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So far EM Solutions Marketing has created 118 blog entries.

File Returns or else….

Having received SARS’ current press release declaring non-submission of tax returns a crime, I realised it is quite possible to live an innocent life without stealing from anyone but find oneself at the wrong end of the law. SARS declares that the courts would declare one guilty by omission if they fail to file their tax returns. Unlike Spain, the United States and other nations; South Africa has never had any high-profile cases of non-compliance with local tax laws.

When we think of tax crimes globally, high profile names in sports and the entertainment world come to mind. Like Wesley Snipes, who failed to submit tax returns from 1999 to 2001. This resulted in the fiscus being deprived of US$7m in taxes, resulting in a three-year jail sentence. Other high profile individuals who were convicted for failure to file tax returns are Jeffrey Atkins (famously known as Ja Rule), Joseph Cartagena (Fat Joe), Dolce & Gabanna (exonerated in 2013) e.t.c resulting in huge fines and prison sentences.

In SARS recent press release they explicitly declare the criminality of failing to submit tax returns and that they have engaged the National Prosecuting Authority in order to facilitate the prosecution of would-be offenders. This could be an individual who fails to submit their returns may end in prison or being fined; resulting in a criminal record. This would affect several professionals whose occupations require that they should not have criminal records. SARS also fired warning shots at prominent South Africans who have not filed their tax returns. It is clear that they are not too far from the reach of the long arm of the law.

These far-reaching measures were necessitated by an increase in non-submission of tax returns. At the end of March 2018, SARS’ Outstanding Returns Book showed that 30 million returns were outstanding from active taxpayers. SARS did emphasize that criminal prosecution will be applied as a last resort; after all other measures to ensure compliance have been exhausted. All the individuals who will appear in court have been engaged beforehand and had been issued with final demands. A good example of the conviction of Mr S. Ragunat in Port Shepstone. As a representative of SPS Distributors, he paid an R5,600 fine for the non-submission of 50 tax returns for VAT, PAYE and Corporate Tax. He has since complied.

Going forward, it is prudent to ensure all tax returns are filed on time and to work towards filing any outstanding returns to avoid prosecution. It appears SARS phone calls on outstanding returns and final demand notices can no longer be taken lightly. The grey-area has always been for those below the income tax thresholds and companies registered for PAYE but currently, do not have employees. For the former, it is advisable that you file tax returns regardless of your income to avoid SARS penalties as what happened last year. It will be difficult 3 or 4 years later to prove to SARS that you were below the tax threshold as the documents may no longer be accessible. If the company is registered for PAYE and currently has no employees, it is advisable to continue filing nil returns until the position changes for the company. As for those who chose to bury their heads in the sand and complicit taxpayers, well the whip has been cracked and you may find oneself behind bars.

By |2018-05-10T15:05:41+02:00May 10th, 2018|Legal|0 Comments

Financial management – how much is enough?

In the last blog, we looked at the operating costs of the business. We understood that these are the fixed costs of running the business that needs to be covered every month by the sales. In your budget, you’ll have put the sales revenue needed to make a profit, as your monthly or annual target. However, do you know how many products or days of service you need to sell to make that target? That number, the number of units sold to pay the operating costs, is called the Breakeven Point. How many sales are required for your income to equal your costs?

For this calculation, you’ll need one of the numbers previously discussed in this series – the gross profit per item. Since the cost price of your product is paid out of the sales income, only the profit on that item is available to contribute to covering the operating costs. To calculate the breakeven point you will need to divide your operating costs by the average gross profit. This will give you the number of products necessary to be sold in order to cover your costs.

What if you are a service business? Do you know how many staff you need to break even? Generally service business employs staff when the workload is too great for the current complement. However, it is important to calculate the optimal number of staff to cover costs and generate a profit.

First you have to calculate the gross profit on sales by deducting the average hourly cost for the employees from the average hourly charge out rate. It may be useful to do this per service type or employee group, if the rates differ vastly. Then you are able to divide the operating costs (net of the employee’s remuneration costs) by the average profit per hour to calculate the total number of chargeable hours to be worked to breakeven.

