SARS penalty for non-compliant taxpayers

In an effort to combat non-compliant taxpayers, SARS announced and implemented a range of penalties which started from January 2009.

Situations that incur penalties include:

• Failure to register as a taxpayer
• Failure to inform SARS of a change of address and other personal particulars
• Failure to submit Income Tax returns (ITR12) and other documents.

If you are in non-compliance with any of the situations above, you will be liable for recurring monthly penalties until you have rectified your non-compliance. The penalty you will need to pay is determined by your taxable income or assessed loss. See the table below:

SARS Penalty for employers

SARS has also clamped down on employers for transgressions including:

• Non submission of an Employer Reconciliation Declaration (EMP501) by the due dates (interim and annual)
• Failure to submit Employee Income Tax Certificates [IRP5/IT3(a)] (i.e. Missing IRP5/IT3(a)s)
• Submission of incorrect, incomplete or inaccurate data in relation to the IRP5/IT3(a)s, even where the EMP501 has been submitted on time.

The non-compliances mentioned above will be subject to a non-recurring percentage based penalty. According to SARS, this penalty is equal to 10% of:

• The amount of Employees’ Tax that an employer fails to pay as and when required under the Act
• The total amount of Employees’ Tax deducted or withheld, or that should have been deducted or withheld, by an employer from the remuneration of employees, where the employer fails to submit an IRP5/IT3(a) as and when required under the Act.

Once the non-compliance has been remedied, the penalty will be adjusted. This adjustment is calculated on a percentage sliding scale.

To reduce the risk of incurring these penalties, contact Brett from Dirmeik Consulting today. The best method of avoiding penalties is to make sure you are registered and submit your returns on time and in a proper manner. By hiring a knowledgeable accountant and tax consultant, you can concentrate on what you do best and we take care of the rest.

Call Cape Town Accountant Brett on 021 421 4444.

UIF stands for Unemployment Insurance Fund and as the name suggests, is an insurance fund, setup by Government to provide short-term relief for workers who become unemployed or unable to work due to factors such as illness or maternity leave. Employers and Employees provide the finance for the fund through their monthly contributions and as the government is the underwriter of this Insurance Fund, it is required to provide further finance in times of high unemployment.

Does it apply to me?

Any employee from top management level to the lowest positions in a company must make monthly contributions to the Unemployment Insurance Fund, regardless of what you earn.

There are exceptions however where the UIF act does not apply. These include:

• Employees working less than 24 hours per month for a single employer
• Any person who enters South Africa to carry out a contract, whether learnership, service or apprenticeship, where upon termination of that contract, they are required to leave the country.
• Employees and employers in the provincial and national spheres of government
• Employers who are under a learnership agreement registered in terms of the Skills Development Act, 1998 and receive remuneration for this. This also includes their employers.

If you are an employer, you are required to register with the UIF. This registration must be completed within 2 weeks of becoming an employer and you will need to complete a UI-8 form.

How does UIF work?

Employees are liable to pay 1% of their salary toward the UIF while employers need to add an additional 1%, making the total UIF contribution 2% of the value of the employee’s salary per month.

As an employer, how do I register for UIF?

As an employer, you are required to register with either SARS or the UIF office (whichever is applicable) for the payment of UIF contributions.

As an employee, when can I claim UIF?

Unfortunately you cannot claim UIF if you voluntarily resign but you are entitled to the benefits if your are unemployed for more than 14 days as a result of situations including:

• Your employment contract was terminated
• Your employer was declared insolvent
• You were dismissed

You may also claim UIF in these cases:

• Illness
• Maternity leave
• Adoption leave
• Dependent’s death benefits

What is important to note is that you must apply within six months of ending work and you will only be paid from the date of your application, not before.

If you need advice on UIF, have a SARS related question or any other financial matter, contact Brett from Dirmeik Consulting on 021 421 4444.

Who needs to register for VAT?

If you run a business that has a sales turnover exceeding R 1 million per year, then you are required to register as a VAT vendor. Should your turnover be less than R1 million it may still be beneficial to perform a voluntary registration as you can claim VAT back from supplier purchases and this is then deducted from the VAT you owe SARS.  If your turnover is less than R50 000 per annum, you will unfortunately not be able to register as a VAT vendor.

When do I need to register for VAT?

