The Importance of a Good Credit Score

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“You cannot escape the responsibility of tomorrow by evading it today.” (Abraham Lincoln)

 

A good business credit score is a critical tool in business success as it helps your business unlock, establish and maintain relationships with lenders, suppliers and vendors. It reveals whether an organisation should lend your business money, give it credit or enter into a business relationship.

Building good business credit is, therefore, a vital aspect of running any enterprise and the sooner you embark upon developing a good credit reputation, the better. Business credit allows access to the funding you may need to expand, or get through a tough time, and can even give you better terms with suppliers and other vendors. Perhaps most importantly though, by establishing a good business credit score, you can take an important first step toward creating a dividing line between your business and personal finances, even if you’re running a sole proprietorship or partnership.

So just how do you build this credit score and just what do you need to do to ensure you have the best score possible when the time comes to use it?

So, what is business credit?

Your business’s credit is a score that measures your history of borrowing and making repayments. In South Africa, TransUnion and XDS compile commercial credit reports and generate business credit scores using the information given to them by financial institutions such as your bank as well as any defaults that may have been recorded against you by those who may have loaned your business money or advanced it credit facilities which the business has failed to repay on time or at all.

Putting together this information will give any potential vendors and loan companies a clear picture as to just how reliable your business is when it comes time to pay back any loans or accounts.

In South Africa, scores can range from 0 to 100 for some bureaus and 300 to 850 for others. The higher the score on the scale the safer it is to loan money to the business. For instance, any score lower than 527 on the latter scale is considered high risk, while scores above 750 are considered low risk.

Any business that records a high-risk level will therefore find it difficult to secure loans or indeed potentially even rent office space.

There are four different criteria that the bureaus look at to calculate your score.

  • Your debt payment history,
  • Amount of credit used or your credit utilisation ratio,
  • Your length of credit history, and
  • Your credit mix which looks at how you use credit and what kinds of credit are available to you.

As these reports are generated based on past behaviours, new companies may find it extremely difficult to secure loans. Without the history of past behaviour for a potential loan company to examine, your business’s risk would likely be considered fairly high.

How do you build your credit score?

So just how do you go about building your credit score? And how do you avoid falling foul of the system?

  • Pay your creditors on time: This one really goes without saying. If you contract for a service or supply, you must pay the bill for that service timeously and on the agreed upon terms and date. Failing to do so could allow that creditor to list you with the bureaus thereby damaging your credit score.
  • Use less revolving credit: Revolving credit is the kind of credit that is always available to you to use as long as you keep on making the necessary payments on the outstanding balance. Credit Cards, where a set amount of credit is extended and which can be drawn against and used as needed is an example of this type of credit. This differs from instalment credit where there is an end goal amount to be paid off and that amount may not necessarily be advanced again once a payment is received.

    Revolving credit can be a good way to establish a relationship with financial institutions and help you build a credit score, but it can also be a trap. Revolving credit impacts a portion of your credit score called Credit Utilization which looks at just how much of your available credit you are using at any given time. Your Credit Utilisation is a calculation of how much of your overall credit you’re using and the amount of credit available to you at any given time. This calculation shows lenders and the credit bureaus how reliant you are on credit. Keeping it low on all your store and credit cards will positively impact your score. It will show lenders that you know how to use credit and you aren’t racking up debt that you cannot afford to pay. As a guide, you should try not to use more than 25% of your available revolving credit at any given time.

  • Fix your cash-flow errors: Missed payments don’t always happen because your company is doing badly. Quite often they can be missed because a large invoice has simply not been paid on time. Making sure you have a balance of reserve money is important to ensure you don’t miss any crucial payments as credit scores do not have an excuses column to factor in as to why you missed your repayment obligations.
  • Avoid missed payments and judgments: This takes us on to the next step, which is missed payments and their severe cousin, judgments. Missing too many payments is already bad, but worse is when a company gives up on you and files a warning with the bureaus that you are not to be trusted. Typically, defaults are listed for credit accounts overdue by 90 days or more.

    “Defaults” such as subjective classifications of consumer behaviour (delinquent, default, slow paying, absconded, not contactable and the like) typically remain on a credit record for one year, whilst classifications related to enforcement action (handed over, legal action, debt write-off etc) remain for two years.

    If a court judgment is issued, that stays on your credit record for five years and remains collectable for thirty years in total.

  • Keep your suppliers in the loop: To avoid missed payments and judgments it’s highly advisable that you keep suppliers and creditors in the loop should you miss a payment or expect to miss one in the future. Explain what you have done to rectify the matter and when they can expect payment to avoid having your mistake recorded on your credit score. Of course, it is essential to then ensure the payment is made as promised.
  • Establish business credit with companies that report trades: Establishing a good credit reputation with companies such as banks that report to the bureaus is a good way to ensure you build a credit score quickly. Using credit responsibly helps establish your ability to show discipline and pay on time and in full. Other companies that may report on your behaviour include telecommunications and utilities companies.

Get your free reports

The National Credit Act states that every business is entitled to access their credit reports once a year, totally free of charge from each credit bureau. Keeping track of your credit score will allow you to see whether your business is improving or falling behind on its goals and give you a clear picture of just how others perceive you. It will also allow you to see if the information there is correct – incorrect judgments can be included on these bureaus, and checking the reports helps you correct any that may be hurting your company’s credit score.

Head to these links to get your credit score report directly from each bureau:

In conclusion, a credit score is about your relationships with those with whom you transact. If you make payments timeously, use the credit that is available to you, and keep an eye on your credit score for any inaccuracies, you should be able to build a solid credit score in about two years.

Is Your Trust Registered and Ready for Income Tax?

