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Unearthed Gold: Transforming Dormant Companies and Defusing Tax Penalty Time Bombs

September 27, 2023September 27, 2023Business exit, Business Owner, Closing off a business, Company registration, deregister a business, I cant pay SARS, repayment arrangement, Why do businesses failLeave a comment

In our extensive experience as accountants and business advisors, we frequently encounter individuals who have registered businesses for a variety of reasons. In this article, we will delve into these common motivations:

Formalizing a Side Gig: Many people register businesses as a means to legitimize a side hustle before realizing it may not be sustainable or they lack the time to run the venture effectively.
Meeting Regulatory Requirements: Some individuals are requested by friends to serve as directors for a company primarily to fulfil regulatory obligations, often related to BBBEE (Broad-Based Black Economic Empowerment).
Shifting to Sole Proprietorship: There are instances where individuals initially registered a company but later decided to continue trading as a sole proprietor.
Overseas Relocation: People who registered a company but subsequently relocated abroad for employment often leave their company unattended.

Regardless of the initial reason for registration, it is a recurring trend that many of these businesses eventually become an administrative burden for their founders, partners, or directors. These administrative challenges encompass:

1. Compliance with the CIPC: Ensuring adherence to regulations set by the Companies and Intellectual Property Commission and the Companies Act.

2. Filing of CIPC Annual Returns: Meeting the requirement to submit annual returns to maintain company compliance status.

3. Filing of SARS Tax Returns: This article primarily addresses the critical issue of filing tax returns with the South African Revenue Service (SARS).

The company you registered but might have forgotten about can pose a substantial tax risk. Here’s why:

Tax Obligation: Registered companies have a legal obligation to file annual tax returns with SARS to provide updates on their financial and trading status.
Accumulated Unsubmitted Returns: If you’ve lost track of your registered company, you may have a backlog of unsubmitted tax returns. For instance, if your company was registered five years ago, you could potentially have five years’ worth of outstanding tax returns. This applies to all applicable tax types, including VAT and PAYE.
Ignored Notifications: You might have received notifications and reminders from SARS but overlooked or failed to understand their significance.
Penalties: SARS imposes administrative penalties for non-submission of tax returns, even if the business is not actively trading. These penalties can vary but often start at R250 per month, with a maximum penalty of R16,000 per month. Consequently, for five years of non-submission, you could face a minimum penalty of R15,000. It is important to note that the trigger for these penalties is not trading status, but non-submission of tax returns.

So, what should you do if you find yourself in this situation:

Submit Outstanding Tax Returns: Initiate the process by submitting all outstanding tax returns.
File Returns Regardless of Income: File tax returns for all relevant years, irrespective of whether your business generated income or expenses. As mentioned earlier, penalties are triggered by non-submission, not income levels.
Understand Responsibilities: Avoid registering as a director or tax representative for friends or family without fully comprehending your duties toward the company and tax authorities.
Check Company Compliances: Utilize the Companies and Intellectual Property Commission (CIPC) to obtain a ‘spider report’ for each company you are a director of and verify their tax compliance.
Consider Resignation: If you’ve already registered as a director or tax representative, explore the possibility of resigning from those positions.
Engage with SARS: Communicate with SARS to discuss penalty remittance, repayment plans, or reduced penalties.
Deregister Inactive Companies: If your intent is not to maintain the company’s active status, consider deregistering it with both CIPC and SARS.

Remember, SARS appreciates law-abiding citizens. It’s best to be proactive and honest in addressing any oversight or compliance issues. Approach SARS with transparency and a willingness to rectify the situation by submitting overdue tax returns and seeking resolution for penalties.

We hope this information proves helpful. Feel free to reach out if you require assistance or have further questions.

Unlock Compliance with Ease: Navigate South Africa’s New Beneficial Ownership Laws with Our Expert Help!

August 23, 2023August 23, 2023Beneficial Ownership, Business exit, Business Owner, Closing off a business, Company registration, deregister a business, Small BusinessLeave a comment

From 1 April 2023, South African businesses must disclose their beneficial owners to the CIPC in line with the Companies Act. Furthermore, SARS necessitates companies to report shareholders who possess an interest of 5% or more in their tax declarations.

Why the Change?:

This mandate compels companies to maintain and submit beneficial ownership records to the CIPC. Its primary aim is to curb money laundering, financial frauds, and reputation tarnishing activities. Moreover, it aids South Africa’s objective of getting delisted from the Grey-list.

Entities Obliged to Disclose:

Beneficial ownership must be reported by:

Private Companies
Close Corporations (CC)
Non-Profit Companies (NPC)
State-Owned Companies (SOC)

Specifically:

Trust shareholders equate the beneficiaries as beneficial owners.
In a CC, beneficial owners are the members.
NPCs with members recognize the members as beneficial owners, whereas NPCs without members consider the directors.
For SOCs with a minister as a shareholder, the minister becomes the beneficial owner.

