Category: Tax & Accounting
Why You Should Outsource Your Accounting & Tax Operations

There’s no doubt that owners of start-ups and small businesses need to keep a tight rein on capital. One of the methods some employers may use is to ask your in-house team to manage the business finance accounts. However, while this may seem like a cost-effective solution, you’re embarking on a slippery slope that could see tax returns not being filed with SARS, creditors as well as staff members not being paid. It’s going to cause a vicious cycle that will harm your current business operations and long-term goal aspirations, particularly during the pandemic.

It’s completely understandable that you want to be frugal but starting and running a business is a massive undertaking; there are so many other business decisions that must be made. A lot of juggling and informed decisions need to be made, from CIPC registration to marketing and implementing HR processes and procedures. Instead, leave your financial wellbeing in the capable hands of tax and accounting professionals and focus on strategies to grow your business.

 

The benefits of subcontracting your business accounts

Eliminate the tax burden

Did you know that according to South African law, if you have an SA-resident company that has employees, you are liable to pay the following taxes to SARS:

  • Pay-as-you-earn (PAYE)
  • Unemployment Insurance Fund (UIF)
  • Skills Development Levy (SDL)
  • Workmen’s Compensation (WCA)

Failure to pay tax can lead to severe financial penalties, legal issues and even imprisonment. Furthermore, it impacts the employees’ tax status as well, of which they may be unaware.

Accountants have extensive knowledge of the country’s tax laws. They can recognise opportunities where clients can benefit from changes in these laws, helping you make more money, which you can reinvest back into the business.

 

Compliance with South African Revenue Services legislation

It’s simple: you must adhere to compliance with South African Revenue Services (SARS) legislation. Mistakes such as late or incorrect submission of employee taxes can result in capital-draining penalties, further influenced by increases in interest. You are eliminating the risk of tax fines and non-compliance by outsourcing your accounting services.

 

Lower employee costs

The monthly salaries/wages a business owner pays their employees are usually their most considerable expense. Ideally, as a start-up or SME, you’d want to keep these costs to a minimum. You need to reach certain revenue goals before you can feasibly expand.

Outsourcing your accounting needs will cost much less than having to pay another salary. The less it costs you to run your accounting operation, the more money you can reinvest into the business.

 

Reduce the risk of fraud

The unfortunate reality is that there is a greater risk of financial mismanagement when business accounts are handled in-house. Professional accountants have the knowledge and expertise to pick up any errors, flag any inconsistencies and have the internal resources to attend to the issue(s) quickly and effectively. As the business owner, you have to take full responsibility for any fraudulent business practices which can have significant financial and legal repercussions. You also risk gaining a negative brand reputation which can lead to

  • Client loss
  • Investor disinvestment
  • A negative online reputation

Make sure you source a respectable tax and accounting service provider with knowledge of your particular industry and tailor their approach to best suit your overall business strategy.

 

Access to state-of-the-art software

Top of the line accounting software can be costly. It makes logical sense to spend your capital on growth innovation, marketing strategies and ensuring you have all the necessary policies and procedures in place than on an accounting system.

The most advanced systems are cloud-based, allowing for quick and accurate number crunching and reporting. They are also secure and flexible; they can be accessed from anywhere in the world.

Therefore, it’s best to find an accounting firm to deal with your finances so you can gain the most out of this technology. It will increase productivity immensely.

 

Payroll

Your employees are your most valuable asset and need to be treated as such. Suppose you’re unable to pay them their salary/wages. In that case, it causes a slew of problems such as a drop in morale, belief, and ultimately your company’s productivity. Citing cash flow issues will make employees wonder if their job longevity is in jeopardy – you can’t afford (literally) to let this happen.

The complexity of payroll processing is greatly undervalued; it’s so much more than EFTing salaries and emailing them a payslip. There are legal and compliance hurdles expected of every company, and an oversight from an inexperienced individual handling your business accounts could cost you large sums of money. Payroll experts will ensure your payroll admin is accurate and adheres to South Africa’s legal and compliance regulations.

 

Satisfy investors

Any Investors in your business will want to be notified regularly about its financial performance to ensure they’re receiving a positive ROI to warrant investment in your company. All the answers can be found in the financial statements: the balance sheet, income statement, and cash flow statement will show them exactly how the business performs. So, you need to make sure that these statements are up to date and accurate.

Third-party accountants will have these statements and reports readily available to send on request to investors. It’s also a vital structure to have in place before you pitch to prospective investors.

 

Up to date advice on the latest corporate income tax rates

Are you aware of the new CIT rates for small business corporations (i.e. companies with only natural persons as members/owners and a gross income of not more than ZAR20 million? It’s vital that you always have the latest information about company taxes.

