Price Your Products for Profit with these Psychological Strategies

/in /by

“Find the right price for an irresistible offer, which, by the way, isn’t necessarily the lower price.” (W. Chan Kim, Business strategy advisor and author)

A good businessperson pays attention to the price of their products. With accountants by their side, they wisely analyse every expense, tax and logistical possibility to ensure their product goes out at the best rate for maximum profitability. Like with everything in society, no matter how thorough the maths, pricing strategies can also be influenced by the underlying psychological principles that drive consumer behaviour and purchasing decisions.

Ultimately, customers want to know that they’re getting either the best price point, the best quality, or the best value. Psychological pricing leans into that idea, and ethically uses price as a way to send the right signals to make customers feel one of these three benefits.

By decoding these subtle nuances, businesses gain a competitive edge by subtly adjusting their pricing strategies to lure customers and bolster profitability. Here we uncover the strategies and insights essential for businesses aiming to thrive in today’s dynamic market landscape.
Price Appearance

All businesses know that pricing an object at R49.99 is more likely to attract a sale than simply pricing it at R50. In the West people read from the left so the lower number on the left is attractive. Of course, many customers know this too, but there are other ways of making the appearance of the price boost sales.

The first of these is simply to leave off the cents in a price. Studies have shown that marking a product as R49 is more likely to make a sale than R49.00 simply because it looks shorter. In fact, according to The New York Times, even putting the currency sign at the start of a price can trigger purchasers into feeling the “pain of paying.” The best route? Remove the currency sign and cents altogether.


Premium Pricing and Price Anchoring

  • Premium pricing is when a brand chooses to price themselves at the top of the market rather than set a competitive price. This can work due to the public’s long-established perception that higher prices equal higher quality or rarer products. This does not always work, but there is a far subtler way to take advantage of the same effect – price anchoring.
  • Price Anchoring is where a business releases their first product at a premium price but releases subsequent products at more competitive rates. The existence of the premium product makes the other products seem that much more reasonable than they otherwise would and encourages sales. Price anchoring can also refer to a practice in retail where the store puts an expensive product alongside a cheaper one, thereby making the cheaper one’s price seem like a bargain. For example, retailers, putting prime virgin olive oil at R89.99 for 500ml next to the sunflower oil, makes the latter seem cost-effective, even if they have priced it above the usual market price.

Discount language

Offering discounts is a great way to sell off stock that may be moving too slowly or to encourage people to try a new product for the first time, but did you know the words you use can influence how likely it is for people to take up those discounts? For instance, telling people they get 50% more of a product for the same price has been shown to be far more effective as a sales incentive than offering them 33% off. This is despite the fact that these are the exact same offer.

Then of course, there is the crafted discount offered by many large supermarkets these days. With the crafted discount you mark a product up significantly and then tell customers they can get the normal price if they buy two. For example: Bacon is usually R35 a packet, so mark it at R50 a packet and then offer the discount of “2 for R70”. Not every business owner will be comfortable with using this tactic without ensuring that the customer does in fact get some benefit (by offering “2 for R65” perhaps) but it certainly should boost sales.


Decoy Effect

Decoy pricing is a strategy companies use to convince clients that a slightly more expensive product is in fact the one offering the best value. It takes advantage of how buyers weigh price relative to the value they perceive. With decoy pricing the salesperson will offer clients products they know they will not take simply to guide them to the one they actually want to sell. For instance, they might be trying to sell you a car that’s a little out of your price range, but then say, “You are right, let’s look at this one which is in the price range you were looking for.” Of course, the new option is significantly lower quality, thereby highlighting the original car as the wiser purchase even if it is a little more expensive.

This gets even smarter when we take into account a psychological state known as the compromise effect, in which customers will gravitate toward the middle ground in any offer. If there are three choices for fibre connections with the fastest speeds being the most expensive, customers are more likely to take the medium speeds at the medium price. Some restaurants who know this make their second cheapest bottle of wine, the one with the highest mark up. Want to make your product seem better value? Simply offer the customer one that’s much more expensive and one that’s much cheaper as well.


Tiered pricing

Let’s say the product you want customers to buy is, in fact, the most expensive one. Then what you need is tiered pricing. This strategy lays the benefits of the highest priced product out in a way that makes it seem like a bargain compared with the others.

For example: Your lowest tier product has 3 features for R50, the middle tier has four features for R75, and the top tier has eight features for R100. In this case the middle product is a kind of decoy that could have been priced with one or two more features, but by giving the top tier product that sudden jump-up in feature numbers, the salesperson can be sure the client is much more likely to buy that.

We can help you formulate a pricing strategy tailored to your business model.