Entities Exempted:

The following aren’t obligated to disclose beneficial ownership:

Public Companies
Primary Co-Operatives (co-op)
Personal Liability Companies

Notably:

Public companies are already overseen by entities like the Johannesburg Stock Exchange (JSE) and thus don’t need to submit again.
Present amendments exclude primary co-operatives from the mandate.
No specific directions have been issued yet for personal liability companies regarding this disclosure.

Who Can Submit?:

Individuals authorized by the company can file the beneficial ownership details.

Deadline Reminder:

Submissions to the CIPC are due by 1 October 2023, which marks 6 months post the inception of the General Laws Amendment Act. If you’re yet to adhere, this provides a month’s time frame to align.

Submission Process:

Filing can be accomplished through the bizportal. Alternatively, using our professional services can streamline the process for you.

Mandatory Documents:

When filing to CIPC, ensure you have the following, which we can generate for you:

Mandate to Lodge Beneficial Ownership
Register of Beneficial Owners
Register of Shareholders (or Members if it’s a CC or an NPC with members)
Verified/Certified ID documents of beneficial owners

Once processed and complemented by essential documents, the CIPC will provide a certificate as an acknowledgment of receipt.

Don’t navigate these new regulations alone! Let our experts guide you seamlessly through every step, ensuring full compliance without the stress. Act now for peace of mind tomorrow. Contact us today and stay ahead of the curve

What should you know about Auto Assessment?

July 25, 2022Bond, Business exit, Business Owner, Closing off a business, Company registration, Credit notes, Credit notes templates, deregister a business, Financial reporting, Financial statements preparation, foreign income, Home office expense, I cant pay SARS, Owing sars, Tax, Tax returns, tax season, Tax season 2021, tax tips, VATLeave a comment

What is an auto-assessment?

An auto-assessment is an automatic assessment issued on taxpayers by SARS. This basically means that SARS has collected taxpayer information from their parties (such as medical aid or retirement annuities) and then use this information to file your return and issue an assessment on this return automatically without your involvement.

How will you know if you are auto-assessed?

You should receive an email or SMS from SARS informing you that you have been selected for auto-assessment. The process started in July 2022. But, this is not the first time SARS has issued an auto-assessment. They also issued these in the 2021 tax year.

What should I do if I receive an auto-assessment?

SARS says if you agree with the aut0-assessment, you do not have to do anything. However, should you be in disagreement, you have just 40 working days from the date of assessment to file a correction (edited tax return.)

What happens if you miss the 40 days?

If you do not do anything, SARS assumes you are in agreement with the auto-assessment. The assessment becomes your final assessment at the expiration of the 40 business days.

Can I request an extension?

If you feel the 40 working days are too little, you can request an extension on eFiling before the 40 days have expired. SARS will require “reasonable” grounds for the request. if you miss the deadline, you will have an additional 21 working days to submit a request for an extension on the same terms. If both 21 and 40 days have passed and you still were not able to submit a correction, you will need to provide “exceptional circumstances” to justify a delayed request for extension.

NOW TO THE BIG QUESTION, SHOULD I ACCEPT THE AUTO-ASSESSMENT?

We think this is a risky move if (and SARS may not pick up these things on an auto-assessment:)

1. You have qualifying donations you would like to claim

2. You have qualifying out-of-pocket medical aid expenses

3. Your medical aid is being paid for by someone who is not the principal member (normally the person paying for the medical aid would be the one to claim the medical tax credits.)

4. You have capital gains on assets that you sold that fall outside the scope of an auto assessment

5. You are a crypto or share trader

6. You have a side business or rental income (profit or loss)

7. You have and qualify for a home office expense claim (deductions)

8. You would like to claim your business travel kilometres

9. SARS missed one or some of your retirement annuity funds

Contact us:

Was this helpful? Would you like us to do your tax return? Get in touch with us via email (ev****@ev****.com) or by phone – 021 823 9684

Timely Financial Reporting/Financial Statements preparation

June 4, 2021June 4, 2021Business Owner, Cloud Accounting, Credit notes templates, Financial reporting, financial statements, Financial statements preparation, management reporting, Small Business, Small Businesses, Why do businesses failLeave a comment

Financial statements are intended to meet the needs of decision-makers as well as providing useful information to shareholders. As a result, the timely preparation of these reports is essential. Financial statements must be available in time to inform decision-making. Therefore, it is important that financial reports/financial statements should be published as soon as possible after the end of the reporting period.

However, we should note here that timely financial reporting should not be reduced to a well-managed busy financial statement drafting season. Rather, it requires careful, yearlong planning and monitoring. Of course, the need for timeliness has to be balanced against the need for reliability, which in addition to timeliness is also an essential characteristic of financial statements.