  • 0% on the first R 87,300 of taxable income
  • 7% on taxable income above R 87,300 but not exceeding R 365,000
  • 21% on taxable income above R 365,000 but not exceeding R 550,000
  • 28% on taxable income exceeding R 550,000

The income tax rate for private companies has been 28% on the company’s profit for quite a few years, but has been reduced to 27% in this year’s budget speech.

Based on all the information mentioned above, can you honestly afford not to outsource your accounting?


Understanding CIPC Registration: Are You Trading Legally?

So, you have to start a new business? Perhaps a trendy restaurant in a hotspot location that’s becoming known as ‘the place to go’. The clientele is fantastic, and you’re turning a profit; that’s great, but is the business registered with the Companies and Intellectual Property Commission (CIPC)? If not, you’re likely trading illegally. 

There are only two ways that a business can trade without CIPC registration:

  • If you are trading as a sole proprietor, meaning you (as an individual) own and operate the business; or
  • If you have signed a legal partnership agreement with two or more parties or companies.  
 

What is the CIPC?

The Companies and Intellectual Property Commission (CIPC) is the government agency responsible for registering companies, intellectual property rights and co-operatives. This includes trademarks, patents, designs and copyright. Also, you are required, by South African law, to file tax returns annually to SARS and the CIPC  to prove that the business is still actively trading.

As you can see, starting a business is much, much more than finding the seed capital, renting premises and hiring qualified employees. Let’s help you sort out all the CIPC prerequisites first.

 

How do I register with the CIPC?

It’s in your best interest to speak to a reputable company that specialises in CIPC administration as well as tax and accounting. It’s an ideal business and finance trifecta, one company to ensure you’re trading legally, filing your taxes annually, and making sure that your intellectual property is protected.

 

You can register your trademarks with the CIPC

Are you using a logo and slogan as part of your brand identity, is it protected? According to the CIPC, “a brand name is a word or combination of words (e.g. Kentucky Fried Chicken). A slogan is a short phrase or a sentence, and a logo is a distinctive picture or symbol. They provide a distinctive identity in the marketplace and can apply to both products and services.” CIPC administers the Register of Trademarks which is the official record of all the trademarks.

In addition to being CIPC compliant, did you know that you require specific permits and licences to legalise

Business license: Business License: According to The Restaurant Association of South Africa (RASA), The Businesses Act (1991) states, “where a person carries on the business of selling or supplying any foodstuff in the form of meals for consumption on or off the business premises, or any perishable foodstuff, then that business is required to hold a business license.”

Entertainment license: Do you want to play music at your restaurant? This isn’t as simple as ‘plugging in and playing’; you need to obtain a license from The Southern African Music Rights Organisation (SAMRO) as well as another license from The South African Music Performance Rights Association (SAMPRA).

 

Tax & Accounting services

Payroll services

Running a business is not easy, especially when you’re focused on making sales, retaining and attracting new clients.

It may be worthwhile outsourcing the time you would have spent paying and calculating employees’ salaries to payroll specialists. Professional payroll administration can help increase proficiency and provide much-needed risk management measures for your business. When looking for a company to take charge of your payroll, ensure they use the latest, most innovative technology to ensure accuracy and adherence to legal and compliance regulations. You’ll also have peace of mind knowing that you have a dedicated team of experts looking after your staff’s compensation.

Company tax

All registered businesses in South Africa are obligated to pay company tax, and depending on the size and structure of your business, it can become complicated. If you’re an entrepreneur investing in a start-up, you may not be familiar with your tax responsibilities.

Whether this is the case or not, it’s wise to outsource this job to company tax specialists.

Failure to pay company tax can have financial and legal repercussions. Your restaurant obviously has employees; therefore, you’re liable to pay the following taxes to the South African Revenue Service (SARS) as the owner.

  • Pay-as-you-earn (PAYE) for employees
  • Unemployment Insurance Fund (UIF)
  • Skills Development Levy (SDL)

You may be thinking, what happens if I default on my annual tax return with the CIPC? In that case, the CIPC will assume that the company is inactive and begin a deregistration process which, when completed, will legally pronounce your business no longer exists, making any trading illegal.

This is a lot of information to take in; relax and take a deep breath. Fio’s tax & accounting experts will register your company at CIPC and file your annual return. We can also make any changes your company may require, for example, changes in directors of the business, the business’s name and physical address should you decide to relocate.

 

BONUS TIP: The importance of budgeting

What about budgeting and cash flow?

Sourcing capital to get your business off the ground isn’t an easy task, but maintaining it will be next to impossible without the proper financial support structures in place.

Having a proper budget set up is one of the most vital financial steps to manage your business’s finances. If you are always up to date, sufficient cash flow should be available.

Have you compiled a business budget before? No? It’s best to speak to an independent financial adviser (IFA). They will first assist you in understanding your financial situation and mapping out the necessary income and expenditure needed to keep your company running smoothly.

