SARS register for tax

A common question we are asked is “How much do I have to earn to pay tax?” Each year SARS provides slightly different tax scales that are used to calculate income tax. In this article we will look at how much you will need to earn in order to be legally obliged to pay tax and how you can go about registering as a SARS tax payer.

How much do I have to earn to pay tax?

As an individual, your tax will be calculated by:

• Your age
• The total amount you earn
• Whether you contribute towards a Retirement Annuity or Pension fund

TIP: Remember that even if you do not earn a salary but are receiving funds from rental income, dividends, annuities, pensions, etc, by law you may be liable to pay tax. Please consult us to find out whether you are legally meeting your tax requirements.

The SARS tax thresholds provide the following age based exemptions for paying tax:

• If you are below 65 and earn less than R59 750 per annum, you do not have to pay tax
• If you are between 65 and under 75, earning  below R93 150, you do not have to pay tax
• If you are 75 and older, earning less than R104 150, you are not required to pay tax

If you are earning above these amounts, you can use the table below to calculate the tax that is payable

Tax tables for  financial year ending February 2012

When should I register for tax?

If your income is below the tax thresholds then you are not obliged to register for tax with SARS. However if you have reviewed the tax tables above and find you are earning an amount that is taxable, you will be required to register for tax and submit tax payments and tax returns.

TIP: If you are a business owner or individual, you are permitted to claim for certain business related expenses which can reduce the tax that you are liable for. Before you visit SARS, it is valuable to make an appointment with a tax consultant so that they can review your expenses and advise which can be claimed for.

How do I register for tax?

If you are happy to process all of the documentation yourself, you may register for tax at any SARS branch. However as tax consultants, we can also process your tax registration and submit tax returns on your behalf, allowing you to avoid any long queues. Most importantly, we will help you identify which business expenses can be legally offset against your total earnings, saving you a considerable amount of money. For expert advice and affordable, efficient service, contact Brett today on 021 421 4444.

Selecting a business structure

First of all, Happy New Year! I hope your 2012 is a prosperous one. If you are starting a business in 2012 or looking to register a formal business structure, then this blog article is for you. We will briefly look at a few of the business structures you can register in South Africa and the reasons you would choose each one.

Closed Corporations

Since the new Companies Act came into effect in 2011 we have said goodbye to the registration of new closed corporations ( see “No More CCs”) as well as conversions to cc’s. Individuals are now encouraged to register private companies.

Sole Proprietor

The sole proprietor or sole trader is the simplest business structure and requires no admin to setup. It is easy and costs little to run. As the name implies, you are the sole person on which the business is based and there can only be a single person in this business entity. Your only requirement is to disclose your income to the tax man. You are permitted to deduct certain expenses from your income and it is recommended you seek the services of a professional tax consultant to ensure this is done correctly.  The main disadvantage of this business structure is that all assets are tied into your own name which means that should the business go under, creditors are permitted to take your personal assets in order to settle the debt.

Partnership

Like the sole proprietor, a partnership is cheaper and easier to run than other more formal business structures. A partnership can be created between 2 and 20 partners and requires a written agreement to be drawn up, preferably by a lawyer. Be warned, the same disadvantages apply as in the sole trader and the risk increases as the number of partners increase. If one partner is taken to court for personal expenses, their creditor is permitted to repossess the partnership’s assets to settle the debt.

Private Companies ( Pty) Ltd.

With the ceasing of new closed corporation registrations, private companies are now the most common form of business structure to register, especially for entrepreneurs. This business entity permits several people to join together and share in the ownership of a business. This in turn makes it easier to sell portions of the business in the future.

One of the advantages of registering a private company is that your business and private assets / debts remain separate. Therefore creditors cannot look to your personal assets to settle outstanding monies.

A private company can be registered for a single person or more and requires a MOI (Memorandum of Incorporation) to be registered at the CIPC. A private company is made up of shareholders (owners) and directors (managers) who in some cases will occupy the same roles.

There are a few requirements and prohibitions for companies. One of the requirements is to either submit an annual return or for smaller companies, an accounting review will need to be carried out. Private companies are prohibited from offering securities to the public and there are also restrictions in place for the transferability of shares.

Registering a business

Should you require the registration of a formal business structure or advice on the best choice for your unique requirements, feel free to contact Brett on 021 421 4444.

