PAYROLL – it’s the area of business that most often gives you a headache! And it’s one of the first areas of your business that the SARS auditors will scrutinise.

1.   Payments made to directors and shareholders

Here’s what the tax auditors look for when they check your directors / shareholders’ remuneration:

• The director / shareholder’s salary can be verified to financial statements and minutes of meetings.
• Any amount that may constitute remuneration to directors / shareholders has been included in their taxable income.
• Both the cashbook and cheques paid to the director / shareholder have been posted to the correct accounts.
• All fringe benefits to directors / shareholders have been correctly calculated.
• PAYE deductions are accurate.

Checklist 1:  Use the payroll compliance checklist to ensure you allocate payments to directors and shareholders correctly.

2.   Structure your employees’ salaries legally and tax efficiently.

Answer these 5 salary structuring questions before you submit your returns

Salary structuring is always under the tax spotlight. Who isn’t looking for ways to maximise the tax allowances, without increasing their taxes!

But there’s a very thin line separating tax avoidance and tax evasion … SARS will ignore your salary structuring, if it can prove it’s a scheme to avoid or reduce tax.  It’ll simply calculate what you actually owe in taxes and add some extra tax and interest to this if the deadline for tax has passed.

But before it can do this, SARS must be able to prove that:

• An arrangement (e.g. salary structuring) results in a tax benefit;
• Its sole or main purpose was to get a tax benefit; and
• It lacks commercial substance or it results in the misuse of the rights and obligations set out by the Income Tax Act.

In other words, if it’s a deliberate attempt to shrink your tax bill, in an under-handed way, then SARS will see it as tax evasion. And you’ll face penalties, audits and assessments.

 

Carrie-Anne Diniz

Cents Accountability

 

Source: Tax Bulletin – For more tax and VAT tips from some of SA’s top tax experts.

©Copyright 2011, Cents & Accountability. No part of this publication may be reproduced or transmitted in any form, or by means electronic or mechanical, including recording, photocopying, or via a computerised or electronic storage or retrieval system, without permission granted in writing from the publisher. The information and opinions provided in this publication are believed to be accurate and sound, based on the best judgement available to the researchers. The publisher is not responsible for any errors or omissions.

Email: info@centsaccountability.co.za Website: www.centsaccountability.co.za

With the 2011 Budget Speech, the Minister of Finance announced the proposed conversion of medical deductions to medical tax credits, with effect 1 March 2012. The policy discussion document has been released for the second round of public comment. In the meanwhile, let’s
take a closer look at what’s proposed. 

CURRENT MEDICAL DEDUCTION SYSTEM

This tax year (2011/12) you are entitled to deduct from your taxable income R720 a month each for yourself, as the main medical scheme member, and for the first dependant you register on your scheme. You are entitled to deduct R440 a month for each additional dependant.

If your employer pays all or part of your medical scheme contributions, this deduction will offset that subsidy, which is included in your income as a taxable fringe benefit.

If you do not receive a subsidy or you receive a subsidy that is less than these rand amounts, the rand amount, or the balance of it, will reduce your taxable income.

If your contributions exceed these amounts, you can claim the excess only if you are over the age of 65 or if you or a family member is disabled.

The tax benefit you receive as a result of the deduction for scheme contributions depends on your marginal tax rate. If your marginal rate is 18% (for an annual income of less than R150 000), your tax benefit is 18% of the rand amount allowed as a deduction. This amounts to a potential tax benefit of R5 011 for a taxpayer with a family of four registered on a medical scheme.

If your marginal rate is 40% (for an annual income of R580 000 or more), your benefit is 40% of the rand amounts allowed as a deduction. This amounts to a potential tax benefit of R11 136 for a taxpayer with a family of four on a scheme.

In addition, if you are under 65 years of age, you can deduct qualifying unrecovered medical expenses for yourself and your dependants where these exceed 7.5% of your taxable income.

If you are over the age of 65 or if a member of your family is disabled, in addition to being able to deduct all of your medical scheme contributions, you can deduct all of your unrecovered qualifying medical expenses, as well as those of members of your immediate family.

TAX CREDIT SYSTEM FROM NEXT YEAR

The Taxation Laws Amendment Bill proposes that, as of March 1 next year, you will be allowed to deduct a rand amount from your tax for medical scheme contributions. This rand amount will increase each year, but the tax rate at which the credit will be set will be about 30%.