Requirement of the Companies Act:

In terms of the Companies Act, Section 30, Companies are required to produce annual financial statements within 6 months of their financial year-end or within any shorter period as may be appropriate to provide the required notice of an annual general meeting in terms of section 61(7). For example, if one’s year-end of Feb 2018, they should have a set of financial statements by end of August 2018.

Recommendations:

I would like to make the following recommendations about ways to improve the timeliness and reliability of financial reports. These recommendations are based on my personal experiences and cannot be viewed as an exhaustive list.

Do not leave it until the last time:

It is never a good idea to start the preparation of your financial statements late on in the year. As mentioned in my introduction, the process requires careful yearlong planning and monitoring. Start with clients whose books are updated and are in order on a monthly basis. For me, these are the client I have monthly management meeting with and at each management meeting, we ensure that the accounts for that month are in order. Once we close off the accounts, we do not come back to these to make any changes. You will find that by the year-end, there is little left to do to produce the financial statements because all books are in order. For me, I find that this process ensures the ongoing completeness and accuracy of financial data.

Team collaborations:

Reid Hoffman once said, “No matter how brilliant your mind or strategy, if you’re playing a solo game, you’ll always lose out to a team.” I cannot stress enough the importance of working as a team and ensuring that the communications among the team are good and maintained. In my firm, as an example, we have three teams that work closely together to produce financial statements; the tax team, the financial statements drafting team and the financial management team. The financial management team is responsible for day-to-day accounting and the production of the Trial balance. The tax team helps with all complex tax matters. The drafting team takes the Trial balances and produces the financial statements. What makes the teamwork together well is communication, each member communicating whatever changes or processes that take place at any stage of the process. The biggest advantage of all this is that the reliability of the financial statements is greatly improved. The application of tax and financial reporting laws is also improved.

Systems and processes:

I also find that it helps to have proper systems and processes in place for the production of financial statements. Companies should have a financial system that they use to draft financial statements. These should be able to produce financial statements acceptable for submission with SARS and the CIPC. Also, there should be a well-defined process for the production of financial statements. It could be a well-defined checklist, which has all elements that must be checked before a trial balance is imported into the financial statements software. The presence of such a process will also go a long way in producing a reliable set of financial statements.

Closing and financial statement preparation processing:

The annual closing process. To avoid delays, aim to have your annual close within a month from the end of the financial period. Communicate these deadlines to all people involved in the process so that everyone is aware of the deadlines and the deliverables that each should meet.

Unforeseen circumstances. The financial report preparation process may identify items that could affect the amounts reported in the financial statements, such as legal disputes, contractual obligations e.t.c. In most cases, a reasonable amount of time may be needed to resolve such items. To avoid delays, it may be better to proceed with the issuance of the financial statements based upon reasonable estimates, rather than to delay their issuance.

Planning:

There is that old saying that says if you fail to plan, you plan to fail. It is important to carefully when for when the production of financial statements should start, and by whom the financial statements should be prepared. As mentioned earlier, do not leave the drafting to the busy drafting periods. After the year ends, aim to have at least one set of financial statements done per week. Start with those where not too much cleaning is required going to those where late adjustments and more cleaning is done. Also, you may want to aim to submit these financial statements by the time the tax season opens in July. So, plan in a way that will make this possible.

Are you looking for help with your financial statements, reporting or management reporting? Click here to contact us

How to hold SARS accountable

June 4, 2021Business exit, Business Owner, I cant pay SARS, Owing sars, SARS, SARS completion letter, SARS debt, SARS verification letter, Tax, Tax returns, VATLeave a comment

The office of the Tax Ombud was established to act as a bridging gap between SARS and the taxpayer. But, taxpayers do not always have a direct line to connect with the Tax Ombud. A taxpayer may lodge a complaint with the Tax Ombud after they have exhausted all the SARS complaints mechanisms unless they are compelling circumstances for not doing so. Otherwise, the process below will have to be followed:

There are three ways through which one can lodge a complaint with SARS:

Via eFiling. See the step-by-step guide on how to lodge a complaint via eFiling. Please note that you have to be registered on eFiling to be able to do this. You may not download or print the form to send it by any other means.
By visiting the branch. If you do, you may need to ensure that you have spoken to all relevant higher people before you leave the branch
By calling the SARS Complaints Management office (CMO) on 0860 12 12 16.

Here are a few tips on winning the battle against SARS poor service/administrative issues and making sure you have a winnable case when you approach them or the Tax Ombud:

Be specific:

If you have a complaint, it is better to call the Complaints Management Office (CMO.) If you call SARS contact centre to get a reference number, specify that it is a complaint with a complaint, specify that it is a complaint and not a follow-up. If you keep calling the call centre and saying you are following up, it may remain just that, a follow-up. You need to specify that you have a complaint so that it is treated as one. Some complaints will need case numbers, make sure you call the contact centre to get one.

