Do You Need Business Interruption Insurance?

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Catastrophes like floods and fires do occur and there is insurance to cater for these types of events. There are two different types of insurance cover for these events – one to repair or replace the assets damaged (your normal insurance policy) and one to compensate you for the losses incurred during the time it takes to get the business going again. This latter one is known as ‘Business Interruption’ or ‘Loss of Profits’ insurance.

Statistics show that nearly three out of four businesses never recover from a catastrophic event and it is therefore important to ensure that your Business Interruption insurance has been carefully thought through.

What to insure for

You need to have a good grasp of your costs and expected sales and gross profit. You don’t want to underinsure so if your business is growing reflect that fact – for example if you expect 10% growth (and trends in your business justify this) show this to insurers or you won’t get paid out this additional amount.

It is important to make sure that all your projections are well grounded and can be defended as they will be closely scrutinised by loss adjustors in the event of a claim. Thus, the better you understand your costs, the less chance of having a claim either rejected or adjusted downwards.

Another critical factor is the indemnity period. This is the time you will be covered for whilst out of business. For example, if you put a six-month indemnity period in your policy, you will only get paid out for six months even if it takes twelve months to get the business back on its feet again.

Let’s look at an example…

Bernie has a cosmetics factory and his year end is 31 December.

Bernie’s Cosmetics Factory
Budget for 2018 Year R
Sales 120,000
Cost of Sales (45,000)
Purchases (10,000) **
Wages (35,000)
= GROSS PROFIT 75,000
COSTS (46,000)
Salaries (20,000)
Distribution (6,000) **
Maintenance (5,000) **
Rent (15,000)
= PROFIT 29,000

On January 2, the factory burns down. It will take 12 months to get the factory up and running again.

Business Interruption Claim R
ADJUSTED GROSS PROFIT 65,000
Gross profit 75,000
Less Purchases (10,000)
COSTS INCURRED 40,000
Salaries 20,000
Rent 15,000
Preparation cost 5,000 ***
= CLAIM 105,000 *

*Adjusted gross profit plus your incurred costs.

**Variable costs which will not be incurred in the 12-month period of re-establishing the factory.

***Putting together claims is a time-consuming task, so include it in your policy.

NB! Include VAT in the assured amount as insurance pay outs include VAT.

You can see from this simple example that this is a very complex process – spend time with your accountant getting to grips with your revenues and costs. Also use a reliable insurance broker.

Remember that 43% of businesses that suffer a catastrophe never trade again and a further 29% go out of business within two years.

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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SARS’ New Service Charter – A Positive Step

TwoWomenAccountants-72New management at SARS is trying to rebuild the institution as the world class organisation it once was.

Amongst the outcomes it hopes to achieve in this tax year are increases:

  • In public trust and credibility,
  • In the ease and fairness for taxpayers in their interactions with SARS.

To achieve these goals, SARS has just released a new Service Charter.

Highlights of the Service Charter

The 2018 “Service Charter” replaces the 2007 “Client Charter” which was taken off SARS’ website in 2012.

The new Charter starts well by undertaking to be fair and honest with taxpayers, to be courteous, to respect taxpayers’ privacy and to allow taxpayers mechanisms to understand and appeal assessments.

In turn, taxpayers need to be timeous and honest in their dealings with SARS,   pay all taxes owed, ensure SARS has your correct information, not be involved in or encourage corruption and encourage others to pay their tax.

So far, so good but when it comes to actual interaction between SARS and taxpayers, the word “endeavour” becomes prevalent. For example, SARS will “endeavour” to:

  • In peak hours, answer your call within four minutes.
  • Complete registrations within two working days (if all the registration conditions have been met).
  • Assess eFiled returns within five business days.
  • Pay refunds within seven business days of the assessment being finalised, subject to:
    • Nothing else being owed to SARS,
    • All SARS’ processes having been completed, and
    • No additional verification or audit is taking place.

Customs and Excise refunds are to be paid within thirty business days.

  • Provide reasons for a queried assessment within forty five business days and consider objections within sixty business days.

In general, at least this should be considered a promising step by SARS to positively re-engage with taxpayers.

What about a Taxpayer Bill of Rights?

There has also been an ongoing debate over a Taxpayer Bill of Rights (TBOR). The Davis Tax Committee has advocated for this, arguing that the relationship between SARS and citizens is fundamental to the social contract between the people and the government. TBORs are considered as being part of international best practice, so let’s see what develops.

