Youth Employment Tax Incentive Extended for Ten Years

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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:

Source: SARS

Source: SARS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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.

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

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“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?

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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Business Rescue Options: Going the Informal Route v the Companies Act Route

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The business rescue provisions in the Companies Act are regarded as progressive and world class and there is evidence that it has worked well.

Yet a 2016 survey showed that more distressed businesses opted for an informal approach and appear to be more successful than those opting for the remedies of the Companies Act.

What’s the difference?

Business rescue in terms of the Companies Act is a process whereby the company informs stakeholders of its situation and a business rescue practitioner is appointed to try and salvage the company. A moratorium is placed on creditors which gives  the practitioner room to find a solution.

With an informal arrangement, the business enters into negotiations with some or all of its creditors.

The two significant differences between the two approaches are that –

  • With an informal approach there is no protection from creditors demanding to be paid – this is a substantial risk because if creditors decide they want to be paid, the company could collapse.
  • The other big difference is that the informal way offers confidentiality to the business – with business rescue the financial position of the company becomes common knowledge to all stakeholders and the general market place. The company thus suffers reputational damage from which it may never recover even if it reaches a favourable settlement – e.g. consumers of the company’s product may opt to use a rival’s product in case the company does go into bankruptcy.

Directors: Plan ahead to prevent falling foul of business rescue requirements

Once a company becomes aware that it has run into or is going to experience financial difficulties, the directors are required by the Companies Act to perform liquidity and solvency tests and if these show the business cannot meet its obligations for the next six months, then it is required to either declare insolvency or apply for business rescue. Should the directors decide not to proceed with business rescue or liquidation, they are obliged to provide stakeholders with reasons for their decision  in writing – hence the company’s stressed position is revealed to the public.

Therefore if you want to take the informal route you need to do this before the business becomes financially stressed as above.

You will also need to present creditors with a credible plan when you embark on this option. Clearly, monitoring of the cash position and planning a comprehensive strategy are critical to the success of the informal turnaround process.

Your personal liability risk  

Directors are personally liable for any losses as a result of their actions or inactions if it can be shown that they acted recklessly or negligently. So plan accordingly and carefully. Remember also that staff and stakeholders could be financially ruined if the business fails.

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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How Tax Returns Will Be Easier This Year, and Should You File if You Earn Under R500,000?

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“Death and taxes may be inevitable but they shouldn’t be related” (J.C. Watts Jr)”

Tax season 2019 begins on 1 August (1 July for taxpayers who are registered for eFiling or have access to the MobiApp) and SARS has taken further steps to reduce the burden on both taxpayers and SARS’ administrative systems.

This year there are three initiatives:

  • Increase the threshold of submitting tax returns from R350,000 to R500,000,
  • Enhancements to the MobiApp and improvements to EasyFiling,
  • Moving out the dates for submission of returns.

Threshold increased to R500,000

Taxpayers with employment-only income now only have to file a tax return if their annual employment income exceeds R500,000 (previously R350,000). The provisos to this are taxpayers must have:

  • Only one employer during the tax year,
  • No other income such as rentals received or car allowance etc,
  • No other additional deductions to claim e.g. medical costs or retirement funding,
  • Not made a capital gain of R40,000 or more.

A problem SARS has had with this is that many of these taxpayers still submit returns – up to 25% of tax returns received do not need to be filed. In a further effort to prevent taxpayers submitting unnecessary returns, SARS will send each of these taxpayers a simulated outcome as if they had filed a return which will show no tax is due.

Should you file a return even if you don’t have to?

If you may be in line for a tax refund, then it pays to do a tax return. In addition, if you think you may need a Tax Clearance Certificate it is probably prudent to complete a tax return. This will save any potential delays as SARS may query why you did not file your income tax form.

Ask your accountant for advice specific to your situation.

Enhancements you need to know about

SARS has been making efforts to upgrade their IT systems to reduce the number of people who use SARS branches to complete tax returns. Thus far this has had limited success, so SARS is increasing its efforts this year.

  1. The MobiApp

This enables taxpayers to submit their returns using their smartphones. Security has been enhanced by:

  • A biometric authentication facility,
  • A one time pin has been added,
  • The use of security questions, and
  • You can easily reset your password and username.

One really good feauture is the scanning and uploading of documents.

Note: the MobiApp cannot be used for provisional payments.

  1. EFiling

The system is now more user friendly for making payments, submitting your return and uploading documentation. In addition, Notices issued by SARS will be more specific, e.g. the Notice will specify what documentation SARS require in the event of verification and audit.

Taxpayers may use the MobiApp or EFiling from 1 July but may only use branches for submitting their returns from 1 August.

(Adapted from a SARS table)

(Adapted from a SARS table)

What is of interest in the table above is that the deadline dates have been moved out for manual submissions (it was 21 September last year) and for non-provisional taxpayers (31 October in 2018) whilst there is no change for provisional taxpayers.

