benefit, populations need to start declining once development begins to take off. The reason for this is what is known as the “dependency ratio”.

In 1960, in developing countries in Asia, Africa and South America women had an average of six children. Since then the number has declined in Asia to 2.2 children and to 3 children in South America. However Africa has remained high at just under 5 children per woman.

Having fewer dependents allows parents to focus on their careers, grow their wealth and afford to spend more on things like education and health care on smaller families. As these smaller families rapidly join the middle class, this helps to provide the momentum for infrastructure development and rapid economic growth. As long as Africa has a high care dependency ratio, it will be extremely difficult to mirror China and India.

In South Africa our average number of births is 2.4 per woman which puts us in between Asia and South America. If we can get some basics right, like education, we could start to rapidly develop.

Leapfrogging

Mobile phones have been used for more than developing banking in Africa but smart phones are also used, for example, to help rural farmers. Satellites scan a farm and can tell the farmers which of their fruit trees have rot and need to be pulled out before the disease spreads to other trees. They can get advice on what crops to plant and how much fertiliser to use etc. Technology thus is enabling some African countries to progress at a rapid rate.

African countries still need infrastructure. There is no point in doubling your farming yield if you cannot get your product quickly and cost effectively to market. Without decent roads, ports, an effective legal system and no bottlenecks at border posts, Africa will struggle to fulfil its potential.

Many breakthroughs can be made with technology but without a decent foundation, leapfrogging will only have a limited impact.

We in South Africa have reasonable infrastructure but very high inequality and still need to focus on uplifting the poorer sections of the country and creating a more enabling environment to attract investment.

In a nutshell, South Africa is potentially well placed to move rapidly ahead. Things are unfortunately less certain for the bulk of our continent.

This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

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Travelling Abroad – Do You Have To Declare Your Personal Possessions On Re-Entry?

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There is some confusion over whether to declare your laptops, golf clubs, iPads and other such valuables that you travel out of the country with.

The answer is no you don’t have to declare these items, but you do have to carry with you proof of purchase in South Africa of these goods and show it to Customs officials on request. Invoices or insurance policies are usually adequate proof for Customs.

Alternatively, you may, when exiting South Africa, complete a TC-01 which digitally captures the relevant assets. On completion, the Customs official will get you to sign the form and will give you a copy. This form is valid for six months and if you are a frequent traveller, it is bound to make your life easier.

This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

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Corporate Governance in a Time of Complexity and Crisis

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Events have moved swiftly in recent years. One of the largest South African conglomerates, Steinhoff, has virtually collapsed amidst allegations of dubious structures and transactions. Some of our largest state companies have it seems been ravaged by state capture whilst global icons such as KPMG and McKinsey have suffered serious reputational damage.

A failure of governance links these entities together and there has been renewed interest in business ensuring that their organisations are well governed.

What to do to achieve compliance

It’s not a question of poor governance being practiced by the business community as a whole – the vast majority want to do the right thing and make every effort to achieve compliance throughout their organisations.

There is no surprise therefore that there has been resurgence in interest in the King IV Report on Corporate Governance.  King IV applies to all businesses and is a statement of principles based on strong ethical leadership which results in:

  • An ethical culture
  • Legitimacy
  • Successful trading
  • Control over the organisation.

Shareholders versus stakeholders

One of the frequent criticisms of the free market system is the primacy of shareholder interests. These interests are often prioritised at the expense of other stakeholders as shareholders want to see the maximisation of profit. King IV talks of adopting an inclusive stakeholder approach in which business creates value for society. It recognises that business and the community are, in the long term, intertwined. Being a good corporate citizen is not just good for business but is a key part of obtaining legitimacy.

How easy is it to be compliant in South Africa?  

A Compliance Complexity Index was recently compiled to see how easy or difficult it is for countries to achieve compliance – 84 countries were surveyed. South Africa came in the last quartile. Generally, countries where corporate law is based on the common law fared the best. Thus, Ireland is rated the easiest country for compliance and countries where more complex laws are incorporated in their legal systems fared worst.