It can be helpful to then work that back into the number of full-time staff necessary to work those hours. To calculate the available chargeable hours, start with the calendar year, less weekends and public holidays, leave and staff development days, staff meeting time and general unproductive time. Typically it works out to less than 200 days of chargeable time per person. Divide the breakeven hours into days and divide by the number of available days for 1 person to calculate how many staff members you need. You might be surprised at how many staff members you require!

There are a lot of numbers in these calculations, and since we find numbers to be fun, give us a call if you need help with the numbers!

By |2018-05-08T10:00:57+02:00May 8th, 2018|Financial Management|0 Comments

The 9 Hats of an Entrepreneur – Parent

Any business owner who has children will know the challenges that arise. To be honest, working from my home office, even though it is separate it still presents huge issues when the kids are home and want to play with Dad. As a parent business owner you are faced with two decisions: Do you want your kids to inherit your business? Do you want your kids to learn about business from you? Each ‘Yes’ answer will require a huge amount of time investment in exposing them to the various aspects of the business. Often family-owned businesses are never passed down successfully because the children have seen their parents struggle and moan all their lives and they are expected the arrive at work with a smile on their face and do the same thing. Secondly, if you allow your children to participate in your business, are they going to learn good practices or will they see how badly you run things and how your cheat your customers and never pay suppliers. What message are you sending out to your family? Take a moment to consider how your kids see you in the parent business owner hat. Ouch!

By |2018-05-07T09:04:58+02:00May 7th, 2018|Entrepreneurship|0 Comments

Pay AS You Earn (PAYE)

Pay As You Earn (PAYE) is employees tax that all income earners are by law supposed to pay. The South African Revenue Service (SARS) has a threshold income for PAYE which is reviewed every tax year.

According to law, an employer must register with the SARS within 21 business days after becoming an employer, unless none of the employees is liable for the normal tax. An employer who has registered for PAYE should also register for Skills Development Levy (SDL) unless they are exempt from registering for SDL (visit the SARS website for more information). An employer can also register for Unemployment Insurance Fund (UIF) (visit the SARS website for more information). Once the employer registers for PAYE he has to ensure that every month all tax due to SARS is deducted from the employees’ income and paid over to SARS before the deadline. This employee tax is calculated in accordance with tax tables that are prepared and reviewed by SARS every tax year. Calculations can be done manually if the employer does not have a payroll system in place or they can be done using software that has building table and all the employer has to do is capture the salary information for an individual and the payroll system will automatically calculate the PAYE to be deducted from the individual’s income.

Once all the calculations have been done for all employees and the total amounts have been gathered, and EMP201 is generated from SARS efiling, completed and submitted to SARS. Payment will have to be made to SARS before the due date as well.

Six months into the tax year a reconciliation is done and submitted to SARS. At the end of the tax year an annual reconciliation (EMP501) will have to be done (more info on the SARS website).

By |2018-05-03T13:54:05+02:00May 3rd, 2018|General|0 Comments

Part2: Bitcoin- the tax effect

We continue our discussion concerning the digital financial revolution headlined by emergence of Bitcoin as a medium of exchange. Today we look at the tax implications of trading with and in Bitcoin, and buying or selling cryptocurrencies.

On 6 April SARS issued a media release elaborating on its stance on Bitcoin and other cryptocurrencies and the tax effect. In the statement SARS reiterated that they will ‘’continue to apply the existing income tax rules to cryptocurrencies’’ and they expect taxpayers to declare cryptocurrency gains and losses as part of taxable income. Like with any other income, the responsibility lies with the tax payer to declare their income; the consequence of non-compliance is penalties and interest.

SARS felt it is not necessary to introduce new guidelines regarding cryptocurrencies and the consequent tax effect as current legislation can be used to enforce tax compliance. The South African Income Tax Act does not define what ‘’currency’’ is. Although cryptocurrencies like bitcoin are forms of digital currency and can be used as currency or a medium of exchange; they are not legal tender in South Africa. Thus SARS says it does not regard them as a currency for income tax purposes or Capital Gains Tax. Instead SARS considers cryptocurrencies as intangible assets, the same way shares, unit trusts etc. are regarded under the Income Tax Act. You own the asset, and have proof of ownership but it cannot be physically encountered by our natural senses.

