Archive for year: 2022

 

The death of an employee can be a difficult situation in any company, but particularly so in smaller businesses where employees work more closely together and often consider each other more than just co-workers.

In addition to handling the emotional aspect of such an event, companies must also keep the business running and take care of various compliance and tax issues.

Here are seven crucial issues to address swiftly after the death of an employee.

Here are seven crucial issues to address swiftly after the death of an employee.

1. Contact with the employee’s familyObtain the name and contact details of a person from the deceased’s family with whom the company can communicate about a range of matters, including funeral details, collecting company property such as keys, equipment, (company cars, computers and the like) and credit cards, finalising employee benefits procedures, and the return of the deceased’s personal belongings.

   It is also helpful to have the details of the executor of the deceased employee’s estate, who is also the ‘representative taxpayer’ for the deceased and responsible for finalising the deceased’s financial and tax affairs.

2. Inform employees and establish internal processesNotify other employees with respect, tact and care, providing as much information as possible. Nominate a company representative to answer employees’ questions; to accept flowers, communications and donations on behalf of the deceased’s family; and to make appropriate plans for memorials, tributes or gestures.

   Realise that some people are better able to deal with such an event than others. Encourage employees to seek the help of lay therapists or religious advisors, and to provide mutual support to each other. Also consider arranging grief counselling and providing time off as needed, as well as for attending the funeral, preferably on a paid basis.

3. Keep the business runningUpdate business roles and functions and reassign space and equipment to reflect the employee’s death in a respectful and compassionate manner.

   To minimise disruption to the business, assign the deceased’s tasks, functions and responsibilities to other team members, and redirect phone, voicemail, email and mail communications as soon as possible. Collect company property and address security issues as per the company’s established termination procedures.

   Inform clients, suppliers and other stakeholders who are affected of the change, while beginning the process of finding a suitable replacement.

   Compensate for those employees who find it difficult to focus or make more mistakes, especially where this presents a safety issue, for example, in manufacturing or production environments.

4. Calculate the final remuneration and benefitsIn calculating the deceased employee’s final renumeration, the normal procedures for terminating employment must be followed: all hours worked until the date of death must be compensated, any outstanding leave must be paid out and, if the employee had any savings or loans with the company, these need to be finalised. Depending on the circumstances, payment will be made to the executor of the deceased estate, to the family or to a beneficiary.

   At the same time, finalise employment benefits, such as medical aid and pension or provident fund membership, ensuring that all compliance issues are promptly attended to, so the family does not experience delays caused by the company when claiming benefits.

5. Take care of tax issuesWhether the deceased was registered with SARS or not, and whether there is estate duty payable or not, SARS must be notified of the death of the person. This must be done by the executor of the deceased employee’s estate or by a tax practitioner acting on behalf of the deceased or the company.

   The employer must provide the executor acting as the representative taxpayer of the deceased employee with the employees’ tax certificate within 14 days after the employee passed away. The provisions that state that employees’ tax certificates may not be delivered until the EMP501 reconciliation has been submitted does not apply.

   Once the deceased employee has been coded as such by SARS, all outstanding tax returns should be submitted up to the date of death by the executor of the deceased’s estate. This applies to all tax types – income tax, VAT, PAYE, SDL, UIF and estate duty. As soon as all the tax liabilities have been paid in full, a Deceased Estate Compliance (DEC) letter is issued for all taxes except estate duty and an ED clearance letter for estate duty. Any refund due will only be released if all other taxes are up to date, all accounts have zero balances and all outstanding returns have been submitted and processed.

6. Take care of UIF mattersFollowing the death of an employee who contributed to the Unemployment Insurance Fund (UIF), the dependants – a spouse or life partner, children under the age of 21 or a guardian of dependent children – can claim benefits from the UIF. The death benefit is the amount that the employee could have claimed if he/she was unemployed and it is paid out in one payment.

   The dependants must apply within six months of the date of death by going to a Labour Centre to complete and submit Form UF126 (for a spouse or life partner) or Form UF127 (for a child).

   The dependants will also need the following from the deceased’s employer:

   • Copies of the deceased’s last six payslips;
   • The employer’s details on form UI19; and
   • A service certificate from the employer.

   They will then receive another document, Form UF128, which needs to be filled in by the deceased’s last employer and then submitted at the Labour Centre.

7. Take care of Compensation Fund issues

The surviving spouse or dependants of a deceased employee may be able to claim from the Compensation Fund if the employee died while working or as a result of a work-related accident, injury or disease. The Compensation Fund covers most employees.

 

By law, anyone who employs one or more part- or full-time workers must register with the Compensation Fund and pay annual assessment fees, based on the employee’s earnings and the risks of the type of work. Workmen’s compensation is a no-fault system, which means there is no need to prove that an employer was at fault. The compensation awarded does not form part of the deceased employee’s estate and can also not be attached to satisfy a debt.