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“A trust is a ‘person’ for tax purposes and is therefore a taxpayer in its own right.” (SARS)

SARS recently sent out a reminder confirming that in terms of the Income Tax Act, 1962 (ITA), all trusts are taxpayers and that the trustees, who are also the representative taxpayers of the trust, have a responsibility to register the trusts – whether active or dormant – for income tax purposes.

The representative taxpayer (trustee/s), or the appointed tax practitioner, must also file an income tax return for the trust on an annual basis, and before the tax season deadlines to avoid penalties and interest.

Trusts that are required to register include all local trusts, non-resident trusts that are effectively managed in South Africa, as well as non-resident trusts that derive income from a South African source.

 

Why business owners use trusts

Trusts are used to hold, protect and ensure the continuity of ownership of personal or business assets, shares in businesses, and the right of use of assets.

The benefits include protection of assets against creditors, for example in the case of liquidation or sequestration, and against other parties – for example an ex-spouse, or ill-intentioned family member.

Where appropriate, a trust can be a useful tool to help ensure effective future planning; achieve continuity through efficient succession; and even managing certain tax liabilities, such as estate duty.

A business can also be registered in a business trust, also called a “trading trust,” instead of registering as a company with the CIPC. This option, however, is only appropriate where the main aim is conducting business, and a contractual agreement will task the trustees to manage the assets of the trust for a profit.

While a business trust can be useful to protect assets and safeguard the business owner against certain liabilities, it also has several drawbacks and may not always be the right alternative to registering a company.

Whether a business or personal trust, professional advice and guidance is crucial, because not only are the rules governing trusts complex, but the taxation of trusts requires specialised expertise.


The taxation of trusts 

Whereas companies in South Africa are taxed at a flat rate of 27% for years of assessment ending after 31 March 2023, the income tax rate for trusts is currently 45%, and it is levied on any income retained in the trust.

This is the highest income tax rate, and trusts also do not qualify for any of the rebates provided for in Section 6 of the Income Tax Act.

Trustees may allocate income and capital to multiple beneficiaries, so that the tax obligation is spread, possibly at a lower rate in some instances. This is because, depending on circumstances, income distributed may be taxable in the hands of the founder, the beneficiaries or the trustees.

There are also special trusts, taxed at a sliding scale of 18% – 45% (the same as natural persons), and some special trusts also qualify for certain relief from Capital Gains Tax.


How to submit a tax return for your trust

It sounds quite simple in theory: an ITR12T must be completed and submitted.

In reality, a ITR12T trust tax return is a 31-page document, and completing it correctly is no quick or easy task.

Firstly, a trust must be registered with SARS for the taxes for which it may be liable. In addition, the trustees of the trust – who are also the representative taxpayers of the trust – must file the return within the tax season deadline. This responsibility may be conferred to a specific trustee, or to a professional appointed by the trustee(s).

To make it easier to comply, SARS has announced some enhancements to its system. For example, whereas one could previously only register a trust via a visit to a SARS branch, taxpayers can now register a trust for tax purposes through the SARS Online Query System and also submit any supporting documents online.

Furthermore, the ITR12T trust return form is now available on eFiling. The representative of a registered trust can request the return on eFiling and customise it by completing the questions on the Tax Wizard. Requesting the ITR12T to be posted, as was previously required, is no longer an option and trust returns received via post will be rejected.

Taxpayers registered for eFiling are also able to complete and submit the return online. Only trusts with ten or fewer beneficiaries have the option to have the ITR12T return captured by a SARS agent at a branch, and only if an appointment has been made.

When the filing period for trusts ends, SARS will raise original estimated assessments on ITR12Ts that were not officially filed by the taxpayer.

After the estimated assessment has been raised by SARS, the taxpayer will be allowed to request an original (new) return to be submitted to SARS. The same estimated return will be issued on eFiling to be completed, with a new version number of the return.

The taxpayer will be able to request a correction after the original return has been submitted, until one or two rejection letters have been received from SARS. Thereafter, the taxpayer will have the option to dispute the decision taken by SARS.


Bear in mind…

  • SARS introduced a number of form and system changes in respect of trusts from 24 June 2022.
  • SARS has advised trusts that all outstanding income tax returns are submitted without delay to avoid further penalties and interest.
  • SARS reminds trusts not registered for income tax purposes of the availability of the Voluntary Disclosure Programme (VDP), an option that should only be considered after obtaining professional advice.
  • If the ITR12T return is not submitted by the relevant deadline, the trust will be liable for an administrative penalty due to non-compliance.
  • Provisional taxpayers are required to make provisional tax payments within six months after the commencement of a year of assessment and then again by the end of the year of assessment.
  • The trust is required to keep all the relevant material and supporting documents for a period of five (5) years from the date of submission of the return. SARS may, within the 5-year period, request these documents to verify the information that was declared on the ITR12T.

Top Ten Tips for Maintaining a Strong Cash Flow

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“Never take your eyes off the cash flow because it’s the lifeblood of business.” (Sir Richard Branson)

Managing cash flow is often one of the biggest challenges business owners face and is also the reason for a concerningly large percentage of business failures.

Cash flow can be defined as the total amount of money that comes in and then goes out of a business and – crucially – the timing between cash flowing in and cash flowing out.

A positive cash flow means the business earns more than it spends and is a key indicator of the financial health of your business. A consistent, positive cash flow ensures there is cash on hand to cover payroll, expenses and loan repayments on time and enables business growth by ensuring cash is available for timely equipment purchases and upgrades, and investment in new opportunities that arise.

As such, proper cash flow management is key to your short – and long-term financial success, and cash flow strategies should be a priority in your business planning. Good cash flow planning will allow you to predict when money can be expected to be received, and when it must be paid out. With this information, you can plan ahead and make smart business decisions.