Try again:

Sometimes, a complaint lodged on eFiling may be rejected for one reason or the other. If you feel you have a compelling case, pick up the phone and call the CMO so that they may record and lodge the complaints on your behalf. You may also call them if you are not sure how the process works on eFiling or if you are too far from a SARS office. For example, I once lodged a complaint about a delayed refund (because refunds should be paid 7 workings days after verification or audit is finalised) but the system kicked me out and rejected my complaint. The complaint was successfully lodged after calling the CMO.

Build a compelling case:

The most important thing to do when dealing with SARS is to build a good case, this is whether you are raising a complaint, an appeal or an objection. You will need a system to record your interactions with SARS (at each touchpoint with them). You also need to store documents and supporting documents relevant to the taxpayer’s case. The system of recording your interactions with SARS should allow you to build a timeline of how the case is developed and to ensure that you have all the documents you need for this case.

One such system is to make sure each client file/folder contains relevant subfolders that will help you gather the important and necessary information. The other is to build a dashboard that records the timeline and communications with SARS. This can take any form, for example, Word or Google docs, a task management tool like Asana, Trello or Monday.com.

NB: You do not do this because something has gone wrong, but because things may go wrong and often they do go wrong. Below is an example of client folders that tax practitioners or individuals can use:

The advantage of doing things this way is that you will save yourself a lot of time when doing the actual complaint, even an appeal or objection. The Tax Ombud form will ask you to summary your case in chronological order. So, if you had been building a case over time, this process will be a breeze. You have all the facts and timeline at your fingertips.

Are you frustrated with the way SARS has handled your affairs? How can we help you? Click here to contact us

Are you ready to exit from your business?

June 4, 2021Business exit, Business Owner, Small Business, Small Businesses, Why do businesses failLeave a comment

Some people go into business with the aim of building a good business then sell it. Others spend years building their businesses so that they may leave something for their children. Whatever the intention, it is clear that at some point one will exit their business.

Even though the idea of you exiting your business sounds inconceivable, you must remember that you will not run your business forever. As an example, the people that started Coca Cola are not the same people running it today. Therefore, you and your business must be exit and investor-ready at every stage of your business. You must have an exit plan. The exit will happen in a different form, whether you are prepared for it or not.

Your exit from your business may happen in any of the following ways:

Retirement
The passing of your business to your children
Selling
Health issues limiting the ability to run the business
Death
Lack of interest in the business and a desire to start a new venture
Exit an unprofitable business

Every business must have an exit plan:

Unplanned exits may be disastrous. Imagine trying to sell a business whose tax affairs or books are not in order. Also, investors are looking for a well-run company. They want to know that their money will not go down the drain.
A good plan will ensure that you exit at the right time. Remember, just because you are ready to exit does not mean your business is ready. Life has its own dictates on when or how you will exit our businesses. When life circumstances dictate an unprepared exit, it rarely goes smoothly.

Do you know how much your business is worth?

Any exit plan should start with a professional valuation. A professional valuation is critical to ascertain the accurate value of your business. If you are to approach a buyer and you do not know how much your business is worth, where are you going to start the negotiations for a price?

Proper due diligence will also be needed. This will help you to review your business from the perspective of a potential buyer. It will help you identify any gaps in the key drivers of your business and identifying ways of closing these gaps in order to have a proper exit and investor-ready business.

Good due diligence will also enable business owners to determine the key value drivers of the business and identify the areas that will impact its sale value. Once you have a proper plan, a value for your business and well-executed due diligence for your business, it will be easier to identify and approach potential buyers.

Some of the actions that are important in developing an exit strategy:

Do not allow the business to heavily rely on you and your skills set. When you get sick or die, the business takes sick leave or dies with you.
Therefore, develop key employees who can run the business on a day-to-day basis without your involvement.
Develop an operating manual of how you do what you do. Define each key process and quality control checks. This is important because business goes on even when you or your key employees are not around.
In addition to the operating manual, have a library or knowledge base. This will ensure that important information/knowledge is shared among everyone in your business. Also, you will most likely find yourself in a unique situation from time to time. Adding your experiences of the case and how you dealt with it will ensure that you do not waste time dealing with a similar issue in the future.
Have a dashboard that shows you the key performance indicators and what the trends of those indicators are.
Have a compensation system in place that rewards managers who help improve key performance indicators of your company and who come up with innovative ideas to improve your business and customer experience.
Have a data room for your business. A data room is a place where you store all important documents and information about your business. Your data room may include but not limited to:
- Latest financial signed financial statements
- Share certificates and share register
- Memorandum of incorporation (MOI)
- Company registration documents
- Your latest up to date Tax clearance (what is now known as Tax Compliance certificate)
- Operating Manual and knowledge base
- Shareholder Agreements
- Board members and advisors
- Licences and permits and other Intellectual properties
- Strategy and KPI targets
- Pressroom
- Internal controls
- Risk profiles and risk management
- Organisational structure
- CVs of key management
- Summaries of key employment agreements and benefit plans
- Copy of IDs for senior management
- Material contracts