Business disposal – selling a business

In a previous blog article I discussed Exit planning and how this should be incorporated into your business plan so that you, the business owner, receive the greatest value from the sale of your business when the need to sell arises. However, what happens if you haven’t planned for this eventuality and you are forced to sell? While this isn’t an ideal situation, you will be glad to hear that there are a number of ways you can improve the health of your business in the short term which will increase the value you receive when selling your business.

Preparing the business for disposal

A common cause of sudden business disposal is ill health which leaves the business owner unable to run the business and requires that it is immediately sold. Without the proper pre-planning the business may not be in the best position to be sold but by following the guidelines set out below, the chances of receiving a fair price are greatly increased:

1. Tax planning

This is the most important part of the business disposal process. A tax consultant should review all of the tax implications for the various types of sales in order for you to avoid paying more tax than is required.

 2. Decide on the timing of the sale

This may seem like a strange statement when you already know that the sale of your business is urgent. However, let me take a second to explain it. The more time you can provide for the sale, the more preparation can be done and the better the chance of receiving a favourable amount for your business. If you have a seasonal business where larger profits appear around a certain time of year, if at all possible you should attempt to run the business until those profits can show. Perhaps hire an interim manager who can focus on achieving sales targets. Another reason to hold on the sale is while you wait for audited statements showing the business’s true profit and assets providing proof to the buyer as to the potential value of the business.

3. Business clean up

There are a number of aspects of your business which can be groomed in order to provide an easier sale. Depending on the time you can allow for the sale, these can be anything from the reduction of non-business expenses, reduction of advertising expenditure, disposal of surplus assets to reviewing the management structure.

4. Hire a professional.

A professional advisor is a necessity especially when you require urgent business disposal. They will ensure that your business is prepared and ready for sale, find interested parties and negotiate the sale on your behalf.

Should you need to sell your business, contact Brett on 021 421 4444 for business disposal advice.

Whether you are looking to buy or sell your business, you will need a professional business valuation.  Unfortunately business valuation methods are a dime a dozen and as all businesses are unique, it is vital to use the correct formula for your business to reach a reasonable market value.

As a business owner, there are many pitfalls when trying to calculate a fair value for your business, especially when many business owners look at the value from a purely emotional perspective. Having placed years of their time and effort into the business, their judgement is understandably clouded which results in businesses being marketed for unrealistic prices. More often than not, this deters buyers, keeps the business on the market for too long and may attach a stigma to the business as being a non-seller.

It is therefore imperative that a business’s value is based on hard facts such as a business’s ability to generate a consistent cash flow. Only then can a fair value be calculated to act as a foundation on which buyers and sellers can negotiate.

Business Valuation Methods

There are a number of common valuations methods which can be applied to different businesses namely:

• Capitalisation of income valuation: This valuation method works best for companies with few assets such as service companies.
• Asset valuation: This is a business valuation method that works best for companies that are asset-rich such as businesses in the manufacturing and retail sectors. This takes into account figures like Fair Market Value, Leasehold Improvements, Owner Benefit and Inventory to determine the market value.
• Market Valuation: This is an estimation of the businesses value based on what similar businesses have sold for recently.
• Owner Benefit Valuation: This method uses a fairly simple formula to determine the business’s value and is good for businesses whose value is estimated by their ability to generate cash flow.

It is recommended that as a purchaser, you conduct your own valuation which can often help to rule out any emotional price adjustment on the buyers side. Then when the time comes for negotiation, you always have the hard facts in front of you which can help make the seller aware of any unrealistic pricing on their behalf.

If you are looking for an accurate business valuation you will need someone to take the time to fully understand your business. Whether you are buying or selling, need a value for potential lenders / investors or even estate planning, give Brett a call on 021 421 4444 today.

What is an exit plan?

If you are reading this, you are likely interested in finding out more about what an exit plan is and the value of exit planning, correct? You possibly have a small business and are familiar with the importance of a business plan?  Now, what if I told you, your exit plan is just as important as your business plan.  “How could this be possible?” you ask. Well you are not alone in your surprise. Exit planning is often a sorely neglected part of a business.