You should register as a VAT vendor if you predict your turnover to exceed R 1 000 000 in a 12 month period. If your turnover has exceeded this, then you are required by law to become a VAT vendor.

How to register for VAT?

You can either elect to register your business as a VAT vendor yourself or you can make use of an accountant / tax consultant to handle the whole process for you. It is worth noting that being VAT registered will take more administration time and you will be required to submit VAT payments to SARS according to the VAT cycle you are allocated. You will also be required to keep records according to the requirements SARS sets out for VAT vendors. Often this process is made much easier by using the professional services of an accountant / tax consultant.

Registering yourself as a VAT vendor

Should you wish to process your own registration for VAT, you can visit SARS and complete a VAT101 form. If you are a company, you can register in your business name, however if you are a sole proprietor or in a partnership, you must register in your own name(s).

Personal income tax:

If you are wondering if Pravin Gordhan could match the R8.1 billion in tax relief that was offered to tax payers last year, you won’t be disappointed, he’s done even better. This year the budget proposes direct personal income tax relief to individuals totalling R9.5 billion. This is in part due to millions of South Africans paying their taxes and duties on time and in full. I’m sure everyone appreciates that.

The tax threshold for individuals younger than 65 will be R63 556. If you are between 65 and 75 the tax threshold will be R99 056 and if you are older than 75, it will be R110 889.

The first tax bracket has also been increased from R150 000 to R160 000.

Company taxation:

While there has been no proposed change in corporate tax rates there is some good news for small businesses.

Small business news:

There was positive news for small business owners when the Finance Minister revealed that the tax-free threshold would be increased to R63,556 in the coming year. The tax rate dropped from 10% percent to 7% and the threshold to which the tax rate applied would increase to R350 000. The normal tax rate of 28% still applies for taxable income over the threshold.

Petrol prices

No relief for industry or motorists, another fuel increase is on the way.  Due to an increase in the Road Accident Fund levy, eight cents will be added to the price of a litre of fuel.

Sin tax:

Unless your tastes are limited to traditional beer, you will be disappointed as yet again anyone enjoying alcohol or cigarettes will feel the pinch. The sin tax on alcohol is going up anything from 6% to 20%.

A litre of wine will cost 18 cents more, a 340ml can of beer will cost 9 cents more while a 750ml of spirits will cost a huge R6 more.  The increases aim to bring our tax rates on alcohol up to the level of other countries and on a positive note, also attempt to lower the incidences of alcohol abuse.

Smokers have not escaped and will be hit with a 58 cent increase for a packet of 20 cigarettes.

Last but not least, there will be an additional tax on gambling from April 2013 at 1% on a uniform provincial gambling tax base.

NHI:

It was announced that the National Health Insurance will be phased in over a 14-year period beginning in 2012/2013. The government will look to fund this through an increase in the VAT rate, a surcharge on taxable income of individuals, a payroll tax on employers or a combination of these.

Tax evaders

Tax evaders beware! Pravin Gordhan ensured that more focus will be given to those who are practicing tax evasion.  As mentioned earlier in the article, the proposed tax relief by government was a direct result of millions of tax payers paying their tax and duties in full and on time. Therefore by doubling their efforts, we can possibly hope for further tax relief in the future.

Carbon tax:

It was also announced that South Africa will be looking at introducing a carbon tax in 2013 with the aim of reducing greenhouse gas emissions. While this is a good step forward for one of Africa’s largest polluters, it is seen as a heavy burden for many companies. With this in mind, temporary thresholds will be proposed as well as exemptions from carbon tax in order to lessen the impact on industry, especially key energy, mining and manufacturing sectors who are already feeling the pressure of increasing wage and power costs.

Grants

Government currently provides a safety net for almost one third of the population through social grants. This social grant programme pays for free services at public health facilities, no-fee schools, etc. It is predicted that the total number of South Africans receiving social grants will increase to 16.7 million over the next three years. Therefore spending on social grants will rise to R122 billion for 2014/2015 from R105 billion in 2012/2013.

Those are some of the highlights from the 2012/2103 Budget. Remember to download our pocket tax guide for all the details. If you would like advice on any matter arising from the budget speech and how it may affect your business, contact Cape Town Accountant Brett on 021 421 4444.

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.

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.

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.

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.

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.

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.