Implementing the ten top tips below for maintaining a strong cash flow will ensure businesses can enjoy all these benefits in a short time and with little effort.

  1. Increase sales – More sales are obviously the preferred strategy for a business to grow the amount of cash flowing into the business, and it provides more benefits than other options such as liquidating assets or taking out a loan.
  2. Collect client payments quickly – Late payments from clients are one of the most common reasons why businesses experience cash flow problems. Manage this proactively by invoicing clients promptly and sending monthly statements early. Verify the invoice was received, and contact late payers well in advance, reminding them to pay on time. Follow up on late payments right away, offer discounts to clients who pay early, and implement a cash-on-delivery policy for chronic late-payers.

    You could also consider requesting deposits when taking orders, and if you offer credit to clients, make sure to do credit checks first and maintain stringent credit policies.

  3. Adjust inventory – Inventory that doesn’t sell well will also negatively impact your cash flow. Move outdated inventory and offload less frequently purchased items for discounted prices and don’t replace this stock – rather invest more into stocking items that do sell well.
  4. Manage and trim expenses – Cash flow reduces as and when expenses are paid, so managing your expenses better and eliminating unnecessary costs will immediately boost cash flow. Also consider other ways to conserve cash flow, such as leasing instead of buying equipment.
  5. Prioritise payments – Know exactly which payments must be made when, then order according to priority, and spread payment dates so the most important bills are paid first and the less critical account payments with more flexible payment dates are paid later. Where necessary, negotiate payment terms with your suppliers.
  6. Increase efficiencies – Take advantage of technological advances and artificial intelligence-enabled solutions, such as apps, software and equipment to streamline your business processes and increase efficiency. Also, consider identifying operations or tasks that can be cost-effectively outsourced to freelancers and third-party service providers.
  7. Use a business credit card – A well-managed business credit card could be used to pay day-to-day expenses during the month to free up cash. This will require keeping a tight record of those expenses and being disciplined in repaying the full balance within the interest-free period. It will also allow the business to benefit from any rewards programs that can reduce expenses, such as a certain percentage of cash back on some purchases.
  8. Keep a line of credit – A business line of credit can be a saving grace for small businesses and companies impacted by seasonality. It provides quick access to funds when needed, for example, to bridge gaps between invoicing and payment, to buy equipment, to cover seasonal or unexpected expenses, or to take advantage of growth opportunities. The business will have to negotiate such a facility before cash flow problems arise.
  9. Make your money work – At times, there may be a surplus of cash, for example, in seasonal businesses, and at these times, it is crucial to make sure this money works for the business. This can be achieved through building up a reserve fund for emergencies, which experts suggest should ideally be sufficient to cover six months of business expenses; making smart short-term investments and paying off debts faster to reduce interest and shorten loan terms. Consider investing any surplus cash, short-term or otherwise, in a money-market call account to earn interest rather than leaving it idly resting in the bank account.
  10. Use accounting expertise – Successfully monitoring and projecting cash flow often requires professional assistance. Alongside the balance sheet and income statement, the crucial cash flow statement is one of the three main types of financial statements. Generally covering three main areas: everyday business operations, investment activities, and financing, it reveals trends and allows potential cash flow problems to be identified and managed in time.

Projecting future cash flow requires assessing the previous year’s numbers as the basis of cash flow for the following year and then adjusting these numbers for anticipated changes, such as new pricing, more staff and new funding sources. Of course, these forecasts will change continuously, so it’s important to monitor cash flow on an ongoing basis.

Speak to your accountant about accessing cash flow reports regularly and for professional assistance in understanding what they reveal about your business, to enable more accurate and relevant business decisions.

Your Tax Deadlines for July 2022

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  • 7 July – Monthly Pay-As-You-Earn (PAYE) submissions and payments
  • 25 July – Value-Added Tax (VAT) manual submissions and payments
  • 28 July – Excise Duty payments
  • 29 July – Value-Added Tax (VAT) electronic submissions and payments & CIT Provisional payments where applicable.

Tax Season 2022 Now Open: Beware, This Year’s Deadlines are Shorter!

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“Few of us ever test our powers of deduction, except when filling out an income tax form.” (Laurence J. Peter)

In this article, we look at the who, how and when of this 2022 Tax Season; highlight some issues that require special attention; and suggest practical next steps to help you avoid the last-minute rush, the risk of errors and omissions, and the cost of late submissions, penalties and audits.

At a glance

Tax Season 2022 opens 1 July 2022 – here is a quick overview of who must submit, how they must do so and when by:

Who is exempt from filing?

  • Individuals receiving total annual gross income of less than R500,000 from only one source with no other allowances or benefits, and from whom PAYE has been deducted as per the prescribed tax deduction tables.
  • Individuals who are not claiming tax related deductions or rebates such as medical expenses, travel and retirement annuity contributions other than pension contributions made by their employer.
  • Individuals who only receive interest below the interest exemption thresholds; amounts from tax-free savings accounts; or dividends.
  • Individuals who are non-residents throughout the year.

Even if you could be exempt at first glance you might still benefit from filing a return due to your particular circumstances. If there is any doubt, professional advice is essential.


Issues requiring special attention

  • This year’s tax season is substantially shorter than last year’s for provisional, non-provisional, manual and branch office submissions!

    Last year, non-provisional taxpayers had until 23 November, extended to 2 December at the last minute. This year’s deadline is a month earlier, on 24 October 2022.

    Similarly, the 23 January 2023 deadline for provisional taxpayers is a week earlier. That’s less than seven months away, including the December and January holiday periods.