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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Box Clever With Cash When You Retire

47563895_custom“The question isn’t at what age I want to retire, it’s at what income.” George Foreman

There are many things to consider when you retire. One thing to be careful of is the amount of money you cash in from your retirement savings.

Taking cash from your retirement savings: What to take into account

Friends will tell you that the tax treatment is favourable to taking cash from your retirement fund. This is correct as the first R500,000 is tax free and thereafter the rates of tax are generous versus normal taxation – the maximum tax rate on cash withdrawals is 36% versus a maximum marginal rate of normal tax of 45%. For example, if you draw R1 million the tax will be R117,000 (or 11.7%).

More important is what you do with this cash. Paying off debt is a good thing as a) it will reduce your ongoing monthly commitments and b) if you default on your payments, you risk losing the asset being financed which will be difficult to replace on a pension.

Other people take out cash to buy a business to keep them occupied in retirement and also for the additional income. If you are thinking of doing this, plan carefully to prevent being saddled with liabilities if the business should fail.

Don’t be fixated on cash

A more important point is how much income you will need when you stop working. Look at what you are currently earning and if that gives you a satisfactory standard of living, then get your financial adviser to work out if your pension will be equal to current income.

You may well find that this is enough for you to retire on in which case you will not need to draw cash from your retirement funding. Don’t forget the power of compounding as maintaining your capital will enhance your monthly pension.

There are many pieces of advice out there. Use your common sense, ask your accountant for guidance specific to your needs, and plan accordingly.

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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Good Staff Relationships Are Just As Important As Pay

Jan-Kuha_-Benefits-to-Benefit-YouThere are strikes seemingly now all the time and usually the dispute is over wage increases and benefits. On the other side of the coin, when employers speak, they often talk of the country’s skills deficit and labour laws.

Recent research in KwaZulu-Natal has highlighted that there are equally important issues for both employees and employers. As it has been shown that a contented labour force is a productive one, it is worthwhile taking a moment to understand this new research.

Why workers quit their jobs

Of the employees surveyed, only 6% cited low pay as their main gripe. Others mentioned  “better jobs found” (6%), “a new job with less hours worked” (8%), whilst 10% left to pursue better education and 16% felt their current job was too dangerous. 46% left because of “poor relationships” – 16% of these workers felt their relationships with co-workers were poor and the remaining 30% left due to difficulties with their employer.

Reasons for these relationship breakdowns with co-workers were often mid-level (particularly young or female) black managers being promoted and having problems with the staff they supervised. This led to jealousy and mistrust.

Another factor was workers becoming isolated from their dependents due to the distance from work to their spouses, family and children. Ancillary to this is unemployed family and community members pressurising workers to support them out of the wages they earned. These dependents have been seen to even resort to tactics like witchcraft to ensure they were provided for. This often leaves the worker with only small amounts of money for themselves.

The fact remains however that by far the largest single cause of people quitting their jobs involves a breakdown in the relationship with their employer.

So what do workers want to see in the relationship with their employer?

  • Being treated fairly and given equal opportunity ranked high with workers.
  • Receiving recognition for their efforts is also important.
  • Lower paid workers spoke approvingly of being respected in their jobs, despite their low pay.
  • Helping employees with training and education, employing their family members and helping financially with their children’s education were also raised.

And what do employers want?

For employers their criteria for employing people were that employees needed to be positive, punctual and reliable.

There is thus a split between employer and employee expectations – one looks mainly to relationships and the other just wants to get the job done efficiently.

It makes sense therefore for you to explore how to satisfy both your employees’ needs and those of your business. Understanding what is at the heart of both employee and employer aspirations will greatly help in establishing a stable, productive workforce.

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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The New Travel Allowances: How Do They Affect You and Are They Working?

images_03For the new tax year changes were made to how we are reimbursed for business travelling expenses.

Why did SARS make changes and to which type of travel allowance?

Travel allowances have been around for a long time. Initially, they gave considerable benefits to people earning salaries as the fringe benefits tax was less than the economic benefit. SARS in trying to close this gap have made many alterations to travel allowances which have made them quite complex.

There are three types of allowance compensating employees for business travel:

  1. Where the employer provides a company-owned car for the employee
  2. A travel allowance is given to some staff members whereby the employee uses his or her own vehicle
  3. A reimbursement of business travel expenses where the employee is paid a rate per kilometre travelled.