Your Tax Deadlines for September 2023

/in /by

  • 7 September – Monthly Pay-As-You-Earn (PAYE) submissions and payments
  • 28 September – Excise Duty payments
  • 29 September – End of the 2nd Financial Quarter, Value-Added Tax (VAT) electronic submissions and payments, CIT Provisional payments where applicable.

Corporate Taxpayers: Hello Tougher SARS Verifications

/in /by

“Any taxpayer can be selected by SARS for verification for the purpose of proper administration of tax, including on a risk basis.” (SARS)

Companies must, within 12 months of their financial year-end, submit to SARS an Income Tax Return for Companies (ITR14), as well as supporting documents, declaring their full income tax responsibility to SARS. This declaration, return and supporting documents may be selected for verification by SARS.

A verification involves the comparison of the information declared on the return to the taxpayer’s financial and accounting records and other supporting documents. The purpose of a verification is to ensure that a declaration or return represents a taxpayer’s tax position fairly and accurately.

Previously, when companies were identified for a verification, SARS required them to submit the Supplementary Declaration for Companies or Close Corporations or IT14SD form. This is no longer required by SARS, but it will increase the scrutiny companies face when selected for verification.


What has changed?

The requirement to submit an IT14SD in a verification case is replaced by a letter requesting specific relevant documents based on the reason for verification.

SARS also says that as of September last year, companies are no longer required to submit any outstanding IT14SDs and that should taxpayers receive any further notification or final demand letter to submit an IT14SD, such request should be ignored. However, taxpayers should always check with their accountant before disregarding correspondence of any kind from SARS.

What’s still the same?

  • The requirement to submit relevant documents upon submission of the ITR14.
  • All correspondence will still be issued as before.
  • The process of dealing with the verification case will remain the same.
  • The submission of specific relevant documents will be required during the verification process.
  • The verification of a company always requires the submission of a signed set of Annual Financial Statements (AFS), as well as a detailed Tax Computation and the underlying supporting documentation/schedules (e.g. Tax pack).
  • When requested to submit specific relevant documents based on the reason for the verification, companies are still required to submit the documents within 21 working days.

How does this affect your company?

When a company is now identified for verification, it will be notified of the verification, as is the current practice and will be requested to:

  1. Submit specific relevant documents based on the reason for the verification, or
  2. Submit a revised Corporate Income Tax ITR14 return.

To comply with a request to submit specific relevant documents, the requested documents must be uploaded using eFiling, or any other submission channel, including SARS Online Query system (SOQS).

Once the relevant documents are uploaded, a SARS verifier will be able to action the case. If the relevant documents are deemed insufficient, or additional documents are required, this will be requested. The relevant documents must still be provided within 21 working days. If a company does not comply with the request for relevant documents, SARS will raise a revised assessment to resolve the verification case, and will add back the related expenses, dependent on the specific relevant documents requested.

Companies can comply with a request to submit a revised Corporate Income Tax ITR14 return through a request for correction (RFC). Companies have the option of submitting one correction, which may or may not resolve the verification. However, the revised ITR14 will also be subjected to a risk evaluation.


Seek professional assistance

Being selected for a verification entails significant risk to any business. In addition to the time, cost and effort to collate the information, documents and clarifications required, the taxpayer could still be referred for audit as part of the SARS compliance process, even if the verification process has been completed.

Whether submitting a Corporate Income Tax ITR14 return or facing a SARS verification with a request to submit documents or to file a correction, you would be well-advised to rely on the expertise of your accountant to ensure compliance.

Common Tax-Related Criminal Offences, and How to Avoid Them…

/in /by

“The difference between tax avoidance and tax evasion is the thickness of a prison wall.” (Denis Healey, former British prime minister)

Section 234 in Chapter 17 of the Tax Administration Act (TAA) sets out a list of criminal tax offences. If prosecuted and convicted of a tax criminal offence, taxpayers will – at the least – be subjected to a substantial fine and may even face the maximum penalty of imprisonment for up to two years. There are also other harsh consequences of a criminal conviction under section 234, such as a negative impact on the eligibility of individuals to hold certain positions and to emigrate from South Africa, as well as reputational damage and a loss of both shareholder value and stakeholder trust for corporate taxpayers.

These tax criminal offences range from serious offences, such as intentional tax evasion and frustrating SARS in carrying out its duties, to relatively minor breaches, such as failing to notify SARS of a change in registered particulars.