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 Business Owners: Don’t Overlook Your New Compliance Requirements!

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Small business has limited resources and optimising these resources is a balancing act. Part of this balancing act includes the role of compliance. These requirements have increased as new laws are rolled out along with other regulations, such as BEE and FICA, which also need to be considered.

One needs to carefully weigh up the consequences of not complying with laws or regulations. It is no excuse to say “I was not aware of that requirement” – the onus is on the business to take the time to understand what it needs to know.

The new accounting reporting standards and how they impact on you

If your business is subject to audit, be aware that new standards have become effective in 2019.

The most important of these is “Revenue from Contracts with Customers”. This could, depending on your business, fundamentally alter the way your company recognises revenue (such as, construction and telecommunication industries) and even if it does not, disclosure requirements in the notes to your Annual Financial Statements (AFS) may change. These notes will have knock-on effects, for example, to bonus schemes tied to sales which may need to be altered. This will affect how you disclose remuneration in the AFS and could in turn impact how much additional tax your staff need to pay. In turn, this will change your PAYE (Pay as You Earn) and will roll through to the EMP 201 and EMP 501 (monthly and annual earnings declarations to SARS).

This is only one of several new standards, so speak to your accountant to assess the effect on your business.

Banks and other financial institutions rely on your AFS to determine the health of your business. Not complying with these standards could result in an audit qualification, in turn resulting in a negative perception of your business by key stakeholders.

Disclosing directors’ and prescribed officers’ remuneration

The Companies and Intellectual Property Commission (CIPC) recently released a Notice warning that the Companies Act disclosure requirements of remuneration to directors and prescribed officers are not always being correctly complied with. The CIPC is referring to organisations’ AFS (remember that you are required to lodge your AFS with the CIPC).

The Notice warns businesses that this is a significant area of governance and transparency – failure to comply could trigger an investigation into your company. This is something any business can do without as the CIPC is empowered to instruct entities, subject to the Companies Act, to correct contraventions. Or it may apply to the Courts to issue an administrative penalty or refer the matter to the prosecuting authorities.

Extensive disclosures are required as set out in the Companies Act in terms of remuneration – so again, consult your accountant!

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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Worker Burnout: Too Much Work and Unclear Goals

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“‘Burnout’, n. ‘Physical or mental collapse caused by overwork or stress’” (Oxford Dictionaries)

Two issues have come to the fore in terms of staff experiencing burnout – bosses who work too many hours, and conflicts in terms of duties performed.

This can result in burnout and high healthcare costs (estimated at $120 billion annually in the USA, along with 120,000 deaths).

Bosses working excessive hours

Generally managers who work long hours encourage their staff to work similar hours. This encouragement springs from either employees following their manager’s example or exhortations by the manager to also work long periods.

Experts say that a balanced lifestyle between work and leisure is necessary to keep the workforce mentally sharp and they question the benefit of excessive work hours. As one has put it, “Darwin only worked four hours a day and he radically changed human thinking”.

It is important that you satisfy yourself that your executives are not pushing their staff into an unnecessary workload.

Work-work conflicts 

Surveys show that another area of unhappiness is that staff face conflicting duties when performing their work. It is natural that people want to be as proficient as possible in their jobs, but they often find this almost impossible to achieve.

As an example, take the roles a physician is expected to fulfil:

  • Diagnose and treat patients
  • Research in his/her chosen field
  • Mentor learner physicians
  • Travel to and attend conferences
  • Attend to all the administration required including staff appraisals, budgets, sit in on committee meetings – the list goes on.

Yet when one looks at how the physician is evaluated, it is usually on the most prestigious function, that is, the research undertaken.

Thus, the physician ends up in the position of failing to meet some requirements which leads to frustration.

It can also potentially lead to lower productivity as it may encourage staff, like the physician, to get political in pleasing their superiors.

What can you do about these conflicts?

Researchers have made some key recommendations to address these work-work conflicts, beginning with defining what outcomes the business requires. This will result in:

  1. Ensuring staff have an appropriate job description based on fulfilling the key aspects of their job requirements.
  1. Making sure there is clarity and transparency as to what is expected of staff, and what goals they are expected to reach.
  1. Aligning their salaries and bonuses to these defined outcomes.

Work-work conflicts can easily arise in the workplace, so take action to minimise these conflicts in your business.

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: What is an Alternate Director? A Curious Role…

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“‘Alternate director’ means a person elected or appointed to serve, as the occasion requires, as a member of the board of a company in substitution for a particular elected or appointed director of that company” (Companies Act)

Situations can arise where a director becomes ill and takes a leave of absence or travels frequently and has to miss board meetings. The Companies Act provides for the business to appoint an alternate director to fill in for the absent director.