Be aware of the tax consequences

If you will be selling beware of the tax consequences. Whether you sell the operating assets in the business or the business as a whole, the transaction will attract Capital Gains Tax (CGT). Therefore, a well-thought tax plan is an important part of the overall exit plan. If you do not have a dedicated tax team within your business, get the services of a professional Tax Advisor/Practitioner.

Succession after death or retirement:

Strategic planning for a business needs to include a proper succession plan. Succession planning may not be high on your agenda but retirement and death are certain. In a small/family business succession planning is even more important to effectively conclude the transfer of ownership or management from one party to another:

The first step is to draw up a shareholders agreement. The agreement should specify the rights and privileges of a shareholder if they wish to sell/exit. It should be agreed if the existing shareholders have the first preference to buy. The agreement should specify the terms and conditions of the sale and purchase by existing shareholders if existing shareholders are to takeover.
The second step is to take a policy to cover for the key shareholders. This should step in when the key shareholders die or get disabled/or are permanently incapacitated. To avoid complication in these situations a business may consider key-man insurance against these shareholders. This provides a pay-out to the business in the event of death or permanent incapacity of the insured individual which can be used to headhunt a new manager or to provide funding to the shareholders if they decide to dissolve the business. The reason this coverage is important is that the death of a key person in a small company often causes the immediate death of that company too.

How key-man insurance works:

A company buys a life insurance policy on the key personnel, pays the premiums and is the beneficiary of the policy.
If that person unexpectedly dies or is permanently incapacitated, the company receives the insurance payoff.
The company can then use the insurance pay-out for expenses until it can find a replacement person, or, if necessary, pay off debts etc.

6 Key factors to consider when choosing an accounting software or a business App

June 4, 2021Business Owner, Cloud Accounting, Finance Apps, Small Business, Small Businesses, Xero4 Comments

It goes without saying, there are thousands of software and Business Apps available on the market and on the internet. Additionally, each accounting software may also come with a thousand business apps on their various app marketplace. So, one has to choose carefully before adopting a piece of software. Not everything that looks cool works for every business. Some factors to consider.

Does my business need this?

Before adopting a system or business App, one needs to do a needs or systems analysis. This is where critical questions are asked before buying or implementing a system or App. Think about what problem your business is actually trying to solve. Is it an inventory management problem? It is that your business has no way of keeping track of cash in versus cash out, what sort of reports do you expect or actually need to run, what is the volume of data that should be handled by this system, can this system or app handle such volume of data, etc. Once a systems or needs analysis is performed you can then look at other factors.

Can this system or App integrate with our key software?

Some Apps or systems may look cool and all functions work perfectly fine. However, there may be a problem in integrations with your primary compliance software. Some may require you to run a report then process a manual journal into your primary software because there is no integration with your primary software. This, in turn, may lead to human errors such as incorrect journals being processed or whoever processed them not remembering why they processed such journal in the first place. A system or App that integrates with your primary system and auto-sync would be a preferred choice over one that does not. You do not want to spend a lot of money on a business App or system only to find out that you need to spend more to find another App that will help with the integration. A system or App that integrates with your primary system will have lots of advantages such as improved efficiency as there is a degree of automation in as far as communication between the two is concerned. Also, you will not need to manually and separately update each software as what happens in one will be updated in the other software or App.

How long will it take to set up the system?

Often how long it takes to set up a system or App depends is a function of when in the financial year the implementation is done. It is often easier to implement a system or App at the beginning of a financial year than in the middle of a financial year. Implementation of a new system or App may mean moving data from the old system to the new system. This may time and errors may happen. It is important to do proper research before implementing a system. Even better, seek the help of a system specialist or ask the system vendor to help you with setting up the system.

Is there training required?

Often businesses make the mistake of implementing a system that no one in their organisations knows anything about. After implementation, the staff is left out to figure out things on their own. This is not the right approach. The correct approach is to provide sufficient training before the system is fully rolled out to all staff members. This is to make sure that your staff knows the system well before they can actually start to use it and to use it to interact with your customers. Where possible, do a parallel run of the new system with the old one so that there is enough time to train staff and to iron out any teething issues with the new system. Also, it is important to establish who in the team will be the new system champion. A system or business App champion will be your go-to person when there are issues with the new system or App. If this is not possible, make sure you have the system or App vendor contact details or help desk at hand for when you need help with the system or App.