In practice, the first two methods involve a considerable amount of administration and estimation. For example, if a company pays out a travel allowance, it has to work out the cost of a vehicle and the running costs. Employees are given allowances according to their job status and thus the employer will usually offer a different allowance to, say, a junior manager versus a senior manager. The employer also has to work out how much business mileage the employee will do and deduct PAYE accordingly. The employee has to keep a logbook and has to complete the travel allowance section when doing his or her Income Tax return.

The third method has until now only applied if the employee did 12,000 kilometres or less business travel during the tax year. The company paid a per-kilometre rate, usually the SARS rate, currently R3.61 per kilometre. If the SARS rate was paid, the process was simple and no PAYE was deducted. If however the employer paid more than the SARS rate or paid out an actual allowance, then the difference was taxed and PAYE was deducted.

The problem with this third method was it was limited to staff doing 12,000 or less business travel kilometres.

The 2018/2019 changes are to the third method above and are intended to simplify matters for businesses, employees and SARS.

The changes made

SARS have scrapped the 12,000 p.a. kilometre cap and have encouraged employers to only pay out the SARS kilometre rate (i.e. to do away with the first two methods above). This will considerably simplify things for both sides as both employer and employee will have less administration workload. It will also make assessing taxes easier for SARS.

Examples best illustrate this –

Example 1: SARS rate of R3.61 per kilometre used to reimburse travel expenses.

  • An employee does 30,000 kilometres business travel in the 2018/2019 year
  • He gets paid out: R108,300. (30,000 kilometres X 3.61 a kilometre)
  • PAYE: Nil.

Note: the employee needs to keep a logbook to justify the 30,000 kilometres business travel.

Example 2: The employee does 30,000 kilometres business travel and is paid R5 per kilometre plus is given an allowance of R10,000.

PAYE is deducted on the difference between R5-00 and the SARS rate of

R3-61 or

30,000 X R1-39 = R41,700

Plus R10,000

Total R51,700 is added to the employee’s taxable income and PAYE is deducted as per the tax tables.

Note: As part of the PAYE process, Skills Development Levy (SDL) and Unemployment insurance (UIF) are also deducted.
The employee will have to complete the travel allowance section in his or her Income Tax return and will either get a refund or have to pay in additional tax.

In the event that the employee gets a refund of some or all the PAYE paid, the company will not be able to get back the additional SDL and UIF it has paid (the company picks up half of the UIF cost and all of the SDL cost). This is because there is no mechanism to claw back these amounts if the employee gets a refund when doing his or her Income Tax return.

In summary, the SARS revised allowance is clearly easier for all parties. However employees will almost certainly resist using this method, particularly the more senior employees who will see their travel allowance eroded.

Time will tell how successful the revised travel allowance will be.

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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Your 2018 Tax Season Deadline: Brought Forward By Three Weeks?

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“The best way to teach your kids about taxes is by eating 30 percent of their ice cream” (Bill Murray)

The 2018 tax season for individuals opened on 1 July. Non-provisional taxpayers who use eFiling or file electronically at a SARS branch have had their submission deadline cut to 31 October. Other classes of taxpayers (provisional and those who manually submit   their forms) are on similar deadlines to prior years.

This change stems from SARS streamlining the process this year. This has benefits for both taxpayers and SARS.How and why SARS is streamlining the process

  1. Nearly two thirds of non-provisional taxpayers’ returns are completed within three months i.e. they are in by end September. This is followed by a lull until the middle of November when there is a last minute rush to complete these returns.

    SARS has brought the deadline for these taxpayers forward by three weeks. Thus taxpayers who either use eFiling or submit electronically at a SARS Branch must send in their returns by close of business on 31 October.This is significant as it affects the bulk of taxpayers. Make sure your staff members are aware of this date as there will be penalties and interest on late returns.

    The reason for this change is twofold:

    • It smoothes the workflow of SARS. The lull period they previously experienced will be taken up assessing returns in October. SARS will be able to request verification and finalise assessments by the Christmas break.
    • The bulk of taxpayers in this category will now have their returns finalised in December. This will give these individuals more peace of mind as they are less likely to have to answer queries during the holiday break.
  2. 1.6 million taxpayers submitted tax returns last year when they did not need to do so. This adds unnecessary workload to these taxpayers and to SARS who are overwhelmed by the volume of work during filing season.