So what happens when you produce and or sale goods in exchange for Bitcoin? Well the Income Tax definition of gross income is cash or otherwise, received by or accrued during the period of assessment; excluding amounts of a capital nature. Thus if you do use Bitcoin as a medium exchange in your trade, you will be required to declare this income; as income can take any form. For instance, living in a company house, or getting a car as a service award are all instances of receiving income payable under Income Tax regulations; thus surely Bitcoin is no different. Thus it is a matter of ascertaining market value of these receipts in local currency at for income tax reporting purposes. This also means that taxpayers can claim expenses associated with Bitcoin accruals or receipts as long as this expenditure is in the production of taxpayer’s income or for the purposes of trade. This means that if you also spent Bitcoin in production of Bitcoin income, you can also claim these expenses on your tax return.

There are instances where cryptocurrencies can be taxed under Capital Gains Tax, it is a matter of determining; using current legislation whether an accrual or receipt is revenue or capital. An example is if you gain bitcoin through mining or exchanging normal currencies for these; with the intention of holding the currency in anticipation of an appreciation of value. This results in a capital gain or loss if when you sell the Bitcoin, you gain more currency or less than when you initially bought the cryptocurrencies. This obviously works the same way as other assets like shares or unit trusts. On the other hand if you are a Bitcoin trader, then Bitcoin becomes your stock and income earned is of a revenue nature.

By |2018-04-26T13:34:30+02:00April 26th, 2018|General|0 Comments

Financial management – The cost of running the business

In this series on the elements of your financial statements we’ve looked at the income, cost of sales and gross profit, all parts of the selling aspect of your business. Today, we’re going to look at the operational side – the costs associated with the infrastructure that enables you to sell your product.

In the olden days, the travelling salesman’s operating costs consisted of his mode of transport and his suitcase full of products. Nowadays, the costs of running a business are much greater, and grow as your business grows, to support the increased sales volume. Operating costs can fall into one of the following categories:

  • Physical infrastructure – costs relating to the office, the warehouse or the shop, costs relating to vehicles and other assets, as well as the costs associated with running the machines and equipment used to produce your product or service
  • Human infrastructure – the people costs, not just salaries, but welfare and development as well
  • Protection of the infrastructure and assets – such as insurance, security, data storage, liability cover
  • Compliance requirements – the cost of complying with accounting requirements, labour laws and SARS legislation, as well as governance rules
  • General running costs – the cost of items consumed by the process of running the business, such as telephone, data, stationery, food, amongst a host of others
  • Growth activities – costs associated with plans to grow sales and the business could include marketing, consulting, and anything else that the strategy requires

Operating costs are the first area to come under the microscope when the business profits need improvement. While there are sometimes a number of areas that can be reduced, there are also some critical elements. It is short-sighted to skimp on the maintenance of the equipment to save on costs when replacing the equipment is a much higher cost, for example.

Do you know what it really costs you to run your business? Do you know what the monthly operating costs are that need to be covered without fail? If you’d like a better insight into your business give us a call to walk you through the information available.

By |2018-04-24T11:05:43+02:00April 24th, 2018|Financial Management|0 Comments

The 9 Hats of an Entrepreneur – Spouse

When I wear my husband hat and then work in my business, I have a huge responsibility to my wife. Having the Spouse hat requires us to communicate openly to our other halves as if they actually are our other half. We like to go out on dates and just chat about the business and all the challenges and opportunities. I cannot expect my wife to understand all the technical stuff I talk about but she does appreciate the communication and openness. I always tell her about any new client we get and she pops her head in at workshops to say ‘Hi’. My role is to not only talk but to listen as well. So often when I am facing a huge decision about a new venture or partner programme, I will bounce it off my wife to get her opinion on not only the idea but the person. Women have this 6th sense thing that will often detect issues that I am blind to and if undetected could lead to disaster further down the line. I have also agreed to open up completely to my wife about any dealings with other women I have. Often as a coach, our conversations could get personal and lead to that place where information is shared and doors could be opened that lead to dark places. I have a rule on this, always meet in public places and always tell my wife about any female clients, and keep that channel open at all stages. Men are weak and need the support of our Spouses. We can only get that if we share and talk to them.