In the explanatory memorandum to the Taxation Laws Amendment Bill, the National Treasury says that, if the tax credit were set for the 2011/12 tax year, it would be R216 a month for the member and the first dependant (30% of the R720-a-month deduction for this tax year) and R144 for each dependant thereafter (32.7% of the R440-a-month deduction for this tax year).

In addition, people over the age of 65 and those with a disabled family member will be entitled to a supplementary tax credit.

The discussion document released in June reveals that the supplementary tax credit will be the same as the tax credit, or R216 a month at 2011/12 tax rates. The supplementary tax credit for contributions will be allowed only for contributions paid in respect of people over the age of 65
and for people with disabilities.

However, if your contributions exceed four times the tax credit, you will be able to claim the excess as a deduction from your taxable income at your marginal rate.

For example, if you are over 65 and pay R2 000 a month in contributions, you will be entitled to a monthly tax credit of R432 (R216 x 2) plus a monthly deduction from taxable income of R1 136 (R2 000 – [R216 x 4]).

The treasury says this system should have little impact on people over 65 who pay scheme contributions for spouses or dependants under the age of 65, and for families with a disabled member.

It will, however, benefit you if you are under the age of 65 and pay medical scheme contributions for a person over the age of 65, because you will enjoy the supplementary tax credit for that person.

The deductions for unrecovered qualifying medical expenses will be allowed to continue in their existing form for the next few years.

HOW IT WILL WORK IN FUTURE

In future, tax deductions for qualifying unrecovered medical expenses may also be changed to tax credits, and that these credits be set at a tax rate of 25%.

The existing deductions for out-of-pocket expenses can also benefit higher-income earners more than lower-income earners, although this is somewhat offset by the fact that the threshold at which you can claim (7.5% of taxable income) rises with your income.

The proposals are:

• For taxpayers under the age of 65: a tax credit for unrecouped medical expenses in excess of 10% of taxable income at a tax rate of 25%.
• For taxpayers over the age of 65 and for taxpayers with a disabled family member:
• A tax credit for unrecouped expenses in excess of 5% of taxable income at a tax rate of 25%; or
• A tax credit for all unrecouped expenses at a tax rate of 25%.

If these proposals are implemented, taxpayers who are over the age of 65 and who have a disabled family member may find that their tax liability will increase, but this will depend on their income level and hence their tax rate.

If a tax rate of 30% is used, the effect on higher-income earners will be less pronounced, while those in lower-income brackets will benefit more.

Click here for a table that shows the effect of the tax credit system versus existing medical deductions

 

Carrie-Anne Diniz

CentsAccountability

©Copyright 2011, Cents & Accountability. No part of this publication may be reproduced or transmitted in any form, or by means electronic or mechanical, including recording, photocopying, or via a computerised or electronic storage or retrieval system, without permission granted in writing from the publisher. The information and opinions provided in this publication are believed to be accurate and sound, based on the best judgement available to the researchers. The publisher is not responsible for any errors or omissions.Email: info@centsaccountability.co.za
Website: www.centsaccountability.co.za

 

Debtors:  Controls to reduce risk

In this last article of the series, we have a look at the Debtors (or customers) and how you can implement controls to run a tighter cash flow and reduce bad debts and long outstanding payments.

Manage your debtors correctly and increase your cash flow.   Implement these controls to improve your debt recovery and reduce fraud.

• What are debtors and why are they a risk area?
• Three risk areas to look out for
• Controls to implement in your business today

What are debtors and why are they a risk area?

Debtors owe your company money. They’re short-term assets on your balance sheet. This means your debtors should pay you in less than a year. You want your debtors to pay as fast as possible to improve your cash flow in your business.

If your debt isn’t recorded correctly, your debtors’ balance will be incorrect and will affect your ability to recover the debt accurately. The risks in this area are discussed in more detail below.

Three risk areas to look out for

1.   Recovering the debt – keep a close eye on the stragglers

This is your ability to receive money from the debtor when it’s due. This becomes more risky in times when the economy suffers since cash flow problems will affect your clients, which means they are less likely to pay you. You need the business, so you’re more likely to make the sale in an uncertain environment.