It’s vital that you can make informed financial decisions within the South African Revenue Services regulations’ recognised framework. For more information, please book a consultation


What You Need To Know About Trusts

Trusts are, more often than not, associated with accounts in which idle rich kids keep their money – you may have heard the pejorative term, ‘trust fund kid’. However, this is an inaccurate, oversimplification of trusts. In reality, they are a monetary vehicle that offers a plethora of benefits. So, what is a trust exactly? A trust is a legal arrangement whereby a third party holds property and assets for the benefit of one (or more) people.

The five main statutes governing inheritances in South Africa are:

  • The Administration of Estates Act, which regulates the disposal of the deceased’s estates in South Africa;
  • The Wills Act, which affects all testators with moveable/immovable assets in South Africa;
  • The Intestate Succession Act, which governs the devolution of estates for all deceased persons who have assets in the Republic and who die without a will.
  • Income Tax Act aims to consolidate the law relating to the taxation of incomes and donations.
  • Trust Property Control Act which regulates the control of trust property.

 

Why would I want to create a trust?

A trust gives you the power to maintain control of your assets in the event you become unable to manage them yourself due to a decline in mental health. It allows you to save on estate duty taxes, executors fees, property transfer fees and other estate costs.

In addition, Trusts may also be established to retain control over assets even after the original owner has passed away. For example, a Trust can be set up with the purpose of paying education fees of a family member. In this case, the money in the Trust can’t be used for any other purpose.

What are the different types of trusts?

As with all investments, your goals determine the type of Trust that suits you best.

The three primary constituents in a trust
  • The Founder: The person who creates the Trust.
  • The Trustee: The person, people, or entity (e.g. a bank) that agree to manage on behalf of the Trust the property or assets. There must be a minimum of three trustees, one of which must be an independent trustee meaning someone who has no interest in the Trust or where their appointment as Trustee will not amount to any conflict of interest whatsoever.
  • The Beneficiary: The nominated person (or people) who will receive or benefit financially from the property or assets in the Trust. Financial benefits can be distributed in the form of capital or income.
There are two main types of trusts: Living Trusts and Testamentary Trusts. 
Living Trusts

When a trust is created and becomes active, it’s known as a living trust (also called an inter-Vivos trust.) This type of trust is generally created for estate planning and asset protection purposes, but it may also be motivated by commercial or charitable objectives. When you die, the assets in the Trust are no longer your property. Rather, they become the property of your Successor Trustee, which allows them to be passed effortlessly to the nominated beneficiaries.

Other potential benefits to using a trust include 

  • Protect assets from beneficiaries – decisions with regards assets can be made by independent and experienced trustees.
  • Protection of assets from creditors – Trust assets generally cannot be attached by creditors of the founder, trustees or beneficiaries.
  • Estate Planning – Trusts can be used to protect assets from estate duty.
  • Tax planning – Trusts can be used to manage assets tax efficiently
  • Flexibility – Trusts are more flexible than companies in so far as they are not subject to as much regulation.

Living trusts can also be revocable or irrevocable. This is the way the Trust is set up so basically an inter Vivos Trust can be revocable or irrevocable and will determine how the assets are dealt with.

Revocable

The Trustee retains full control of the assets and has the right to give away, invest, or manage the property just as you would have before the assets were allocated in the Trust. The Trustee also has complete control of the terms and conditions of the Trust; this means that he/she  can change the beneficiaries, the terms or conditions under which beneficiaries will receive the property in the Trust, as well as revoke or terminate the Trust whenever he/she desires. 

Irrevocable

An Irrevocable Trust requires you to give up all rights of ownership and control to the assets in the Trust. This type of Trust is usually established to reduce taxes; since the assets are no longer in your ownership, you aren’t obliged to pay taxes in them.

Testamentary trusts

A testamentary trust is one that is established as per the last will and testament of a deceased individual (the trustor); there can be multiple testamentary Trusts contained within a will. Trustees are named in the will and are responsible for the management and distribution of the trustor’s assets to the beneficiaries as directed in the will.

This type of Trust is used primarily when the beneficiaries are minors (children under the age of 18); it can also be used to reduce estate tax liabilities. The estate of every person in South Africa will be subject to the laws that regulate the administration of deceased estates in the event of their death. It’s important to note that a testamentary trust is irrevocable.

Trust Tax

A trust can be used for many different purposes. They are often a significant part of estate planning, can be used simply for privacy or even tax planning. Whatever reason you choose to set up a trust, you still must pay tax to the South African Revenue Service (SARS). Generally, a trust is taxed at 40%, but specific types of trusts can be taxed on a sliding scale from 18% to 40%.

If you would like to find out more about establishing a Trust, our expert independent financial advisers are ready to assist you. Please contact one of our consultants, today.


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