    SARS has communicated with those 2017 taxpayers who unnecessarily submitted returns, urging them to only submit a return if they fall within SARS’ requirements. If this is successful, 25% less tax returns will be submitted.Taxpayers do not have to submit a tax return if:

    • Their employment income is R350,000 or less for the year and
    • They have one employer during the tax year and
    • They have no other income such as rentals received, car allowance and
    • They do not claim additional deductions e.g. medical costs, retirement funding.
  3. Approximately 860,000 eFiling registered taxpayers came into a SARS branch to do their tax returns in 2017.

    These taxpayers will be assisted by the Help-you-eFile service which will connect a member of SARS directly to the taxpayer. The taxpayer will then be helped through the eFiling process. SARS hope this will significantly increase the number of eFiling returns.

  4. 120,000 tax practitioners used a SARS branch to complete their clients’ returns.

    All tax practitioners will be encouraged to use eFiling for their clients’ submissions.

  5. Both taxpayers and SARS staff get inundated with documentation during filing season.

    When requesting verification data, SARS will be specific about the documentation it requires. This will reduce paper flow and time spent on this process by both the taxpayer and SARS.

  6. 2018 returns will be prioritised and taxpayers submitting income tax forms from prior years will have to wait longer for assessments. SARS has found that many of the scams surrounding tax happen with past-due tax returns. This will give SARS more time to check and detect fraud.
  7. Lastly, SARS will net off refunds or amounts owed on past returns, giving taxpayers a better picture of what is due to them or what they owe.

Your 2018 Tax Season Deadlines

Channel Due Date Type of Taxpayer
Manual by post or at a SARS Branch Drop Box 21 September 2018 Non-provisional and provisional Taxpayers
eFiling or electronic filing at a SARS Branch 31 October 2018 Non-provisional taxpayers
eFiling 31 January 2019 Provisional taxpayers

(Adapted from a SARS table)
Overall, the situation should improve for both taxpayers and SARS.

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 Cash Disappear From Society?

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“Forewarned is forearmed” (Wise old proverb)

In the last decade we have witnessed the slow death of the cheque.  Today we have Bitcoin, payment apps and increasing use of the Internet and credit cards, so the question arises is cash also going to disappear? If so, it will have enormous implications for us.

The case for cash disappearing

In a recent study, 78% of Europeans expect to use less cash in the future. Countries such as Sweden and South Korea are pioneering the way to a cashless society and argue that:

  • Cash is incredibly expensive and costs between 5 and 15% of revenue. This is when you factor in the cost of ATMs, cashiers, the cost of bank branches (in Sweden only 5% of branches handle cash), security transit vans, the time taken to deposit cash and high bank charges.

The Bank of America says that 10% of its cost base is due to managing cash.

  • Robbery and crime fall when there is less money about.
  • It reduces organised crime and terrorism. In Europe the 500 Euro note is being phased out after it was discovered that the terrorists who killed 89 people in Paris in 2015 used high denomination notes to fund the attack.
  • Tax revenues, particularly indirect revenues like VAT show marked increases. VAT collections have improved 30% over the last five years in Sweden.

The other side

Contrary to conventional wisdom, cash now accounts for 9.6% of global GDP, up from 8.1% in 2011. The number of people in the UK who rely on cash has risen from 500,000 to 2. 7 million and in the past decade in the U.S.A., money in the economy has grown 50% relative to GDP.

So why is money still so prevalent?

There are some easy explanations such as:

  • The low interest rate environment has encouraged people to keep money rather than put it in the bank.
  • Globally the informal economy is growing and cash is the medium of exchange in this sector.
  • The global financial meltdown of 2008/2009 resulted in more people losing faith in banks.
  • The use of credit cards and other electronic payments has seen the level of consumer indebtedness grow. In fact, there is a very close correlation in countries embracing cashless societies and the growth in consumer debt. In a recent study, McDonalds put electronic devices in stores where consumers could order and pay online. Their sales in these stores rose by 30%.
  • The number of Internet scams has pushed people towards hoarding cash.
  • Crime statistics have in fact not gone down as was claimed above. In fact, where criminals can’t rob people of cash they go after the more vulnerable citizens such as the elderly.

In addition there are more subtle explanations such as:

  • In the current world of cynicism and mistrust, banks are regarded as part of the system supporting the wealthy top 1% which encourages people to move away from banks.
  • The recent incidents of state hacking (e.g. Russia meddling in the US 2016 elections) have given those in favour of a cashless economy doubts. Potentially, hacking could cause the financial infrastructure to collapse in which case it is prudent to still have cash in the economy.