You need tighter controls to ensure you have a higher chance of recovering the money from your debtors so you will have cash to settle your creditors and pay your expenses as they fall due to you.

A few months of slow receipts from debtors and your ability to continue running your business could be severely affected.

2.   Inaccurately recording the debt

The recording of the sales and related debtors needs to be accurate to avoid incorrect balances being recorded.

You could make bad decisions based on incorrect information.

3.    Fraud / misappropriation

Misappropriation or fraud is most likely to happen when you’re receiving money from debtors, especially if they pay in cash. Watch out for staff members who allow high credit limits to unapproved clients. This allows inventory to be ‘sold’ but never paid for.

What are debtors and why are they a risk area?

Implement controls in these three main debtor areas.

1.   Recovery of debtors

How do risks in this area affect your company?

i)   Don’t extend credit to risky clients

Take credit application processes very seriously. Slack controls in this area can allow non-creditworthy clients to buy from your company and never pay.  Trying to improve recovery after extending credit to a client is like locking the stable door after the horse has bolted!

ii)  Don’t allow clients to exceed their credit limits

Once a credit limit has been set for a client, this limit should be adhered to, unless an increase is approved by management. This could otherwise lead to creditworthy clients becoming non-creditworthy.  They may exceed their buying power at your expense!

iii)  Making sales at the expense of recoverability in tough times

The tougher the economic times are, the more companies want to make sales, especially sales staff if their salaries are based on commission. In these times, it’s tempting for both staff and management to take a chance on a client who they normally wouldn’t consider offering credit to.

Although this risk may pay off (clients may become more loyal due to your support, and your sales may increase due to being one of the few companies in your industry prepared to offer credit to smaller, less stable clients), this could backfire badly.  The recovery of these debts is a
large concern and the tough economic environment may cause clients with the best of payment intentions to become bad debts.

2.   Inaccurate recording of debtors

The recording of the sales and the related debtors needs to be as accurate as possible. This will ensure that debtors’ queries, correcting and adjusting journals and unreliable debtors’ balances are kept to a minimum.

As discussed above, these inaccuracies can reduce the likelihood of recovering the debtors’ balances that are listed on your age-analysis.

3.   Receipts from debtors – reduce fraud

The receipt of money from debtors can present an opportunity for fraud as dishonest staff members can redirect funds from debtors to their own accounts. Staff can steal cash if your debtors pay in cash, or your staff can give your debtors new ‘bank account details’ so the debt is paid into the wrong account.  Theft in this area can be hidden for a while if the same staff are responsible for receipting and allocating receipts to debtors’ accounts.

Carrie-Anne Diniz

CentsAccountability

Source: Tax Bulletin – For more tax and VAT tips from some of SA’s top tax experts.

©Copyright 2011, Cents & Accountability. No part of this publication may be reproduced or transmitted in any form, or by means electronic or mechanical, including recording, photocopying, or via a computerized or electronic storage or retrieval system, without permission granted in writing from the publisher. The information and opinions provided in this publication are believed to be accurate and sound, based on the best judgment available to the researchers. The publisher is not responsible for any errors or omissions. Email: info@centsaccountability.co.za Website: www.centsaccountability.co.za

 

Question:

Can I claim a wear-and-tear allowance on any improvement done in 2008/2009/2010 on office buildings owned and rented out to other companies before 2007 – at 5% per year?

Answer:

Yes! You can deduct an allowance equal to 5% of the cost of the repairs made to any new and unused buildings owned by you – if the building or improvement is wholly or mainly owned by you for the purposes of producing income in the course of your trade (Section 13 quin).  This excludes the provision of residential accommodation (e.g. a bed and breakfast).

By using the terms “new and unused’, the legislature has excluded second hand buildings from the benefits of this allowance.  Where the taxpayer erected the building himself, or made the improvements himself, the full costs are available for the calculation of the  allowance. Where the taxpayer acquired part only of the improvement, the allowance is calculated on an amount equal to 30% of the acquisition costs of the improvement.

Please note that there’s no wear and tear allowance on the physical structure of a building – only improvements to it, as explained above.

Does an auctioneer need to register for Vat? And is the total auction fee included in his income, or just his fee?