Business owners are often disillusioned by the fact that the hardest part of the business process is the start up and don’t give much thought to an exit plan. Surely though your exit plan should be given as much consideration as you do in setting your business’s goals?  After all, why are you putting in all this work into building your business if you are not planning at some stage to sell your business or at least maximise the value of the business when you do make your exit. Even if you are stoic and plan to die at your desk, you still need to have an exit plan to prevent your family from being left with a large problem.

Therefore in summary, an exit plan is a strategy you develop to ensure that when you leave your business, you do so under the most favourable terms and whilst maximising the value of your business.

The value of exit planning.

At first glance, it may seem like a dismal lack of confidence in your business when you have to review how you would leave your business at any point, but really, it is the opposite. The value of an exit plan allows you to correctly grow your business.  By constantly being aware of how you can exit your business, you can ensure that you are staying on track and maintaining your business’ s  value.

To give you an example, imagine your exit plan is to sell to a competitor. Having this as part of your business plan can ensure that you do your best to gain and maintain sufficient market share or push product development to constantly stay attractive to your competitors. Then if you need to make an unexpected exit, your business’s value won’t suffer as a result.

An exit plan also adds value in that when the time comes to exit, a plan is already in place to minimise the tax payment to the Receiver and also reduce the stress of exiting.

Exit planning is also about your goals.

An exit plan should also include your personal goals. When would you like to exit the business? Would you like to retire or make a gradual exit from your company? Are there specific goals like travelling where you may need to leave the business for extended periods?  As personal goals change over time, keep the plan flexible to accommodate these changes.

All these personal and business decisions should be included in your exit plan to allow you to be able to exit when you are ready or as circumstances dictate, ensuring you receive maximum value for all the hard work you have put into your business.

For help with a professional exit plan, contact Brett on 021 421 4444.

At Dirmeik Consulting, we offer a range of auditing services but often there is some confusion around the different types of auditing.  Many people have negative connotations to auditing when there has been forced external auditing and fail to see the many positives that internal auditing can provide a business. In this article I will give an overview of auditing and briefly touch on some of the different types of financial auditing.

If we look at the basic meaning of auditing, it is the evaluation of a person, organisation or process to ascertain the validity and reliability of information. Sounds like a rather useful and valuable process when you see it written like that, doesn’t it?

This is why auditors exist, to thoroughly evaluate an individual, business or process in order to check that all documented info is correct and free from material error.

Financial auditing is an important and often neglected part of any business and is vital to larger organisations while still being relevant to smaller companies. By undertaking an audit periodically, certain problems and inconsistencies can be revealed even though the business appears to be stable on the surface. The auditor therefore acts as an objective third party and assesses a business’s financial statements, either to generate a report for interested parties, such as investors, on the health of the business or to ensure that cash flow is being recorded correctly.

There are a number of different types of financial auditing, namely internal and external auditing as well as forensic reporting.

Internal auditing: This is designed to add value to an organisation as well as improve a business’s operations. An internal auditor is usually an employee of the company who evaluates (or audits) the companies records to provide a final report to the board of directors or management.

External auditing: This is when an independent auditor performs an audit on a company’s records in accordance with specific laws.  The auditor then compiles an independent and unbiased report that can be used by government agencies, investors, etc as a reliable source of information.

Forensic reporting: The word “Forensic” implies that it is for use in a court of law. Therefore forensic auditors (which is a specialist area of auditing), carry out audits usually associated with disputes or litigation and are often expected to give their professional advice in a subsequent trial.

Looking for Cape Town auditors? Dirmeik Consulting offers internal and external auditing services as well as forensic reporting services. Should you require our services, call Brett on 021 421 4444.

Many of you reading this may have just completed a tax return yourself or had your accountant complete it for you. Either way, you probably found that there was definitely still “Eish” in tax-eish-tion when you discovered how much tax you needed to pay to SARS. Sure, you claimed for certain expenses which reduced your tax, but you were still left with a large amount to pay in.  Leaving you fearing the next time tax season rolls around. Do you know it doesn’t have to be like this? That there are two simple words that will put you at ease? What are they? Tax Planning.

Bottom line, tax planning is where you are going to save real money. Each and every business investment or transaction that you make, needs to be evaluated in terms of its tax implications. This is where a knowledgeable tax consultant will prove invaluable. They will guide you in your business decision making so that you are properly informed as to how you can save money when it comes to taxation.