 

Assisting the deceased’s family in these matters reflects well on the reputation on the company/employer.

 

Businesses usually spend the last quarter of the year reflecting on how they have done and using the lessons learned in planning for the year ahead, while also keeping a keen eye on government’s financial plans as revealed in the budget – which will be tabled this month.

The 2021 calendar year has been tougher on the private sector than any other time in memory due to the global pandemic. A study by Wits University on accounting and governance in the context of covid-19  suggests that the danger of the covid-19 pandemic and resultant restrictions on businesses is the knock-on effects and  the negative impact in the short-to-medium term and short-to-long term, rather than the immediate impact.

The knock from 2020, when the pandemic was first declared, was apparent in the first half of 2021 – with record breaking rates in demand for capital and liquidations.

So how did the businesses who made it through 2021 do it?

1. Proactive accounting and governanceGood quality accounting and governance with qualified finance professionals helped these companies navigate through the storm. Particularly in addressing the necessary extra expenses involved in setting up remote working and communication systems and equipment for their staff and even, in some situations, the costs of Personal Protective Equipment.
2. LoansThe South African Reserve Bank reported that “Year-on-year growth in total loans and advances extended by monetary institutions to the domestic private sector accelerated slightly between March and October 2021, after slowing markedly since the onset of the national lockdown. The gradual lifting of lockdown restrictions boosted the demand for loans by companies in particular, although growth remained subdued.”
3. Good saving habitsReducing spending on anything but necessities was essential during the pandemic, and it is interesting to note that South African saving trends were at an 11-year high by the end of the Second Quarter of 2021. This was amid fears of an uncertain future due to the ongoing covid-19 pandemic and the rate remained high towards the end of last year. The South African Reserve Bank said that the high rate was driven up by higher savings by companies and households.
4. Embracing digitalBusinesses that survived and even, in some circumstances, flourished during the global slowdown, used the opportunity as a means to be innovative and embrace digital, and where appropriate and possible, they developed or expanded their online offerings. This included keeping their essential staff busy by investing in systems to enable them to work remotely.

   The CEO of IBM, Arvind Krishna famously said, “When we look at the usage of AI and cloud, I think it is especially going to accelerate also not just us, but how our clients are going to go on their digital transformations. And I believe this crisis is only going to accelerate that as we go over the next few months.”

Ask a professional for tips on how to use these lessons effectively as the pandemic continues.

 

On the last day of February each year, many companies face their end of financial year or “EOFY”.  Whether it’s referred to as the EOFY, Close of the Financial Period, Financial Year End or FYE, or simply ‘Year End’, this important time is just around the corner for many companies on the 28^th of February. It is often a stressful time as the financial loose ends from the last 12 months are tied up, various reports and registers are produced, crucial decisions are made, and the accounts for the last year are closed off. All necessary to present an accurate and up-to-date overview of the financial performance over the period, enabling proactive tax planning, ensuring audit-readiness and providing key information for business owners to strategise for the future, plan, structure, invest and grow.

Why a specified financial year end?

The financial year of a company is its annual accounting period and can be any 12-month period the company uses for accounting purposes.

A financial year is a legal requirement. The Companies Act stipulates that a company must have a financial year, with a start and end date. The financial year end date must be set out in the Company’s Notice of Incorporation.

For many companies this date is the end of February each year, although some companies have a financial year end on a different date. A company can change its financial year end by filing a notice of change with the Companies and Intellectual Property Commission (CIPC).

Why is a financial year end so important?

A company’s financial year is not only a statutory requirement, but also – crucially – the period on which its tax liability is assessed. It also determines when the tax payments are due.

Annual income tax returns must be submitted within one year from the end of the company’s tax year. Payments are made with provisional returns filed at six-month intervals from the tax year end based on an estimate of taxable income for the year.

Interest is charged on any underpayment outstanding for more than six months after the tax year end, except in the case of February year ends, in which case it is seven months. Any balance with interest is then paid following assessment.

Furthermore, the company’s financial year also determines when the annual financial statements are due. These annual financial statements are used for compliance purposes, as well as by investors and other stakeholders, such as banks and other creditors, to understand business operations and to assess a company’s performance.

But perhaps most importantly, financial year end is the crucial time for business owners and managers to thoroughly analyse business performance and make important decisions. This is made possible by an accurate and timely financial year end that produces accurate and reliable financial statements.

So how can your company best prepare for the looming financial year end?