Common tax criminal offences

  • Not registering for tax purposes to evade paying taxes due.
  • Not submitting returns to SARS as and when required to evade paying taxes.
  • Not truthfully responding to SARS’ questions.
  • Not declaring income to evade paying tax on that income.
  • Lying about expenses, like business mileage or medical contributions, to reduce tax payable or obtain an undue refund.
  • Submitting fraudulent invoices to reduce Income Tax and VAT payable or obtain fraudulent refunds.
  • Employers deducting tax from employees (PAYE) and never paying it over to SARS.
  • Vendors, whether registered for VAT or not, charging VAT and never paying it over to SARS.
  • Not notifying SARS of a change in registered particulars.
  • Not retaining records as required under the TAA.

  • Issuing an erroneous, incomplete or false document required to be issued under a tax Act.

  • Neglecting to disclose to SARS any material facts which should have been disclosed.
  • Obstructing SARS officials in doing their duties.


How SARS views taxpayer behaviour

While taxpayers were previously merely penalised for human errors and simple mistakes – which are common given the complex tax processes and strict deadlines – a taxpayer can now be found guilty of an offence without SARS having to show that the taxpayer wilfully, deliberately and knowingly committed the offence.

This means even inadvertent or administrative errors can be penalised with a maximum penalty and that a substantially expanded range of taxpayer behaviours – and a greater number of taxpayers – are now open to criminal sanctions.


How to avoid committing tax criminal offences

SARS notes that among the steps that a reasonable person may take to avoid committing tax criminal offences is “employing an accountant, tax practitioner, or other tax professional to complete returns, or from whom to obtain advice before completing a return with entries that are not understood or adopting a position with tax implications.”

Be sure to choose a specialist who is appropriately qualified and experienced, as well as a member of a professional controlling body that enforces strict standards, such as SAICA (South African Institute of Chartered Accountants).

Advice from a professional can ensure that an appropriate tax strategy is formulated to proactively manage tax risk in the long term, which will save time and money and avoid expensive tax mistakes while keeping in line with the ever-changing tax obligations.

Your Tax Deadlines for August 2023

/in /by

  • 7 August – Monthly Pay-As-You-Earn (PAYE) submissions and payments
  • 30 August – Excise Duty payments
  • 31 August – Value-Added Tax (VAT) electronic submissions and payments, CIT Provisional payments where applicable, first provisional tax payment for the 2024 tax year (individuals).

SARS Warning: Beware Scam Emails!

/in /by

“The backbone of any successful phishing attack is a well-designed spoofed email or spoofed website, which is why it pays to have a healthy level of scepticism when it comes to opening emails and visiting websites.” (Phishing.org)

With Tax Season 2023 upon us, expect an upsurge in scam emails, seemingly from SARS but actually clever attempts by online criminals to swindle you.

“Phishing” is a cyberattack that uses fraudulent emails made to look as if they come from a reputable source – such as SARS – to trick people into disclosing sensitive personal information or taking an action such as clicking on a link that installs malware on their systems.

While fraudulent SMSs “smishing” and phone calls or “vishing” are also used, email “phishing” is the preferred method.

Examples from SARS include emails that appear to be from returns@sars.co.za or refunds@sars.co.za, notifying taxpayers that they are eligible to receive tax refunds or owe SARS money.

One of the most recent scams involves an email titled ‘eFiling Credit Request’ that asks the email recipient to click on a link to view the amount. Another scam email titled ‘Debt Management – Final Demand’ guides the email recipient to download a ‘statement of account’. New scams are popping up all the time – for examples see SARS’ Scams and Phishing webpage.

These emails contain attachments, icons or links to false forms and fake websites made to look like the SARS website, to fool people into entering personal information or sharing one-time pins (OTPs).

Those caught by phishing often suffer financial loss as well as psychological trauma, while some may be unaware that they are victims of crime. It may also result in a breach of a company’s data security, as employees often use their work email addresses to sign up to websites and email lists.


SARS’ advice to safeguard yourself

  • Do not open or respond to emails from unknown sources. Beware of false SMSs.
  • Beware of emails that ask for personal, tax, banking or eFiling details such as login credentials, passwords, pins, and credit or debit card information.
  • SARS will not send you any hyperlinks to other websites – not even those of banks.
  • SARS will never request your banking details in any communication that you receive via post, email, or SMS. However, for the purpose of telephonic engagement and authentication purposes, SARS will verify your personal details.
  • SARS does not send *.htm or *.html attachments.
  • SARS will never ask for your credit card details.

Remember never to click on links in a suspicious email from SARS. You can email suspicious SARS correspondence to phishing@sars.gov.za. You can also check here to see all current legitimate SARS surveys, emails and SMSs.