  • Home office expenses remain in the spotlight, as SARS disallowed over 60% of home office claims last year. Make sure you qualify for this deduction, and that it is correctly pro-rata calculated for allowable non-capital expenses such as rates and taxes, electricity, repairs and insurance. Deductions can’t be claimed for reimbursements or equipment provided by an employer without charge. Also be sure to understand the potential capital gains tax impact when you sell your home for which the deduction was claimed. Professional advice is essential here!
  • Last year more than three million taxpayers were auto-assessed, and significantly more individual taxpayers will be auto-assessed this year. If you are auto-assessed, SARS will send you an SMS that your tax return has been pre-populated by SARS on eFiling or the SARS MobiApp. Check with your accountant before making any decisions about your auto-assessment.
  • Be sure to check if your auto-assessment is correct as soon as you receive the SMS notification, because this year there is no need to “accept” the assessment: SARS will regard it as accepted unless changes are made as detailed below before the 24 October deadline. If an amount is due to SARS, the next step is simply to make the payment via eFiling or SARS MobiApp. If a refund is due to you, check that your banking details with SARS are correct and simply wait for the refund.If you don’t agree with the automated assessment, an accurate ITR12 tax return can be filed within 40 business days of the date of the auto assessment. If this return is filed after 24 October, it will be subject to normal late submission admin penalties and interest. If SARS accepts the changes, a reduced or additional assessment will be issued. If not, the normal objection and appeal options are available.
  • SARS has stated that Company Income Tax (CIT) filing compliance is currently a focus and urges companies to note that it is compulsory for registered companies that are required to file a return to do so on time and complete in all respects.
  • Non-compliance is as expensive as ever, with the same penalty rules for auto-assessments expected to apply for the 2022 filing season. The late submission admin penalty ranges from R250 to R16,000 a month for up to 35 months, depending on the assessed loss or taxable income of the taxpayer for the year prior to the year being assessed.

In addition, failure to submit the return(s) within the prescribed period could result in a summons and/or criminal prosecution, which upon conviction is subject to a fine or to imprisonment for a period of up to two years.


Next steps

  1. Get started immediately to avoid the last-minute rush, and to minimise the risk of errors and omissions. Diarise the key dates, allowing time to attend to any potential problems, such as finding documents, obtaining third party information or getting professional advice.
  2. Ensure all your information is correct. Update your personal information such as banking details, address and contact details on eFiling or the SARS MobiApp, and make sure all information provided on the return is true. SARS has significantly improved its abilities to draw information from third parties, including employers, financial institutions, medical schemes, retirement annuity fund administrators and other third-party data providers, making it easier than ever before for SARS to detect incorrect or undisclosed information.
  3. Check that you have received certificates and documents relevant in determining your tax obligations such as your IRP5/IT3(a)s and other tax certificates like medical certificates, retirement annuity fund certificate and other 3rd party data. If not, immediately contact the 3rd party data provider.
  4. Keep accurate records of all the calculations and source documents used as SARS may ask for these documents to be verified and/or for the calculations to be justified.
  5. Consider professional assistance to ensure all exemptions, rebates and deductions for businesses and individuals are included and that the many terms and conditions, dictating when and how these may be claimed, have been met. Last year, SARS refunded more than R17 billion to taxpayers.
  6. Plan ahead financially to meet the tax liability that will be due along with the submission deadline.

Owe SARS a Tax Debt? Here Are Your Options…

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“Tax debtors are expected to take responsibility for their tax obligations and to organise their affairs in such a way as to be able to discharge those responsibilities when required. They should give at least the same priority to tax obligations as their other responsibilities.” (SARS’ Short Guide to the Tax Administration Act)

To avoid tax debt, penalties and interest, it is best to file returns and make payments timeously. However, for a range of reasons, taxpayers may not be able to meet these requirements on time, finding themselves facing a tax debt owed to SARS.

There are different ways in which tax debt can arise, and while the taxpayers’ agreement and ability to settle this debt will determine the details of each taxpayer’s response, all tax debts should be handled the same way: promptly and with professional assistance.

If you or your company have any tax debt, take action without delay! In certain circumstances and with the right professional assistance, an agreement may be reached with SARS to defer the tax debt for later payment or for payment by instalments.


How do tax debts arise?

Tax debts can arise from administrative penalties on late or non-submission of tax returns, failure to submit tax returns, the submission of returns without payment, partial payment of a tax liability or from a SARS audit assessment.


How would you know about a tax debt?

Individuals and businesses should – proactively and on a regular basis – check their compliance status with SARS or obtain a statement of account on the various taxes payable, either from their accountant or via the SARS’ Contact Centre, eFiling and the SARS MobiApp, to confirm if SARS is owed any amounts.

SARS is also required to inform taxpayers of assessments, notifications or communications issued, by also sending a message to a taxpayer’s last known number or email address. This makes it crucial to keep your contact details updated at SARS and to check your compliance status or statement of account whenever an email or SMS is received from SARS.


No dispute, but can’t pay now?

In many cases, a taxpayer may not dispute the existence or amount of a tax debt but is unable to meet the payment required by the stipulated date.

In this case, there are two options that could be considered based on the unique facts of each case.

  1. The first is a payment arrangement

    SARS provides for a deferment, or instalment payment arrangement, for the outstanding tax debt. Taxpayers can request and enter into an instalment payment arrangement with SARS that allows the outstanding debt, including applicable interest, to be paid in one sum or in instalments over time (up to 36 months). This agreement is subject to certain qualifying criteria, for example, the payment arrangement must cover the entire debt and all non-compliance must first be remedied, which means all returns and/or recons must be correctly submitted.

    Until recently, taxpayers could only make payment arrangements via a debt collector who had been appointed by SARS, in person at a SARS branch, utilising the debt management regional email addresses, or on the My Compliance Profile (MCP) on eFiling.