You may find yourself thinking, “Wait a minute, is this legal? I don’t want to cheat the books or practice tax evasion. I want a purely honest solution”. To put you at ease, tax planning is the honest and intelligent solution to saving money on your tax. There is no prohibition in SA tax law about reducing your payable tax and there are a number of ways this can be done that may be applicable to you, including:

Retirement: Each year, a tax payer is given a retirement figure that is tax deductible. The full amount should be utilised to maximise your tax saving.

Dividing your income: If you are earning a salary but your spouse is not, or vice versa, a portion of your salary can be allocated to your spouse up to the maximum tax threshold before any tax is payable.

Donations: You are legally allowed to make donations up to a certain limit each year before there are tax implications. Using this correctly and over a length of time can save you a lot of money.

These are just a few of many methods we can use in tax planning. Speak to a tax consultant today. The amount you will save using their professional advice as well as the value they will add to your business, will far outweigh the relatively small amount of their fees.

Brett Dirmeik is a Cape Town accountant and tax consultant who offers a range of services including tax consultation and tax advice. Would you like to make a tax saving today? Then call Brett on 021 421 4444 to start your tax planning.

A new earnings threshold was implemented today, 1 July 2011, by the labour department. The last time the earnings threshold was increased was back in 2008 when it was raised to R149 737.

With this increased earning threshold, employees earning less than R14338 per month ( or R172 000 annually) will now be protected under the Basic Conditions of Employment Act.

This new increase will have various implications for both employees and employers. While the increased earnings threshold will benefit thousands of current employees, offering more protection from exploitative employers, it carries with it many cost implications for employers.

How the new earnings threshold affects Employees

The jump in the new earnings threshold has been seen by many as a dramatic increase. But what does this mean for current employees?

Previously, employees could be divided into two groups, those who earned less than the old threshold of R149 736 per annum and those whose earnings were above the threshold. Any Employee whose earnings were below this threshold would be covered by the Basic Conditions of Employment Act. This means that the employee would enjoy protection from unfair employers as their hours are regulated by the Basic Conditions of Employment Act (BCEA).

The BCEA was generally associated with protection of Blue Collar workers however with this new increase the range of cover has definitely shifted to include many White Collar workers. Anyone that is earning between R149 736 and R172 000 annually can now enjoy regulated hours from the BCEA.

This BCEA offers many advantages to employees such as:

• Compensation for overtime, work on public holidays and Sundays
• Ordinary working hours are limited to 45 hours per week and 9 hours per day
• Entitlement to meal intervals of 1 solid hour for every 5 hours worked.
• Double pay on Sundays

Any employee who earns above this new threshold can be expected and required to work overtime, on public holidays and Sundays without receiving any additional compensation.

Implications for Employers

While many employees will be enjoying protection from the Basic Conditions of Employment Act (BCEA), employers on the other hand are faced with many cost implications. These new cost implications are seen by critics as just another way that employment is being stifled by government at a time when it is least needed, especially given the current unemployment crisis.

It would be advisable for employers to review their current employment contracts and remuneration packages with employers. If an employee is earning more than R172 000 per annum, then they fall outside the scope of the BCEA and any conditions of employment must be agreed between employer and employee. For many employers with employees that are earning close to R172 000 annually, it may be more cost effective to increase their annual remuneration to over the earnings threshold rather than having to incur additional expense by complying with the BCEA.

If an employee earns an annual remuneration that falls between R149 736 and R172 000, this may effect their terms and conditions of employment and it is recommended that employers check their legal obligations to that employee under the BCEA.

If you would like guidance on how to comply with the new earnings threshold or have any questions regarding your business, please call Brett at Dirmeik Consulting on 021 421 4444.

A look at CC Auditing and the New Public Interest Score.

If you haven’t heard already, there are no more close corporations or CC’s. If you were planning to open a cc for your small business then unfortunately this option will no longer be available to you. You will instead have to look at opening a Pty Ltd. While you will have to apply with the requirements of the new act in registering a Memorandum of Incorporation, if the business is small you may be exempted from auditing your business. This is subject to various conditions and the calculation of points using the Public Interest Score.

If you are an owner or a member in an already registered close corporation, don’t panic! If the close corporation was registered before 1 May 2011, it may continue to operate as a cc for an indefinite timeframe. The members are free to convert to a company when they feel it is in their business’s best interest.