The debate swirls on and on but it is probably safe to say that cash will be around for a long time, particularly in a developing country like South Africa.

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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Have You Been Hacked? Check Now!

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In May this year data the ViewFines website was hacked, exposing a database containing the passwords, cell phone numbers, email addresses and I.D.s of 934,000 South African drivers with traffic fines. “If you think you may be at risk from the ViewFines data leak, read this article for more detail.

Last year the databases of several large estate agencies were hacked into and over 60 million records of personal information including IDs were exposed. New hacks are reported with depressing regularity, so this is clearly a growing phenomenon – not just in South Africa but globally.

Have I been hacked?

Troy Hunter is a globally acknowledged cyber security guru who picked up this breach. His website will tell you if you have been hacked – during this or any of the many other global hacks over the years – and if so when. Check it out on the “Have I Been Pwned?” website.

Enter all of your email addresses and you may be unpleasantly surprised by the results.

What should I do?

Check all your passwords. If your password for ViewFines.co.za (or any other hacked website) has been used for other accounts, then you are at risk.

Troy Hunter also offers an excellent service in terms of password protection. Have a look here.

The Protection of Personal Information Act (POPI) will help South Africans in terms of helping secure our private data, but only when it becomes effective.

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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Small and Medium-Sized Businesses: How to Stay Healthy and Profitable

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Today getting an SME going is incredibly difficult as they face enormous red tape (FICA, getting loans, VAT registration and so on) and have difficulty getting access to money as financial institutions prefer funding large corporates where, for a similar amount of work, they earn higher fees.

Yet we should be doing everything we can to make SMEs sustainable as just under 50% of jobs in the economy are created by small business.

SMEs: 3 steps to staying in business

It is difficult for the new owner of a business to keep focused on what the business should be achieving. The early parts of a business just need so much work – hiring the right staff, setting up processes that will efficiently drive the business, attending to bankers’ and investors’ needs, dealing with unions, the list is endless.

  1. But it is incredibly important to allocate time to reviewing whether the business is on track, what the competition and market are doing and adjusting or tweaking your strategy.
  2. Secondly, all successful businesses need to grow and it is a fact that growth costs more money. As resources are scarce make sure you control expenditure tightly and carefully monitor your cash flows.
  3. Thirdly, you become a successful entrepreneur by having a unique idea or a different way of delivering your product or service. Make sure you keep innovating to stay one step ahead of your competitors.

What can we and Government do?

Beginning with Government, steps need to be taken to make it easier for small businesses to succeed such as following through with Government’s commitment to reduce red tape, considering extending tax concessions for up to five years (SMEs pay less than 20% of the corporate tax take) and looking at regional incentives like reduced rates, subsidised rentals etc.

On our side why not mentor young start-ups in the ways of business? Many young businesses, for example, don’t consider governance in their business and getting this off to a good start will help them in the long term.

These are the businesses that can solve our most pressing problem – unemployment. We should help them as much as possible.

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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Companies: “XBRL” is Coming Soon. What is it and Are You Affected?

1_h86WRANB5oBVvy5INRKi0gThe Companies and Intellectual Property Commission (CIPC) will from 1 July 2018 require that all Annual Financial Statements (AFS) submitted to the CIPC be in eXtensible Business Reporting Language (XBRL) format.

What is XBRL and what are its benefits? 

It is a global standard for digital reporting. It uses a tagging software system whereby data can be used across many platforms without needing to recapture it.

This means it saves time, is more accurate and can be used as an analytic tool. For example, CIPC will be able to meaningfully compare AFS from different organisations which will be of value to users such as investors.

In addition, XBRL quickly identifies submission problems (making them quick to correct) and is extremely cost effective.

It is widely used overseas – for example, people submit their income tax returns in the UK using XBRL.

Who has to submit annual financials to CIPC?

Basically, any entity which is required by the Companies Act to have their AFS audited. These include:

  • Public companies and State Owned Enterprises such as Eskom,
  • Companies holding fiduciary assets of R5 million or more (estate agents’ trust accounts for example),
  • Non–profit companies carrying out activities which are in the public interest, such as a wetlands reserve,
  • Non-profit companies created by the State,
  • Companies whose public interest score is 350 or more,
  • Any company whose public interest score is at least 100 and compiles its AFS in-house,

If you fall into one of these categories speak to your accountant who will guide you through the process of creating your AFS in XBRL. Remember the implementation date is 1 July this year.

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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