Roles, duties and risks of the alternate director

The Companies Act includes an alternate director in its definition of a “director”. Thus, an alternate director is elected in the same manner as a director and when stepping in for the director, the alternate has the full powers of a director i.e. he or she participates and votes as a director in meetings and/or when resolutions are passed.

The alternate director also has to act in the best interests of the company, independently, with due care and skill, fully apprise himself/herself of the issues to be decided on and not have (or declare) any conflicts of interest.

The liabilities incurred by directors fully apply to alternate directors and as the alternate plays a more limited role than a director, there is a strong case to be made for alternate directors being indemnified by insurance cover. In the event of being sued, the insurance will be paid out as long as the alternate director acts as set out in the above paragraph. The alternate director should also motivate for the company to pay any legal costs incurred as a result of being sued.

When the director for whom the alternate director stands in for resigns, dies or is removed from office, the alternate director position ceases.

Whilst one can see the necessity of the role of the alternate director, it is nevertheless a curious role. In a sense, it is similar to a political vice president who needs to be ready at any time to fulfil the role of the president. Thus, an alternate director needs to be fully up to date in the affairs of the company and to step in whenever the director is absent.

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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How You Can Detect Fraud in Your Business

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Few things are as devastating to a business’ reputation as internal fraud – it undermines staff morale and creates a new uncertain relationship with stakeholders such as suppliers, investors and compliance authorities.

News bulletins and newspapers all talk of the massive corruption being unearthed in South Africa – don’t think your business is immune.

Build good control systems, particularly around procurement

The bulk of fraud happens around procurement which makes it a good place to start. Use your accountant here – you will need his or her expertise plus your accountant will have an independent, impartial view of your business.

Whilst every business is unique you should ensure your system has the following basics in place:

  • Thorough recruitment processes for procurement staff. Check for criminal records, debt judgments and properties and companies owned (a common method of fraud is buyers using a company they own to become a “supplier”). Also do exhaustive background checks to ensure his or her CV is consistent with the applicant’s lifestyle. You need to satisfy yourself that the person being considered has integrity.
  • Procedures should be robust – such as the three-quote system is used, new suppliers are carefully checked, a conflict of interest register is in place and maintained and gifts are declared.
  • Ongoing checks are in place by management independent of procurement where buying patterns are analysed, any deviations from procedure are checked for justification and authorisation, and you continually monitor the lifestyle of the members of the buying department.

Judgment and common sense should be your guide e.g. it isn’t time consuming to do an independent check on new suppliers whereby you phone their number (in the current Eskom/Transnet investigations, an early indicator of fraud is the supplier being essentially a front – the telephone is seldom answered and the address turns out to be a small unmanned office).

We all know how destructive fraud is to a business – make sure you put into place the systems needed to block it in your company.

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 – Important Update on VAT for E-Services from Foreign Suppliers

shutterstock_1150436963This has been causing waves since SARS stated its intentions of making electronic services subject to VAT last year. Now the final regulations have been published and are effective from 1 April 2019.

Of significance is the change in the definition of electronic services – in the original draft regulations e-services were specifically listed but the new definition is very wide – “any services supplied by means of an electronic agent, electronic communication or the internet for any consideration” (our emphasis).

Furthermore, the inclusion of business to business (B2B) supplies is a significant departure from the global trend to only include business to consumer (B2C) supplies as the former is an “in and out”, increasing the tax administrative cost rather than tax collections.

The exclusions from the definition are still –

  1. Educational services supplied from a place in an export country and regulated by an educational authority in terms of the laws of that export country; or
  1. Telecommunications services; or
  1. Services supplied from a place in an export country by a company that is not a resident of the Republic to a company that is a resident of the Republic if –
  • Both those companies form part of the same group of companies; and
  • The company that is not a resident of the Republic itself supplies those services exclusively for the purposes of consumption of those services by the company that is a resident of the Republic.

If in doubt, speak to your accountant on this.

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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Tax and Solar Energy Plants: Your Business Can Deduct the Costs Upfront

shutterstock_72500704“If only there was some kind of an infinite power source that was free to use all day every day…” (Anon)

In a recent binding ruling, SARS confirmed it will allow the cost of solar power units. The capital costs that may be deducted are:

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

In addition related allowable costs of installation are:

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

If the solar unit per site generates less than 1 megawatt of power, the full cost is allowable in the year the plant was commissioned according to the ruling. If the equipment generates 1 megawatt or more energy, then 50% can be deducted in year one, 30% in year 2 and 20% in year 3. Note that if the company is a SBC (Small Business Corporation), the capital allowances under the SBC tax allowance regime (i.e. 50/30/20) must be claimed.

Remember the normal rules apply in terms of qualifying for a deduction – the plant must be owned by the taxpayer, it must be used for the purposes of trade by the taxpayer and the plant must be brought into first time use by the taxpayer.

This is good news for people tired of load shedding.

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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