    SARS recently implemented the Enhanced Debt Management process to help taxpayers with outstanding debt initiate a request for Payment Arrangement for Personal Income Tax (PIT); Corporate Income Tax (CIT); Value-Added Tax (VAT); Pay-As-You-Earn (PAYE) and administrative penalties via eFiling.

    If granted, the repayments are loaded via eFiling to be released from the taxpayer’s bank account. Interest will continue to accrue on any unpaid debt, and any breach of the conditions will terminate the payment agreement and normal collection proceedings will resume.

  2. The second is a compromise agreement

    Applying for a compromise agreement is an option of last resort when a taxpayer cannot afford to settle the tax debt owing to SARS. A SARS Debt Compromise is a process whereby a taxpayer requests that SARS permanently or temporarily “write-off” a large portion of their debt, with the balance being paid in full by the taxpayer immediately on the condition that the taxpayer complies with any conditions imposed by SARS.

    It is important to note that a temporary write off is generally merely a suspension of the recovery of a debt, and the debt may still be recoverable during the prescription period which, under the Act, is 15 years.

    In deciding to grant a compromise, a senior SARS official must have regard to several factors. However, no compromise will be granted in several instances, for example, if the taxpayer’s other tax affairs are not in order or where a taxpayer recently had a previous compromise agreement with SARS.

    A compromise also cannot be considered if the taxpayer disputes the debt. If a matter is under objection or appeal, the taxpayer must withdraw the objection or appeal before a compromise can be considered.

    If you are looking for a compromise with SARS, professional assistance is crucial.


Disputing a tax debt?

Often, taxpayers disagree with assessments issued by SARS. While taxpayers do have the right to dispute an assessment by lodging an objection, it is vital to note that an objection or appeal lodged with SARS does not in any way suspend or postpone the payment of the tax debt.

Aptly named the “pay-now-argue-later” principle, it applies to all tax debt.

To prevent SARS from instituting collection proceedings on a tax debt that is to be disputed, two steps are required:

  1. Lodge an objection in dispute of the assessment AND
  2. Submit a “Request for Suspension of Payment.”

The taxpayer is protected from all SARS collection procedures between the dates that SARS receives the request, to 10 business days after SARS issues its decision to grant or decline the Suspension of Payment request.

A Suspension of Payment request can only be granted by a senior SARS official, after taking into consideration several factors, including the compliance history of the taxpayer and whether the dispute is a result of fraud.

If a Suspension of Payment request is granted, SARS may not commence any collection proceedings for the tax debt in dispute pending the outcome of the objection or appeal. However, interest will accrue on the unpaid debt.

If SARS denies the Suspension of Payment request, the taxpayer also has the option to apply to SARS for a payment plan. A Suspension of Payment is also revoked if the dispute process is not followed.

On the finalisation of the objection or appeal, a revised assessment will reflect the resulting tax debt and the due date for payment. Again, if the revised tax debt is not paid on time, SARS may commence collection proceedings.


Why you must act promptly and professionally

It is a criminal offense to not submit a tax return when it is due, and it can be a criminal offense not to pay.

If you cannot pay a tax debt to SARS and do not follow the correct procedures, SARS is legally allowed to exercise its wide powers of collection. However, SARS states that when deciding the most appropriate way to deal with outstanding tax obligations, it will give considerable weight to the tax debtors’ individual circumstances and compliance history of, for example, lodging correct returns and documents and paying taxes on time.

SARS’ debt collection powers extend to issuing a judgment and having a taxpayer blacklisted; obtaining a preservation order in respect of taxpayer assets; attaching and selling taxpayer assets; and bringing sequestration or liquidation proceedings against a taxpayer, even if the debt is disputed. In fact, even the money in your savings account or your income may be in jeopardy.

This is because SARS can access data in relation to every bank account registered in your name using your ID number and can also recover tax debt through third parties who hold money on your behalf, such as a bank, an employer, an insurance company or an attorney.

Due to recent changes to the tax laws, there have been increasing reports of SARS collecting ‘outstanding tax debts’ from taxpayers’ bank accounts, without the taxpayers’ consent. While SARS can indeed do this without any judicial oversight, it is important to know that SARS is required by law to follow specific steps prescribed by the Tax Administration Act (TAA) before doing so.

These include that the taxpayer must have received an assessment from SARS detailing how much is due and by when, as well as a final demand for payment that states available debt relief mechanisms contained in the TAA; and recovery steps that SARS may take if the tax debt is not paid. Taxpayers who can prove serious financial hardship may apply to SARS for a reduction of the amount within 5 business days of receiving the final demand or extend the period over which the amount must be paid.

Only 10 business days after delivery of the final demand, if no response has been received from the taxpayer, can a senior SARS official authorise a third party to collect the tax debt. However, if SARS does not follow the steps detailed in the TAA, collection proceedings may be regarded as illegal and in contravention of the TAA, and the taxpayer will have recourse against SARS via its Complaint Management Office (CMO), the Tax Ombud or legal action. Again, in these instances, professional assistance is strongly recommended.

Keep Your Business Simple!

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“Simple can be harder than complex: You have to work hard to get your thinking clean to make it simple. But it’s worth it in the end because once you get there, you can move mountains.” (Steve Jobs, co-founder of Apple)

It is easy in business culture to start believing that more is more. Entrepreneurs often fall into the trap that more meetings, more employees, more products and more leads is equal to more success. Many large companies have failed because they branched out too much, lost focus and, as a result, lost their market.

Quite often the idea that bigger is better and more is more can lead to poor decision making that guides a business away from its competitive advantages, confuses the market and leads to a lack of focus internally. The flip side of this is the ability to strip back unnecessary complexity and instead focus on simplicity.

Simplicity is defined as “the quality or condition of being easy to understand or to do” and it comes with some genuine advantages.