The onus is on our authorities to simplify compliance for its citizens and businesses.

This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

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Employers Take Note – We Can Still Learn From the Peter Principle

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“Leadership is nature’s way of removing morons from the productive flow” (Dilbert)

The ‘Peter Principle’ has been around for nearly fifty years. Recent research has underlined that it is still valid today.

It has implications for how we promote staff and the effects this has on our business.

What is it?

“Peter Principle, n. – The theory that employees within an organisation will advance to their highest level of competence and then be promoted to and remain at a level at which they are incompetent.” (The Free Dictionary)

It is usual in business that people get promoted when they are successful at their jobs. They get promoted despite the fact that very often the skills required for their new position are different from their old position. If they are successful in this position, they get promoted again and again until they lack the skills for the new position and then they experience failure. Once this has happened, they get stuck in their new role – as they are no longer successful, no more promotions are available for them. They have risen to the level of their incompetence. Most organisations are bedevilled with unhappy managers who spend years and years in the same job.

Some researchers have even facetiously suggested that, as the skills required for one stratum of an organisation are completely different to those required for the next stratum of the business, why not promote the worst performing employees?  This in Dilbert’s terminology shows that “leadership is nature’s way of removing morons from the productive flow”.

New studies prove the Peter Principle

Recent research of 214 companies reviewed 1,500 promotions in sales organisations. The research also looked at the characteristics of people promoted – whether they worked collaboratively or on their own (people who work collaboratively usually make effective managers).

It showed that people were most likely to advance in the business when they were successful in their sales jobs although they were poor managers – in fact sales declined under these promoted managers. Conversely, those who worked collaboratively were usually not promoted.

The lessons today

The new research shows that the Peter Principle is alive and well. Whilst many businesses accept the trade-off of promoting successful employees at the expense of having less effective managers, it is appropriate to reconsider how staff should be promoted in an organisation. In the long run it almost certainly pays to promote those who have the potential skills to be good managers. To the high flyers who don’t have the skills to manage, recognise them and give them hefty bonuses.

Finally, is it not better to move people who are not performing in a particular position either to another position where they can do a good job, or move them out of the company? This leaves the company with good managers and motivated staff as opposed to having frustrated blocked managers and lower performing employees.

This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

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Beware: Employee Misrepresentation on CVs is Getting Worse

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Not surprisingly, considering what we hear every day in the news, employers are finding that candidate employees are more and more embellishing and misrepresenting aspects of their career, as well as omitting embarrassing aspects altogether.

It is also getting increasingly difficult to get a thorough picture of a candidate for a position due to increasing restrictions being placed on personal information. This tends to make previous employers nervous to share information on their employees and more and more employers are now giving out no information at all.

The consequences of making a mistake when recruiting are damaging as the process is time consuming and adversely affects staff morale, which can lead to a business losing or making less money.

A matter of trust

The relationship between employee and employer is based on trust. Abusing this trust by falsifying a CV breaks down this relationship as the employer begins to doubt what the employee is doing and this usually results in a downward spiral leading to disciplinary hearings and often dismissal. The business then has to start the whole recruitment process again.

Labour courts have found that falsifying a CV is a dismissible offence and that there is no need to prove that the misrepresentation led to your decision to appoint the candidate.

Whilst this is encouraging, in practice many cases end up being lost by the employer due to some procedural error found by the court.

How to detect and deal with falsehoods in a CV

As noted above, it is becoming harder to obtain the true picture on a prospective staff member. Think perhaps of joining the many companies now using informal networks such as canvassing management in your organisation, or building up Human Resource groups in the applicable industry. Often this approach leads to the employer finding “someone who knows someone” and from there a more accurate picture of the employee’s past can be put together.

Why not also pursue someone who commits a dismissible offence – if necessary charge the person and go through the full disciplinary process? Then, be honest with another employer as to why the employee left or was fired. This way at least it will spare other employers making costly appointments and who knows, it may begin to spread throughout the sector and come back to benefit your business directly one day.

This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

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