Question:

I have a client who’s an auctioneer.  He obtains cars for private persons, and then auctions the cars off on their behalf. He charges an auctioneers fee of 7%, e.g. if he sells his client’s car at R50 000, he earns a fee of R3 500. In this case, would the R50 000 be included in his turnover for Vat purposes? Or will he only account for the R3 500 fee?

Also, does he need to register for Vat if his commission is below R1 million per annum? And if he does have to register for Vat, does he have to charge 14% Vat on the R50 000?

Answer:

When an auctioneer sells good on behalf of a private person (a non-vendor) or even a vendor, he is acting as the seller’s agent. The price he receives on behalf of the seller belongs to the seller and is not part of his auctioneer’s turnover or income.

This means he doesn’t charge Vat on the R50 000, but only his commission of R3 500.

If his commission is less than R1 million a year, he doesn’t have to register as a vendor. If he has already registered, he can deregister.

Can we claim back provisional payments as an input Vat deduction?

Question:

I have a query regarding the provisional payments made with a DA 70 form.

We have a customer in Namibia who temporarily exports goods to our workshop in Johannesburg for service / repair. The necessary Vat 262 Forms are completed and the customer in Namibia pays a provisional payment as security for the Vat (DA 70 Form).  This customer then invoices us for this DA 70 provisional payment.

Are we allowed to claim this amount of provisional payment as an input Vat deduction if we don’t get the amount refunded within the stipulated 30 days?

Answer:

When a person from another country brings goods (e.g. a motor vehicle, TV set, machine) into South Africa to have the item fixed or modified, he (the foreigner) must make a provisional payment to SARS Customs and he gets the provisional payment back once he re-exports the item. The purpose of the provisional payment is forfeited and the goods are treated as contraband whSend us ich can be seized and confiscated by Customs.

There’s no reason for your customer to invoice you for the provisional payment – it was his liability and he gets the refund from Customs.

You’re entitled to zero-rate the parts and work you supply, provided you keep a copy of the VAT 262, duly stamped by Customs (Section  11(1)(b) and 11(2)(g)(ii) of the Vat Act). You can’t claim the provisional payment as input tax because:

1. It isn’t Vat, just security; and
2. You didn’t pay it.

Send us your burning tax and Vat questions!

Carrie-Anne Diniz

CentsAccountability

Source: Tax Bulletin – For more tax and VAT tips from some of SA’s top tax experts.

©Copyright 2011, Cents & Accountability. No part of this publication may be reproduced or transmitted in any form, or by means electronic or mechanical, including recording, photocopying, or via a computerized or electronic storage or retrieval system, without permission granted in writing from the publisher. The information and opinions provided in this publication are believed to be accurate and sound, based on the best judgment available to the researchers. The publisher is not responsible for any errors or omissions.

Email: info@centsaccountability.co.za Website: www.centsaccountability.co.za

 

You’ve probably seen all the news around SARS and Vat refunds – more specifically, that there seem to be serious delays in paying these out. SARS has stated that it’s making improvements to its systems to better manage the refunds process (i.e. to prevent abuse by taxpayers as well as by SARS). But as part of this upgrade, SARS has introduced a few changes to the Vat201 return.

Let’s look at the eight new changes introduced recently by SARS.

1.    SARS wants to know who you are …

That’s right.  If you’re filling in the Vat201 return, you have to include your demographics; your name, job description and all your contact details.

2.    X marks the spot …

The declarant (the person completing the form) must also sign the form. SARS has added a new block on the first page of the new Vat201, where you add your signature.

3.   If you don’t ask, you don’t get!

From 1 May 2011, you must request your Vat201 form from SARS directly; either via e-Filing, from your SARS branch, via the post or by calling the SARS Contact Centre on 0800 00 7277.

4.   Your 10-digit Payment Reference Number (PRN) will help to correct payments

When you request your VAT201 Declaration form from SARS, it will automatically pre-print a 10-digit payment reference number on it. This PRN links the actual payment you made to the declared amount on your VAT201 for a specific period. Keep this number safe, for when you need to query something from SARS!

Hopefully, there won’t be any misallocation of payments on your account anymore!

5.   The new and improved Request for Correction Functionality

Good news! You’re now allowed to make corrections to your VAT@)! Declarations for tax periods falling within the last five years. This means that the tiny error you made to last year’s declaration, can now be repaired.