The advantages of simplicity

  1. Being understood

    The major advantage of simplicity is that it makes it easy for everyone in your organisation to be on the same page. Having everyone understand the goals and ambitions of an organisation is easier when you are a small company, but as things develop it becomes increasingly difficult to get everyone pulling in the same direction.

    Removing jargon and chaff from company communications, and simplifying product offerings, your vision, team structures and communication will ensure that not only do your team know what they are doing day-to-day to achieve success, but also that they know how to do it.

    Once your whole company is singing from the same hymn book it’s far easier to get the world at large to understand what you are doing too, which makes defining your brand and selling your products a simpler proposition at the same time.

  2. It’s easier to operate

    The more things that have to happen right for your business to succeed, the greater the risk. Keeping your business practices simple; from the number of suppliers to the levels of training needed by your staff will help you avoid the problems that complexity can bring. If you have thirty suppliers, it takes only one of them to fail to start impacting your business.

    |On the other side, if you have one supplier of a common product that can be sourced somewhere else, it’s much easier to keep a handle on your production line and ensure that you always have the products you need. (Of course, you do not want to be reliant on a sole supplier without the option of other sources for your essential resources). Obviously, this is an extreme example, but it will never hurt to go through your supplier lists, staffing or any other factor of your business and look at where the number of cogs can be reduced.

    Also, with a select group of suppliers, it will be easier to keep informed of their health and sustainability and ability to continue supplying your business regularly and on time.

  3. It’s adaptable

    A simple business model is much easier to adapt should the need arise. A simple business with easy-to-understand communication lines and supply chains is easier to pivot because staff can all be contacted at once and updated, while supply adjustments can be adapted as needs be on the spot.
  4. Results are easier to measure

    Overly difficult strategies are harder to implement, and they also make it harder to gauge results. It is far harder to work out which staff and departments are delivering the most value in a company when you have two dozen departments with different KPIs and a hundred staff each than it is in a small company with just a handful of staff. The most successful companies have a straightforward direction, along with clear and simple measuring parameters that keep them on track.

    If, however, your operation has grown into a business with a number of divisions, apply these tips for simplification to each division to encourage their efficient and effective performance.


Tips for simplifying your business

Ironically, making a company easy to understand and operate is not necessarily an easy thing to do. Getting to grips with where changes need to be made will take some time and will require bold decision making. Here are our tips for keeping things simple in your business.

  • Outline your goals

    Whether you want to reduce waste, increase employee happiness, or boost profitability, simplifying your business should always start with defining your goals. This should be a short list that allows you to more clearly understand and communicate just what is being tackled and why. Having a short list makes it much more likely that it will get completed without burdening staff further, and also allows you to easily see if the process has been successful.

    Having simple, clearly defined objectives and goals, that the whole team understand and commit to, gives the business the best possibility of success.

  • Consider the outsider’s perspective

    There is no doubt, if you lead a business, that you know what it is you are offering and just how many ways you offer it. Being in this position of full understanding can, however, mean that you have lost track of what the average person, or woman, on the street thinks it is you do. Looking at your company from the perspective of an outsider is therefore important if you want to get a sense of how your company and brand are perceived.

    The easiest way to do this is simply to ask. Ask customers, ask friends, ask people at business meetings, or, if you are a larger company, hire a company to do a survey or bring in a consultant. Getting other people’s opinions will quickly show you if you have lost track of your core business. If there is confusion about what you do, or what your primary services are, then it’s a sure sign you may need to go back to basics or change the messaging around your company.

    At the same time, ask your customers what they really want. The answers may surprise you and reveal areas where you have been putting in a lot of effort that doesn’t necessarily give the customers what they actually need. This is an essential exercise to determine the continuing relevance of and need for your service offering or product. Change is an ever-increasing factor and new products and services are coming to market. Keeping your business focussed and simple can enable recognition of the emerging threats and need to change, adapt or even develop new offerings.

  • Focus on outcomes

    While it may be tempting to watch every move every employee makes, doing so is a hugely time intensive activity that adds layer upon layer to the complexity of a business. Instead of simply hiring someone to do the job, you are now hiring people to supervise and check up on them, and to do that requires more HR functionality to manage all their expectations. Your focus should be on performance outcomes of your key employees.

    Additionally, not all rules and regulations will assist your company and these need to be looked at carefully if you want to streamline workflows and increase employee job satisfaction and retention. Look, for example, at how many people need to review and sign off on expense reports or small purchases; or how many times slide decks need to be reviewed before they are presented.

    Reducing menial tasks and making things easier to do gives employees more time to actually do their real jobs properly. The answer to all of this is to focus on outcomes and avoid micromanaging your team. Be sure to maintain an open line of communication with the understanding that the more you listen to your team, the simpler things will be and the better the entire group will work. In addition, being accessible and listening to your people will alert you earlier to emerging risks and potential opportunities in time to take action.

    This is going to extend to your ability to hear bad news or have employees tell you when they think your decisions may be wrong. You are only going to find out about bad practices and unclear instructions if you are genuinely interested in fixing problems rather than protecting egos.

  • Fix your non-functioning processes

    Whether it’s because you have been in operation for so long that your processes have become redundant or because you are just starting out and haven’t developed any, having non-functioning processes can hamper your workflow and cause a huge amount of unnecessary and time-consuming work.

    The first step is identifying your pain points. Start with the areas of the business where you are actively getting complaints. Break down what processes are leading to these complaints and fix them. The time you spend developing good practices will be more than paid back in the decreased amount of time you spend putting out fires and dealing with unhappy customers. Ultimately, you will want to look at all your processes to make sure they are running optimally, and that time isn’t being wasted unnecessarily dealing on a daily basis with inconvenient problems that could be solved outright.