Get the basics right:

You also need to get the basics right. By basics, we are referring to the operational things like who does what and who does what when, who has access to the system, who has admin and basic user rights, are the system or App user rights set up correctly, etc. The last thing you want is having the wrong people having access to information that they should not have access to. This may include such things as, who should see a certain report or certain client information.

Multi-currency:

Lastly, consider if the new system has a multi-currency functionality. This is critical especially if your business invoices or buys/trades in a variety of currencies. You want your system or App to be able to convert to your base currency without having to do it manually in a spreadsheet or otherwise.

In conclusion:

Not everything that looks cool works for every business. In order to implement the best and right system/App or tools, you need more than just the standard system specifications. Perform detailed systems/need analysis to determine the needs of your entity and whether the system or App you are considering is the best fit.

Do you need cloud-based solutions for your business? Click here to contact us

Why accountants should see themselves as doctors to their clients

June 4, 2021June 4, 2021Business Owner, Small Business, Small BusinessesLeave a comment

Imagine your business takes a visit to the doctor. Now imagine this doctor is an accountant, your business advisor or mentor. How would the visit go and what should you get out of that visit?

I have not been to a doctor in a very long time. But, I do remember, from a few visits that I have had, what the visit was like and what we chatted about with my doctor. The last time I went there, the visit took the following steps:

1. Familiarity:

The first thing my doctor did was greet me and made me feel welcome. We also chatted about a few personal things that we had talked about on my last visit. What also made me feel good was that he remembered what we last spoke about and he also remembered and knew my name.

Accountants, before you start a meeting with your client, take some time to talk with them on a human level. This is important because it shows that you do not just care about the money that you are getting out of the relationship but also about the welfare and wellbeing of your clients. Remembering their names and what you last spoke about may also be a sign that you value them and their businesses.

2. Symptoms:

The next phase of my visit involved me as the patient having to present my complaints or symptoms to the doctor. This was my turn to chat about what I thought was wrong with me. At this stage the doctor was quiet, just taking notes as I spoke.

As accountants, we often want to jump to provide solutions. Maybe this how we were trained. Maybe it is because we know a client who came to us with a similar business and we immediately assume they have the same problems.

But this approach is wrong. You need to take time to listen to what challenges your client faces before jumping into solutions. If you jump into solutions, you may provide the wrong prescription that will not work.

Also, very important, do not interrupt your client when they speak to you about their “symptoms.” If you have a question, write it down and only come back to it when they have finished talking. Similarly, if you think of a solution while they speak, hold off your excitement to provide a solution. It may be too early or maybe a wrong solution altogether.

3. Diagnosis:

The discussion about my symptoms was followed by an in-depth diagnosis. The diagnostic procedure involved the process of the doctor obtaining further information about my symptoms, previous state of health, living conditions, and so forth.

Satisfied that he had understood my situation, I was made to lie down on his surgery bed for further examination. I do not know what this process is called but, I would imagine it was a process to check if my body system was functioning properly. At one of the visits, he even drew a sample of blood, which was sent for further examination.

How does this work for accountants?

After, your client has given you a series of “symptoms” you need to ask further questions that make you understand their business and/or situation better. Take this process as though you are looking at a tree and then going into each branch to analyse why this branch has no leaves, if it needs pruning, if it needs additional care or if it needs to be cut down altogether. Just bear in mind that you are still not providing a solution at this stage. You may need to take some of the branches away for further examination at your laboratory (your office for you and your teammates.) The process may also involve having to look at their systems and process to further understand the challenge at hand.

4. Prescription:

The next step involved the doctor handing me a few tablets and medicines, some of which I had to take right in his office. But, of course, he first had to find out if I have any allergies and if I had tried or was on any other medication. I also had to get a prescription to get more tablets at the pharmacy.

Accountants should only be providing proposed solutions after they have understood the clients business and their challenges. I say proposed solutions because businesses do change every day and you also do not want to tell your clients how to run their businesses. They came to you to get insights. They are still the directors/shareholders responsible for making decisions in the business.

Have you noticed that I have not spoken about the prescription that has to be taken to the pharmacy yet? I want to combine this with my next point.

But, before we get there, please remember to find out if your client has tried or tested any process or solution before jumping to providing a solution that they may have tried and has not worked or that their business is ‘allergic’ to.

5. Specialist:

There are certain things that my doctor may not be able to do because he is not trained to do those things. As a result, sometimes he may have to refer me to a specialist that deals with those specific issues. For example, at one stage he had to refer me to an ear specialist for further examination.

Accountants should not pretend to know everything and try to provide a solution for something that is outside their skill set. There is no shame in referring your client to a specialist as long as you maintain and manage the relationship and project. I call this the contractor model.

There are some projects you just have to outsource because you are not a specialist in these. Your client will still respect you for this.