Tips for financial year end success

• Identify the important deadlines and the activities that must be completed by each date, such as data processing and reporting deadlines, the tax return and payment dates, and the annual financial statements submission dates.
• The difference between a successful year end close and a stressful one is accurately managing the accounts all year, keeping the bookkeeping up-to-date and correctly and timeously completing each month-end.
• During year end closing, accounts must be checked carefully for discrepancies, omissions and human errors as these can be costly in consequences. Every rand must be accounted for and all supporting documentation available for a possible tax audit.
• Thorough and accurate inventory checks to determine stock levels, consumables and assets on hand will produce up-to-date asset registers for accurate balance sheets, and that will inform asset purchase decisions, depreciation expense claims and capital gains tax calculations.
• Current accounts payable reports will allow accurate budgeting for accounts to be settled before financial year end; while up-to-date accounts receivable reports allow payments to be chased and income due to be collected within the current financial year.
• Tax planning involves structuring the company’s finances to ensure the company pays only the tax that is legally required to be paid. This might involve accelerating transactions into the current year or delaying transactions into the next financial year to better manage tax liabilities. For example, a company might make asset purchases, pay annual subscriptions earlier, make donations before year end, delay issuing invoices where permissible, or consider writing off debtors or assets before the year end. Any such measures must be lawful, consistent in application and able to pass a possible tax audit, so professional advice is essential.
• There are tax changes each year and these could include new or amended deductions or concessions for small business, so be sure to speak to your accounting and tax advisor to ensure all possible tax breaks are considered before finalising the financial statements.
• Backup and store business information – including registrations, financial information and customer data – in a secure off-site location.

Reap the maximum benefits of an accurate and successful financial year end

An accurate and successful financial year end will produce reliable and timely financial records and reports that provide a holistic view of the financial health of the company, enable proactive tax planning, and ensure tax audit readiness.

The annual financial reports detail the company’s assets and liabilities, profit and expenses, and cash flow. Reviewing annual financial statements will reveal if adjustments are required, such as more sales or fewer expenses, as well as where adjustments must be made and how much adjustment is required in the year(s) ahead.

As such, financial statements are key tools for business owners to strategise for the future, plan, structure, invest and grow, and are often required by stakeholders such as banks and other creditors, potential investors and business partners to obtain an overview of the company’s financial performance and opportunities for growth and improvement.

In addition, accurate and reliable annual financial statements produced over the years provide an essential record for any potential investor or buyer of the company in the future and also ensure the appropriate value of the entity from the owner’s perspective.

 

The list of the top 10 complaints made against SARS over the last eight years to the Office of the Tax Ombud (OTO), published in its recent newsletter, makes for interesting reading, and highlights the areas where taxpayers are most likely to encounter pitfalls in their dealings with SARS.

The Top 10 complaints made against SARS

1. SARS placing unwarranted stoppers on taxpayers’ accounts for refunds not to be paid, significantly impacting the taxpayer’s cash flow.
2. Delays in finalising verifications result in delays in releasing refunds due; even when taxpayers have submitted all the requested information.
3. Non-adherence by SARS in finalising dispute resolution within the dispute resolution timelines – already an identified systemic issue.
4. Incorrect allocation of payments, often first covering administrative penalties before principal debt and ignoring taxpayers’ letters to SARS about how to allocate the payments.
5. Taxpayers do not receive outcomes of their objections, and in some instances, SARS could not prove that they had sent the outcomes to the taxpayer.
6. Recalled refunds where SARS pays refunds into taxpayers’ bank accounts and then recalls these refunds, in some instances taking more than six months to resolve the issues.
7. E-filing profile problems for tax practitioners, resulting in them not being able to add or remove clients from their profiles.
8. SARS deducting more money from taxpayers’ bank accounts than it should, prejudicing the taxpayer financially.
9. Banking details of taxpayers have been updated, but the refunds are still not released.
10. SARS Complaints Management Office (CMO) incorrectly rejects taxpayers’ complaints lodged with it.

Source: OTO Fair Play Issue 22

The Ombud has also launched a new taxpayer rights awareness campaign, #TaxpayersRightsMatter, to help improve taxpayers’ understanding of their rights and the recourse available if their rights are not upheld by SARS.

What are your rights as a taxpayer?

Issues with refunds feature quite prominently on the list of complaints, as do delays and ignored requests or complaints. These certainly constitute infringements of taxpayers’ rights, when considering the brief overview below of the rights related to these complaints.

The interaction between SARS and taxpayers is governed by the TAA (Tax Administration Act), and SARS’ Service Charter also stipulates service levels and time frames.

The TAA, like all laws in South Africa, is also subject to the Constitution and the Rule of Law. Conduct inconsistent with the Constitution is invalid and illegal.

Some key features and principles of the Constitution are included in other Acts such as the TAA, PAIA (Promotion of Access to Information Act) and PAJA (Promotion of Administrative Justice Act).