Just remember that when you want to make a correction, you’ll be required to complete the VAT201 Declaration again – and not only the parts that have been updated. You can request the declaration from SARS using the same channels as in number 1 above.

6.   Smart submissions mean no penalties

When you receive the VAT201 Declaration back from SARS and you’ve made your changes, submit it using any one of these three channels:

• e-Filing;
• Post it to SARS;
• Or drop it off at your SARS branch.

Caution!  With the new and improved Vat system SARS is implementing, it now has the ability to revise the VAT201 Declarations for tax periods which may be under audit. You’ll be informed of any changes with a VAT217 Notification.

But if you want to amend a Vat return you’ve already submitted to SARS, you won’t be able to make any changes to input tax. If you forgot to claim something, you’ll have to claim it in your next Vat return. It seems that back-changes will only be permitted to output tax.

7.   SARS is assessing your risk …

To minimise fraud, SARS is implementing a new risk profiling system on all VAT201 Declarations that are being submitted. Should SARS pick up something it’s not happy about, and classify it as a risk, the VAT201 Declaration for the specific period will be subject to a review or audit.

Should your VAT201 Declaration be selected for a review or audit, SARS will notify you in writing of this and request relevant documentation from you – including output and input tax schedules. Gone are the days of a simple audit…

8.   From 1 July 2011, all manual debit order payments have been stopped!

From 1 July 2011, SARS stopped all manual debit order arrangements currently registered with it for payments of VAT201 Declarations.

This means that you can no longer arrange for new debit order applications for manual submission of VAT201 forms. SARS is clearly pushing us all to go digital with e-Filing!

Carrie-Anne Diniz

CentsAccountability

Source: Tax Bulletin – For more tax and VAT tips from some of SA’s top tax experts.

©Copyright 2011, Cents & Accountability. No part of this publication may be reproduced or transmitted in any form, or by means electronic or mechanical, including recording, photocopying, or via a computerized or electronic storage or retrieval system, without permission granted in writing from the publisher. The information and opinions provided in this publication are believed to be accurate and sound, based on the best judgment available to the researchers. The publisher is not responsible for any errors or omissions.   Email: info@centsaccountability.co.za        Website: www.centsaccountability.co.za

 

We have good news: On 10 March 2011, Parliament FINALLY adopted the Companies Amendment Bill – which contains amendments to the Companies Act of 2008 (and replaces the Companies Act of 1973).

At the time of print, the implementation of the new Companies Act (which was set for 1 April 2011) had been delayed. We’re waiting for confirmation on the revised implementation date. Nonetheless, we expect this new Amendment Bill to have a major impact on the laws and rules for companies in South Africa.

Here are four highlights – take note of these.

1. RIP CCs…

That’s right. Registrations of close corporations (CCs) ceased from 1 April 2011. So if you were planning to register one, you’ll have to think again. You now have the option of registering your company in one of two categories:

1. Non-profit company: This is the new format for companies limited by guarantee, and for Section 21 companies.
2. For-profit company: This includes:

• Private companies,
• Public companies,
• Personal liability companies (i.e. current Section 53(B)), and
• State-owned companies.

 

All CCs that were already registered before 1 April 2011, need not worry. You won’t be forced to reregister or to convert to one of the new formats. All existing CCs will be maintained (at least for the next ten years). And the lawmakers tell us that any future amendments to the Companies Act will make provision for these CCs.

2. Audit relief for small businesses

It won’t be necessary for all companies to have their annual financial statements audited – or even

to produce annual financial statements at all. CCs and closely held companies (CHCs) specifically, are off the hook.

They won’t have to comply with International Financial Reporting Standards (IFRS) either. This means these companies won’t have to cough up for audits…

That said, larger companies WILL have to meet strict requirements around reporting and audits. And financial experts keep reminding us that audits are an important measure for businesses that want to be seen as having transparent, accountable and responsible business practices.

3. The director’s neck is on the line

This new Act ushers in a new level of responsibility and accountability for company directors.  Directors will now be beholden to a fiduciary duty and a duty of reasonable care.