By |2018-04-20T09:42:21+02:00April 23rd, 2018|Entrepreneurship|0 Comments

The importance of good bookkeeping

As we begin a new tax year and new financial year for some here is a look at what good bookkeeping is and why it is important. Some have made mistakes in the past which may or may not have cost them financially but we need to correct them going forward to ensure we have a good bookkeeping system that is as efficient and appropriate as possible depending on the size of the entity.

What is the bookkeeping? It is the organisation and storage of accounting and financial information by a bookkeeper. It is of great importance that the information is accurately and diligently captured so it can show a true reflection of the entity’s financial performance for a given period.  The purpose of bookkeeping is to collate all the financial transactions and business activities for a period and summarise it for various uses.  These financial transactions are the true reflection of the entity’s performance and a guide as to whether strategies are working or not or if reviews need to be done.  Shareholders will want to know how their investment is performing, Directors will want to know if the strategies in place are working and the list goes on. A bookkeeper will record all these daily financial transactions and this is key to any business.

From the bookkeeper, the information is sent to the Accountant who then is responsible for reporting on the financial position of the entity as well as managing cash flows of the entity. The information or reports from the Accountant are then used to reach decisions on how to manage the business, invest in it or borrow money for future business deals. This information can then be audited if the entity opts for an auditor if it is statutory to get audited financials.

By |2018-04-19T11:54:11+02:00April 19th, 2018|Financial Management|0 Comments

Financial Management – Gross profit, the big brother of Net Profit

Profit is a fond topic for most business owners, but do you know the difference between gross profit and net profit? Gross profit is the net result of your sales and your cost of sales, in other words, the profit on the sale of your product. Net profit, is the larger gross profit less all other operating and financing costs, usually a fraction of your gross profit!

Gross profit can be calculated for various elements that make up the total sales of your business, such as the gross profit per product or product category. The total gross profit in your financial statements depends on the number of products you sell but doesn’t show you the amount of profit you are making per item sold. Most accounting packages have this information in one of the stock/item reports. It is very helpful to analyse the gross profit per stock item, as you can see which products make you the most money, and therefore what you should focus your sales effort on.

The same principle can be applied to business divisions. By calculating the gross profit per area you are able to see who is pulling their weight and who is not contributing enough towards the running costs of the company. For service businesses, it is also possible to calculate the gross profit per service by including the salaries of the staff, and other costs, into the calculation. Typically service businesses keep some form of timekeeping, where it is possible to see how much of a person’s time (and therefore cost) can be allocated to the various services they perform, even better if individual staff members can be allocated to a specific service. Accounting packages are not set up for this level of analysis, so a spreadsheet is often necessary.

It may be easier to understand the gross profit as a percentage of sales rather than a rand value. Knowing that a product makes an R5 gross profit doesn’t have as much meaning as knowing that the gross profit is 75% of the sales price. Using percentages, you are also able to compare products and the value that they add to the operations of the business.

It may be necessary to dig a little into the accounting information to get a real picture of the gross profit of the business. Should you need a spade or a little help digging, let us know.

 

 GP – service GP, per product, overall, per division – % vs rand

By |2018-04-17T09:21:43+02:00April 17th, 2018|Financial Management|0 Comments

The 9 Hats of an Entrepreneur – Family Member

Oh, to be single and have no responsibilities or time barriers. Just think about how much work we could get done without the nagging of family commitments. Sound familiar? Well, let me share with you a secret. If you are single and have not yet started a family, you yearn for the day, and those, like myself, with a house full of noise, yearn for the old days. Not always but there are times that a quiet home with no noise or agenda sounds appealing.

But as a business owner with a family, you need to wear this hat with pride and take on the responsibility that it comes with. We need to be aware to watch the clock and be home on time to spend quality time with loved ones. I am often the envy of wives at school functions when I am the only Dad on the outing to the forest, beach or museum. My son loves having a present parent at functions. I do see more and more parents in casual clothes at pick up time, not sure if this more unemployment or well organised business owners, but the children love to see Dads and Moms at school. And do not forget the extended family. My mother loves to hear about my business as does my Sister who vows one day to out earn me on a month to month basis. To share with people what you are going through both good and bad without the threat of ‘being fixed’ or taken advantage of is a rare and precious thing. Wear the Family hat with pride and walk tall in the community but never forget to also find the time to get the work done.

By |2018-04-13T08:48:53+02:00April 16th, 2018|Entrepreneurship|0 Comments
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