Oh, the prescription! This is the same as giving your client “homework.” For example, this could be where you tell them how they should and implement a new process. Giving a “prescription” is good, but always follow this up to ensure that it is being implemented as intended. And hopefully, your fees cover this as well.

6. The past:

Have you noticed how much time my doctor spent on past events? Not much. The majority of his time was spent on the present (how I feel and why) and the future (getting me better and back to health.)

There is little value in historical financial information. Accountants should be focusing more on the future projections, cash flows, plans and strategy for the business. The focus should be on helping your client to grow their business, not punishing them for past mistakes like “you have not allocated this expense item correctly.”

7. Duration:

My visit to the doctor was something in the region of 16 mins. But, so much was done in that 16 minutes.

I am not prescribing time for meetings, but I am encouraging accountants to be prepared as much as they can. There is nothing as embarrassing as inviting a client to a meeting only to appear unprepared and arranging for another meeting. Ensure that the agenda is clear before the meeting starts.

Value is not in how long your meeting with a client lasts. In fact, as one of my clients put it, “The shorter the meeting, the more prepared you were.”

What did you wish your accountant knew that would help you get a better service? Please comment below

What happens if you do not pay VAT on time?

June 4, 2021August 1, 2023Business Owner, SARS, Tax, Tax returns, VATLeave a comment

Introduction:

The past few months and weeks have been difficult for businesses in terms of cash flow management. This is due to the COVID-19, the lockdown and the uncertainty around the whole thing. When does the lockdown end, will it be extended again? How long will the COVID-19 pandemic last and what is the impact on a business’ cash reserves?

As month-end approaches, some businesses are wondering if they should pay their VAT obligations or if they should delay these a bit until their businesses have recovered cash wise.

In terms of the VAT Act, a registered vendor is required to submit their VAT returns and to pay their VAT taxes by the 25th of the month if they are submitting manually or the last day of the month if they are submitting online on eFiling. If these dates fall on a weekend or public holiday, the submission and payment have to be made on a day before the weekend.

As far as we all know, the government has not introduced any relief measures as far as VAT is concerned. This means that SARS is expecting your VAT returns at the end of the month.

What happens if you are unable to submit or submit but unable to pay?

The VAT Act (section 39) and the Tax Administration Act (TAA, Section 187 and Section 4) provides for the interest application and treatment where a taxpayer fails to submit or pay a VAT return.

If you are unable to submit, SARS immediately levies a 10% penalty on the amount that was due.

If you are able to submit, but unable to pay, SARS will levy interest on the outstanding amount from the date the tax debt was due until the date the debt is paid off.

So, if you failed to submit and pay the punishment is two-fold. A 10% penalty and interest that is charged on a daily basis at the prescribed interest rate until the debt is paid off.

A question that arises is what happens should a vendor fail to submit a VAT return and have a “valid” reason for failing to submit and pay a VAT return?

What happens if you fail to submit?

At the onset, we must point out that in terms of Section 234(d) of the Tax Administration Act, it is a criminal offence to fail or neglect to submit a return. So, if a taxpayer is to fail to submit a VAT return, there it has to be proven that there were circumstances beyond the vendor’s control that resulted in him/her not being able to submit or pay a VAT return. In terms of TAA section 187(7) these circumstances are limited to:

a natural or human-made disaster;
a civil disturbance or disruption in services; or
a serious illness or accident.

So, unless you can prove these things your return and payment remains due and payable at the end of the month.

Can the penalty and interest ever be waived?

Section 187(6) provides that the interest can be waived (directed that so much of the interest as is attributable to the circumstances is not payable by the taxpayer) if a senior SARS official is satisfied that interest payable by a taxpayer is payable as a result of circumstances beyond the taxpayer’s control. The circumstances are covered above.

What are your options if you cannot pay your VAT taxes when they fall due?

If your business is in a situation where you do not know if you should pay your VAT or not due to COVID-19 or lockdown, do some scenario planning before your VAT payments become due bearing in mind the penalties and interest that may hit you if you do not submit or pay in time. The three scenarios you can look at are:

What happens to your business’s cash flow for the next three months if you pay the 100% VAt due without delay
What happens if you pay a portion of it when the payment becomes due
What happens if you delay the payment completely and pay in a month or two.

The second option is to submit your return and apply for a repayment plan with SARS.

The third option is to apply for business continuity relief plans the government has unveiled for SMMEs.

The fourth option is to get a VAT payment loan.

How to avoid a similar problem in the future:

It is in your best interests to avoid repeat late submission and payment of VAT. Continually failing to pay your VAT may lead to your business going under. You act as an agent for SARS in collecting the 15% VAT. If your clients are paying you, there is no reason why you should not be able to pay VAT because technically that money does not belong to you. If your clients are paying you late, then you need to be looking at your debtor management systems and processes.