And – here’s the scary part – directors of companies will now be held personally liable for any number of transgressions, including:

• Not acting with the required care, skill and diligence that is required at your level being a director;

• Not disclosing personal financial interest;

• Misusing the position as director to gain personal advantage (e.g. free trips abroad, or a special “13^th cheque” from a peer);

• Not acting in good faith and for proper purpose (though what is meant by proper purpose is not very clear);

• Not acting in the best interest of the company;

• Trading under insolvent conditions;

• An act calculated to defraud a creditor, employee or shareholder of the company;

• Approving financial statements that are false and misleading in a material respect.

I’m sure you’ll agree, there are a lot of grey areas here. But what it all comes down to is that directors have to be on their best behaviour – ALWAYS.

4. Lie on your financial statements and you’ll spend 10 years behind bars

This is government’s way of improving corporate accountability. It’s now an offence to sign or agree to false or misleading financial statement or prospectus or to be reckless in your business conducts. If found guilty, you could be fined or locked up for 10 years. Ouch…

What this means is that you can’t just leave your auditors or your bookkeepers to it and trust that everything will be alright. If they’ve made even one mistake and you don’t spot it and make an effort to fix it, the financial statement police are going to come after YOU. So you’d better take an active interest in the financial statements from now on.

 

Small business corporations: Claim these tax deductions now to save!

With the emphasis being on what companies CAN’T do under this new Act, we thought we’d show you what companies CAN do! Here’s a very special tax break for small businesses.

One of the many tax breaks available for small business corporations (SBCs) include an accelerated wear and tear allowance.

Before we discuss the allowances in more detail, you must ensure that your company qualifies as an SBC.

Checklist: How to qualify as a small business corporation

Make sure you meet the requirements:

❑ All shareholders of the company are natural persons at all times during the year of assessment

❑ The gross income for the year of assessment doesn’t exceed R14 million. If your business has operated for less than 12 months a pro rata determination must be made

❑ None of the shareholders or members holds any shares or has any interest in the equity of any other company at any time during the year of assessment. Other than:

• a listed company;
• a unit trust;
• a body corporate;
• a social or consumer cooperative;
• a cooperative burial society;
• any other similar cooperative if all of the income derived from the trade during any year of assessment is solely derived from its members; or
• any friendly society.

❑ Not more than 20% of the total of all receipts and accruals is derived from investment income and income from the rendering of a personal service (if the company has three or more full time unconnected employees throughout the year of assessment, this “20% exclusion rule” won’t apply).

❑ The company is not a personal service provider

What can you deduct?

Where any plant or machinery (“asset”) owned or bought by a small business corporation:

• and is brought into use for the first time by that taxpayer on or after 1April 2001 for the purpose of trade (other than mining or farming); and
• is used by that taxpayer directly in a process of manufacture (or any other process which in the opinion of the Commissioner is of a similar nature), a deduction of the full cost of the  asset is allowed in the year that such asset is brought into use.

 

If your SBC buys any asset that doesn’t qualify as a nonmanufacturing asset (e.g. machinery, plant, implement, utensil, article, aircraft or ship), the deduction allowed must be:

• 50% of the cost of that asset in the tax year during which that asset is brought into use for the first time;
• 30% of that cost in the immediately succeeding tax year; and
• 20% of that cost in year three.

 

You must have acquired the asset under an agreement formally and finally signed by every party to the agreement on or after 1 April 2005.

Removal costs

If you have a qualifying manufacturing asset, you may claim in full the expenses you incur when moving it from one location to another. But remember, the claim must be made in the same year you incur the expense. And the expense can’t be one referred to in Section 11(a) i.e. NOT of a capital nature.

If you have a qualifying non-asset, then you can claim the moving expenses over the three years (in equal instalments) in which the allowance is claimed. Again, the expense can’t be one referred to in Section 11(a).

 

Carrie-Anne Diniz

CentsAccountability

Source: Tax Bulletin, FSP Business – For more Tax and Vat tips from some of SA’s top tax experts click here.

©Copyright 2011, Cents & Accountability. No part of this publication may be reproduced or transmitted in any form, or by means electronic or mechanical, including recording, photocopying, or via a computerised or electronic storage or retrieval system, without permission granted in writing from the publisher. The information and opinions provided in this publication are believed to be accurate and sound, based on the
best judgement available to the researchers. The publisher is not responsible for any errors or omissions.

Email: info@centsaccountability.co.za Website: www.centsaccountability.co.za