  • Organise administration assistance

    Administration is a necessary but unfortunate consequence of doing business that can clog up all the otherwise smooth flowing systems. You did not hire those important and highly educated staff to have them sit filling in order forms. You and they should be focused on driving the business, not dealing with payment complaints. Whether you choose to use automated assistance that frees up a researcher’s time in a laboratory, an accountant to organise your finances and save you money on your taxes or someone in HR to deal with errors in pay, getting others to do the finicky work will allow your core team to focus on what they need to do to bring in the profit. Keep management of operating/production teams simple. In the long run, the time saved for everyone will turn into a smoother, and more efficient company.

At the end of the day, simplifying a company is about getting to the core of what it is you need to do, supplying customers with exactly what they need and no more, making sure your staff are well informed and working together and not overburdened with work that isn’t their place to do.

Learning The Essential Art of Delegation

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“The really expert riders of horses let the horse know immediately who is in control, but then guide the horse with loose reins and seldom use the spurs.” (Sandra Day O’Connor, former Supreme Court Justice)

For years you have been working in the industry of your choice and now you have decided to start your own business. At this point it’s hard to see just what you are going to need to do to transition the business to a thriving enterprise. One of the major skills you’ll need is the ability to let go of doing everything yourself and rather get others to actually do the heavy-lifting and carrying.

As a new manager it can be tempting, and even inspiring, to be seen “rolling up your sleeves” to execute tactical assignments. But as your responsibilities become more complex, the difference between an effective leader and someone who is battling to do everything themselves will become clear. While it may seem difficult, elevating your impact requires you to embrace an unavoidable leadership paradox: You need to be more essential and less involved. The trick is learning to delegate effectively – a skill you may not have expected to need to know.

To know if you are delegating well or need to still learn a few tricks, you just need to ask yourself this one simple question, “If you had to take an unexpected week off work, would your initiatives and priorities advance in your absence?” If the answer is no, or only maybe, then you need these tips for learning to delegate.


Work out what can be delegated

Step one is knowing exactly what can, and should, be delegated. It’s important you take time to analyse the work you are doing to assess which things aren’t maximizing your efforts and time to the fullest and then work out which tasks would help your teammates develop into the kinds of people the company will need in the future. For your team members to grow, you will need to offer them opportunities to prove themselves and learn new skills. The perfect tasks to delegate are those that are within an individual’s capabilities, but which push them outside of their comfort zone and force them to develop new skills or ways of thinking.


Take time to teach them how to do it

When you first delegate a task you will need to take the time you would have used actually doing that task to teach the new person just how to get it right. This period of training will achieve a few things. Firstly it will make the person who is tasked with the new responsibility capable of actually getting it right first time, but secondly it will give you the confidence to hand the task off effectively as well as develop your new and valuable skill of mentoring and training.

During this period of training you need to stress the reasons for the task. When people lack understanding about the value of a task or why they have been chosen to do it they also lack the motivation to do it well. Giving them the context about what’s at stake, and the benefits of the opportunity, increases personal relevance and the odds of accurate follow-through. As well as reasons, you also need to clearly provide your expectations. Your employee cannot read your mind, so the need for quality and meeting the delivery date must be equally clear-cut when you pass the job over. Once clarity is established, confirm their understanding preferably face-to-face to avoid any later confusion. Often, mistakes by trusted employees can come down to poor communication on the brief.


Let them do it themselves

For people used to doing everything themselves, this may be the hardest aspect of the entire process. While monitoring them doing the job from afar will allow you to pick up any mistakes as they happen, micromanaging them will only put unnecessary pressure on them and can force mistakes. You need to get out of their way. If your hiring process has been good, you have chosen the right person to delegate to, have clearly defined the task, taken time to teach it to them and then explained your expectations, micromanaging them doing it will not be necessary. Demonstrating that you trust them to do the work will likely yield rewards. Part of delegating is learning to respect the varied and creative ways your teammates get the jobs done instead of requiring that they do it exactly the same way you would have.

Being able to do this successfully builds confidence in the employee tasked with the job and also gives them greater job satisfaction at the end of the day when they achieve it. This in turn will make them more willing to take on other tasks and keep them happier in their workplace, meaning you are less likely to lose a now skilled employee.


Prepare accurate feedback

Once the task is complete for the first time, it’s important to have a follow-up session at which you analyse their performance with the task and offer both positive and negative feedback. This is an important step in reinforcing the lessons, building confidence and correcting any errors in technique or process before they become locked in habits. It’s as important here to recognize the things the employee did well as it is to recognize the things they did badly. Likewise, if the work differs too much from what you were looking for, take immediate and decisive corrective action. Mutually agree on a plan to return to the targeted goals and take a more active role in monitoring of the task. If the situation doesn’t improve, end the assignment and move on.

Once you are confident the job can be done well, feedback sessions remain important, but can be conducted less often. It’s vital to ensure you continue to recognise the input of your employees and reward those who are doing well. Exceptional performance is more likely to continue if it’s noticed and rewarded. Do follow through when someone performs exceptionally and be generous with promotions, salary increases, bonuses, and a sincere and heartfelt thank-you.

Your Tax Deadlines for June 2022

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  • 7 June – Monthly Pay-As-You-Earn (PAYE) submissions and payments
  • 24 June – Value-Added Tax (VAT) manual submissions and payments
  • 29 June – Excise Duty payments
  • 30 June – Value-Added Tax (VAT) electronic submissions and payments & CIT Provisional payments where applicable
  • 30 June – End of the 1st Financial Quarter

Estate Planning: Act Now to Protect Your Family and Business After You Are Gone

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“The golden rule of all estate planning is: don’t wait.” (Missionwealth.com)

Just 20% of South Africans have a valid will (“Last Will and Testament”), resulting in countless heart-breaking stories of grief-stricken surviving spouses and children with no income or access to funds as bank accounts have been closed, floundering in confusion with no idea where the deceased’s will or important documents are kept, what assets and debts there are, how to access password-protected devices or who to contact for help.