Towards the end of April 2011, the dti (Department of Trade and Industry) published the final Regulations on the Companies Act. There were a number of new arrangements that apply to close corporations regarding, amongst others, a cc’s auditing requirements.

Auditing CC’s

With the changes that were brought about in the new Companies Act, you may now have to audit your close corporation if:

• Your business’s public interest score for the financial year is:
  • 350 or higher
  • At least 100 ( If it’s annual financial statements for the year were prepared “in-house” or by staff of the CC.)
• Your business, in the course of its primary activities, holds assets in a trustee capacity for persons, not related to the CC, and the average value of such assets held at any time during the financial year exceeds R5 million.

There is, however, an exemption from Auditing detailed in the Amendment Act. If every person who is a holder of, or has a beneficial interest in, any securities issued by that company and is also a director, then the company is exempt from having its annual financial statements audited. This is of course on condition that the CC is not in a class of companies that is required by law to have its annual financial statements audited, or requires auditing in terms of another law, or finally has entered into an agreement whereby its annual financial statements will be audited.

Public Interest Score (PIS)

It is now compulsory for every close corporation to calculate it’s Public Interest Score. This must be calculated at the end of each financial year.

The Public Interest Score is calculated as the sum of:

1. A number of points that equal the average number of employees of the CC during the financial year.
2. One point for every R 1 million (or portion thereof) in third-party liabilities of the CC at the financial year end.
3. One point for every R 1 million (or portion thereof) in turnover of the CC during the financial year
4. One point for every individual who, at the end of the financial year, is known by the CC to directly or indirectly have a beneficial interest in the CC.

After calculating the PIS score, it is used to determine whether or not the CC will be audited and which financial reporting standards will apply to the CC.

If your CC has a year end on or after 1 May 2011, calculate your PIS score using the criteria above and then consult the table below to find out whether you do require an audit and what financial reporting standard applies to you.

We hope that this article has shed some light on the Auditing requirements for existing CC’s as well as provided insight on the new Public Interest Score. If you have any questions about your CC or how this new system affects your business, please contact Brett on 021 421 4444.

To continue our series of popular services, we will look at the service of bookkeeping, what it is and how it can benefit your business.

What is Bookkeeping?

You may be starting a business or already running a company but not fully understand what bookkeeping is. Bookkeeping is an essential business functions and in essence, is the process of keeping a formal, up-to-date record of all financial transactions within a business.  These transactions include purchases, expenses, sales, etc relating to your company.

How will bookkeeping benefit my business?

By making use of a bookkeeper, you are ensuring that you have accurate records for every part of your business. These records will enable you to monitor cash flow and better keep track of profits and losses.

Does a bookkeeper do the same job as an accountant?

There is a common misconception that bookkeepers and accountants do the same job. While accountants often offer bookkeeping services and bookkeepers often delve into accounting, it is important to remember the distinction. Bookkeepers are in charge of maintaining the physical records of your business. These records are then used by an accountant to generate financial reports, offer guidance on how to grow your business and much more.

Even if you are not making use of an accountant, as a business owner, it is vital to see the value of these records to clearly understand the health of your business.

Finding a bookkeeper?

Now that you have learnt the benefits of bookkeeping, you should find a suitable, experienced and qualified bookkeeper to help maintain your financial records. You can either search for an independent bookkeeper or look for a company offering bookkeeping services such as an accounting firm.  By selecting an accounting firm you will be offered the benefit of bookkeeping services as well as business guidance and advice.

When selecting a bookkeeper or bookkeeping business, the following points may be helpful:

• Decide if you want someone in your area or if you are happy for a company to handle your financials remotely ( This depends if you prefer face to face meetings or would rather communicate telephonically / electronically if possible)
• Look for a company or individual that uses the Pastel Accounting Software System
• Check to see how often they will provide a review of your financials
• Ask exactly what  they will process, usually you can expect a bookkeeper to handle your bank reconciliations, debtors and creditors invoicing, petty cash book, journals, debtor’s statements and creditor’s reconciliations.

Conclusion

By making use of a bookkeeper you are not only maintaining solid financial records but also giving you, the business owner as well as your accountant, the info needed to make good business decisions to ensure the success of your company.

Dirmeik consulting offers bookkeeping and accounting services at competitive rates. Please contact Brett on 021 421 4444 and find out how we can assist you.