You do not want to make late payment a recurring problem. You may want to consider some of the following general measures:

Open a separate business VAT savings account.
Whenever an invoice is paid, put aside the 15% into this savings account.
Implement cash flow management tools and means that ensures you are always paid on time.
If you have retainer clients, switch them over to debit orders instead of waiting for them to do EFT.
Include a payment method when sending out invoices. Invoices that have a payment method tend to be paid much quicker.
Do you have any asset that you no longer use or that you are under-utilising? Do you think these can be sold if there is a market for them?

How can we help?

Contact or call me on 078 361 5200 for:

VAT registrations
Online VAT registrations
Cash flow management
SARS debt repayment plans
VAT audits
VAT submissions

Have a question? Join my community and ask post a question on what is keeping you awake at night.

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Is SARS always right? What if I do not agree with their assessments?

June 4, 2021Business Owner, Foreign income exemption, SARS, SARS completion letter, SARS verification letter, Tax, Tax returns, Why do businesses fail1 Comment

Many of us see SARS as that horrible master who just wants to take our money at every opportunity possible, and it’s money they didn’t even work for. Sometimes you look at an assessment and you even wonder what they are trying to do. Maybe they even issue an assessment and go on to recover monies owed by you by issuing an instruction to your bank to deduct whatever they feel is due to them. If this happens, what are your options?

Once the Revenue Authority issues an assessment on your tax return and they have issued a notification for the tax payable or refundable under your tax return, you can:

Choose to accept the assessment
Ask for reasons as to how SARS arrived at the issued assessment. This must be done within 30 days from the date of the assessment
You can choose to lodge an objection within 30 business days from the date the assessment is issued or within 30 business days after receiving the reasons on how SARS arrived at its assessment

SARS has a detailed guide on how you may file a notice of objection. However, I would advise that you consult a professional tax practitioner to assist you:

Ascertain if SARS’ assessment is correct
Determine if the relevant tax laws were applied correctly
Correctly lodge a Notice of objection on your behalf

Tips to get your objection right:

Ensure that you have all the supporting documents for the amounts you are objection to justify your reasons for objecting to the assessment. (For example, if you believe SARS missed your Medical Aid contributions, then you must have the supporting medical aid certificate when you lodge your objections)
Ensure that you indicate the tax type(s) and tax years that you which to proceed and object
Ensure that you select the items to dispute against by selecting the relevant tick boxes
Ensure you have selected the correct source codes/ transaction code of the disputed item is displayed. It is important that you get the correct source codes as SARS may reject the Objection based on the fact that you put an incorrect code even though the objection is on valid grounds.
Watch that you distinguish between dispute amount and requested amount. Again, SARS may turn back your objection if the distinction between these two is not shown. The disputed amount is the amount that has been charged for interest or penalties for late payment are displayed. The requested amount indicate what you believe the amount should be. This is important because if this amount and the amount above are the same, SARS will reject the NOO on that technicality.

An objection that does not comply with the rules of objections and the Tax Administration Act may be disallowed. In terms of the rules, you may submit a revised objection within 20 days of receipt of the notice of invalidity by SARS

If the objection is disallowed, you may elect to accept the outcome or appeal against the decision. If you elect to appeal the outcome, then you may elect to take the Alternative Dispute Resolution (ADR) route or the litigation route (via the tax board if less than R1 million or the tax court in all other cases).

You can initiate ADR by indicating that you wish to make use of the ADR process in your notice of appeal. Within 30 business days of your notice of appeal, SARS will inform you whether the matter is suitable for an ADR process. The ADR process must be concluded within 90 days.

If the dispute is resolved between you and SARS, it must be recorded and signed by you and a SARS representative. A settlement agreement must be approved by a senior SARS official. SARS will issue, where necessary, a revised assessment to give effect to the agreement reached by ADR. If the dispute is not resolved by ADR you may continue to appeal to the Tax Board, if the tax in dispute is below R1000 000, or the Tax Court.

Again, I want to stress out the need to consult a professional Tax Practitioner to assist you with this process. if you have gone through all these processes and have now won your case against SARS (where SARS issued unnecessary assessment without proper foundation), may you recover wasted costs incurred (consultations with lawyers and tax practitioners or accountants fees) through the unnecessary conduct of SARS officials?

The decision to use the services of professionals rests on the taxpayer. However, it goes without saying that the complexity of tax laws and regulations renders it necessary for one to consult with tax lawyers, accountants and tax practitioners. Currently, there is no formal authority covering whether taxpayers can recover their costs from SARS. But, practices in other tax jurisdictions allows taxpayers to recover damages in cases where they have suffered financial losses due to the conduct of the revenue authorities. In South Africa damages may be awarded by a competent court if the taxpayer can prove that he/she suffered financial loss as a result of the conduct of SARS.

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