To avoid this sad scenario everyone, regardless of age, health or financial position, should have their own estate plan ready, including a valid and properly executed “Last Will and Testament.”

If you are a business owner, estate planning is even more important, especially if your business is your family’s only income. Without proper estate planning, your passing may leave them at a most difficult time without any money and possibly trying to manage a business with no experience.

Implement the six steps below as a matter of urgency to ensure that when you pass away, the legacy you leave behind is maximised and structured, and protects those important to you when you are no longer around to protect them yourself.


Act now!

Not one of us is assured of tomorrow and the consequences of dying without estate planning and a will are dire.

Act today! Allocate time right now to attend to this most urgent and important responsibility, or contact a trusted professional to help you get the process started.

If you already have an estate plan and will, schedule time to review and update them immediately, and diarise regular reviews – at least quarterly and definitely no later than annually. It is essential to ensure an always up-to-date estate plan to account for any ongoing changes in personal circumstances, business circumstances, financial structures, laws and taxes.


Call in the experts

Your legacy depends on the quality of your planning, involving a combination of financial planning, wealth planning and estate planning, and therefore requires the expertise of qualified professional advisors such as your accountants.

The issues at stake are too complex and the consequences of mistakes, omissions or oversights too dire to risk going it alone – there is just no substitute for specialised expertise and professional advice specific to your circumstances.

For example, a professional should draw up or check your will, which must be properly formatted and worded to reflect your wishes correctly and clearly, and it must be validly executed.

Similarly, specialised advice may be required where there are minor children, or if you have assets in another country.

If one of your assets is an operating business, or an interest in a business, you will need professional advice to ensure the best outcome for your loved ones, business partners, employees, investors and other stakeholders.


Draw up a will    

The absence of a will; or an invalid will; or a will containing areas of uncertainty or dispute, will almost certainly result in animosity and long delays in winding up your estate.

If you pass away without a valid will:

  • You put your grieving loved ones at risk of financial and emotional hardship;
  • You forfeit your right to choose who inherits what from you, instead leaving assets to be distributed according to the laws of “intestate succession”; and
  • You forfeit your right to nominate someone you trust to administer your deceased estate.

A valid and updated “Last Will and Testament” is the core and foundation of your plan to protect the people you care for. It should communicate precisely your expectations to all concerned and be valid and accurate in every respect.


Proper estate planning    

Estate planning means arranging your financial affairs in such a way that you leave behind a legacy that is as large and as well-structured as possible.

Without a proper estate plan, the assets you have accumulated over a lifetime may be decimated by costs and taxes and the business you worked so hard to build could be lost.

Proper estate planning doesn’t have to be overly complicated or expensive, but must:

  • Maximise the assets in the estate, including business assets,
  • Reduce estate costs and taxes, and
  • Streamline the process of winding up your estate.

For business owners, a well-conceived estate plan will include consideration for the owner’s specific intent, for example, that the business continues to provide income as an ongoing concern; or becomes a source of capital for the surviving family. This may involve handing over to the next generation, or an employee, or an outside buyer. A business might be sold to family or staff, and this often requires special planning, for example, staggered payments or a slower transition where the cash is not available upfront.

If you have business partners, a buy-and-sell agreement should be drafted in advance and measures put in place to ensure co-shareholders are financially able to take over your share of the business when you pass away, and vice versa. A shareholder’s agreement is also necessary to deal with potential conflict and shareholders selling their shares.


Provide liquidity   

To protect your family from financial distress, it is essential to provide money for ongoing financial needs during the lengthy winding up of the estate.

As soon as the bank learns of your death, all your bank accounts will be frozen. Pensions and insurance policies will take time to pay out, and your assets will generally be tied up in the estate, inaccessible to your loved ones. This means you need to find other ways to provide your family with immediate funds to live on after you pass on.

Separate bank accounts and investments, businesses held in entities unaffected by your death, and family trusts are some options, while nominating beneficiaries for life policies, annuities and tax-free investments can ensure payout directly to the chosen recipients.

In addition, your family will need funds to cover significant ‘final expenses’ such as existing debts, medical bills and funeral costs, income taxes and capital gains taxes, estate duties and executor fees.

Similarly, if you have a business, you may need to provide operating capital or liquidity through, for example, key person insurance, life insurance for partners and contingency policies.

If there isn’t enough money in the estate to meet the various costs and taxes of winding it up, heirs will have to use their own funds or the executor will have to sell an asset, such as the family home or the business, to cover the liabilities.


Create an “Important Information” file

All the relevant parties will require documents and information to settle your affairs quickly and easily.

Create a file for your loved ones that contains all the information they might need, for example, details of funds they can access while the estate is being wound up; the location of your will and important documents such IDs, passports, and power of attorney; bank account numbers, card numbers and PIN numbers; and details and passwords for devices, apps and social media accounts.

The executor will also require a file of documents and details, for all assets, all income and all accounts, insurance policies, loans, agreements, business assets and interests, as well as personal documents, along with the required access codes, PINs and passwords.

Business owners will also have to prepare and keep updated documents such as statutory documents; the succession plan; a power of attorney so business affairs can be taken care of by a nominated person; and professionally drafted buy-sell agreements for partnerships or where there is more than one owner.

Taking these six steps without delay will ensure you have structured a full estate plan that will protect those you care about from unnecessary uncertainty, worry and risk, at the time they most need your protection.