• Taxpayers’ Constitutional Rights
  • The right to privacy includes the right not to have your person, home or property searched; your possessions seized; or the privacy of your communications infringed. SARS cannot search or seize in violation of this Constitutional right.
  • The right not to incriminate yourself – there are Constitutional restrictions on the information SARS can use to determine your taxes and potential penalties.
  • The right to a high standard of professional ethics as well as rational and accountable actions from SARS; services provided impartially, fairly, equitably and without bias; transparency; and accessible and accurate information.

 

• Taxpayers’ Legal Rights
  • The TAA details many taxpayers’ rights including, for example, SARS must keep taxpayers informed at all times, including providing a Letter of Findings before issuing a revised assessment.
  • PAIA provides the right of access to information, detailing rules regarding how SARS is allowed to obtain information and ensuring taxpayers can find out what information SARS has accessed.
  • PAJA protects the right to just administrative action, requiring that any action by SARS must be lawful, reasonable and procedurally fair.

 

• Taxpayers’ Rights as per SARS’ Service Charter  
  • Where a current year’s refund is due to a taxpayer and no other debt is due; all obligations have been met; SARS administrative control processes are adhered to; and no inspection, verification or audit is required or has been initiated; SARS will endeavour to pay the current filing period refunds within 7 business days of finalising the final assessment.
  • SARS endeavours to provide reasons for an assessment within 45 business days; to consider objections within 60 business days; and to respond to service complaints within 21 business days.

 

How to protect your personal and business rights 

• Careful compliance and excellent record-keeping are always the first line of defense when it comes to dealing with SARS. An annual tax audit by a professional will help ensure that you have the correct processes in place to ensure both.
• SARS’ Service Charter stipulates service levels and time frames with regards to returns and declarations; inspections, audits and verifications; refunds; payments; debt and disputes; and provides official channels for complaints. Understanding these can help you protect your rights as a taxpayer.
• Private and business taxpayers have free and independent recourse against SARS through the OTO. However, the powers of the OTO are very limited. It can only deal with complaints against SARS that relate to a service, administrative or procedural issue and only after all avenues of recourse within SARS have been exhausted, except where there are compelling circumstances or the matter is a systemic issue. For example, the Tax Ombud has no control over how long SARS will take to implement its recommendations, which are also not binding on either SARS or the taxpayer.
• Access to an expert who can defend you or your business in the event of a tax dispute is essential.
• If taxpayers are uncertain of their rights or if their rights are being infringed, they must seek expert advice to protect their Constitutional and legal rights.
• A long list of High Court cases against SARS reveals a growing trend of taxpayers seeking legal recourse against procedurally unfair conduct by SARS or administrative decisions by SARS that prejudice the taxpayer’s rights. The cost of legal defense is often prohibitive, making tax risk insurance worth considering to ensure access to experts in constitutional and tax law when required.

An effective employee benefit strategy is more of an advantage to an employer than may at first meet the eye. Although providing benefits naturally comes at a price, it also comes with substantial benefits, plus you stand to regain a portion of your investment from SARS in tax deductions.

Moreover, providing benefits that employees can’t readily access on their own could position you as an employer of choice in your industry, affording you the best pick of available talent. This leads to better products and service, meaning your business wins.

The year-old Africa Insights from the 2019/2020 Benefit Trends Survey shows that employers are getting more creative concerning the mental and physical wellbeing of their staff, as these companies are more aware of the benefits of a healthier staff.

A report by Johannesburg based HR firm, Willis Towers Watson states “A third of African employers are planning/considering stress or resilience management programs. A quarter is planning/considering mental health or substance abuse programs. 23% is planning/considering health coaching.”

Employee benefit packages are not forced by law on business policy; however the World Health Organisation (WHO) has drawn a link between employee benefits and a physically and mentally healthier workforce. The organisation’s Healthy Workplace Framework and Model, which is a guideline to creating a healthier working environment, says “the mind and body are one, and what affects one, inevitably affects the other.”

The document also advises that “If the insurance costs for health benefits in your enterprise keep increasing, even after implementing healthy workplace programmes, that does not necessarily mean the programmes have failed. Look at industry benchmarks for comparison. If health insurance costs have increased by 20% in similar industries, yet have only increased by 5% in your enterprise, that is an indicator of success.”

Five major reasons why SMEs should consider employee benefits

1. The tax advantages via tax deduction of contributions.
2. Health insurance as an employment benefit translates to a healthier workforce, which translates to improved quality of production and efficiency.
3. Improved employee retention, which is key in certain industries where employees have to maintain relationships with specific clients, who may view continuity as a vital consideration.
4. It improves the work culture between employees and employer.
5. Improved staff recruitment, as the employer would be better positioned in the job market.

Changing or initiating an employee benefits strategy involves new financial responsibilities so take professional advice on the best way to go about it.