Check with your accountant

While protecting yourself against scammers, it remains crucial to ensure that all legitimate SARS correspondence to you is still promptly attended to. If you are in any doubt, it is best to check with your accountant, who will be able to verify if the request is from SARS or report fraudulent emails to the relevant authorities. That way, you are certain you are complying with your tax responsibilities, without ever falling prey to scams and fraudsters.

Tax Season 2023 Now Open – What’s New and What’s Not

/in /by

“The submission of accurate personal income tax returns on time is important for a seamless filing season. Taxpayers must take control of their own tax affairs to ensure they are aware of their obligations and remain compliant.” (SARS Commissioner Edward Kieswetter)

SARS recently announced the dates and changes for the 2023 Tax Season, which opened on 7 July 2023 for individuals (non-provisional taxpayers and provisional taxpayers), as well as for trusts.

The deadline dates are as follows:

  • Non-provisional taxpayers who were auto assessed have until the normal filing season deadline, 23 October 2023, to file an amended return. Individuals who were auto assessed will receive an SMS or email from SARS.
  • Non-provisional taxpayers who are required to file a return and did not receive a notification from SARS that they were auto assessed must submit a Personal Income Tax Return (ITR12) before 23 October 2023.
  • Provisional taxpayers as well as trusts can file a return until 23 January 2024.


What’s still the same?

Much stays the same as last year, including that SARS will again issue auto assessments to taxpayers whose tax affairs are less complicated, usually non-provisional taxpayers who are formally employed.

SARS will send an SMS and/or email to inform taxpayers of the auto assessment, which can be viewed on eFiling or the SARS MobiApp. The auto assessments are based on the data SARS collects from employers, financial institutions, medical schemes, retirement annuity fund administrators and other third-party data providers.

If you agree with your auto-assessment – and have confirmed with your accountant that everything is in order – you are not required to file a tax return and you do not need to do anything further. Where your assessment shows that you owe tax to SARS, payment must be made on or before the payment due date displayed on the “Notice of Assessment” (ITA34). If a refund is due, simply wait for the refund, which can be expected within approximately seventy-two (72) hours if your banking details with SARS are correct.

If you are not in agreement with the auto-assessment, you can edit the declaration by completing and filing a tax return, along with the necessary supporting documents, before 23 October 2023, to enable SARS to consider a revised assessment.

What’s new this year?

  • Extended auto assessment deadline – this year SARS will allow taxpayers, who did not agree with the auto assessment outcome, to file an amended return until the normal filing season deadline, 23 October 2023. This is a change from the 40 days allowed last year. Where an auto-assessment is issued after 23 October 2023, the 40 business days will start on the date of the notice of the assessment.
  • The payment due dates for non-provisional eFilers will be adjusted to:
    • 30 days after a notice of assessment has been issued for taxpayers who have not been auto-assessment; or
    • 30 days post Filing Season 2023 closing date for auto-assessed taxpayers.
  • Spouses married in community of property assessment – this filing season SARS has retrieved “Married in community of property” status from taxpayer’s previous declaration and collaborated with the Department of Home Affairs to confirm marital status. Where the spouses are successfully matched and have interest investments, SARS will replicate the interest investment certificate on both spouses’ return and they will each be taxed 50% upon assessment.
  • Automated Section 93 reduced assessment process – the new automated process of requesting Reduced Assessment in terms of section 93 of the Tax Administration Act will use a form called RRA01, which can be completed on e-Filing to increase efficiency and reduce costs for taxpayers.
  • Statement of assets and liabilities – provisional taxpayers with business interests are required to declare their assets and liabilities, based on cost, in their tax returns each year. Taxpayers who fall within this category, and with assets above R50 million, are now required to declare specified assets at market values on their 2023 tax returns.
  • Foreign income disclosure – new fields on the return and appropriate source codes have been created for taxpayers who must declare worldwide foreign income from a foreign employer while working in South Africa and/or abroad.


How to ensure a successful 2023 Tax Season

SARS has warned taxpayers to not inflate their expenses and/or under-declare their income to obtain impermissible refunds, as this will make them potentially guilty of fraud. In addition, taxpayers who do not adhere to the deadlines of this year’s Filing Season will face administrative non-compliance penalties.

So, even if you have been auto assessed, it is important to make sure that your return is 100% correct and truthful, and that payments, returns and supporting documents are submitted on time.

You need to make sure that you have received your latest IRP5/IT3(a) and other tax certificates like medical aid, retirement annuity fund, and any other third-party data relevant to determining your tax obligations, and that these are correctly reflected on your auto-assessment or return.

Failing to do so may result in paying more tax than necessary as you might lose on deducting amounts in the determination of your taxable income such as home-office expenses, donations to charities, trade travel expenses, medical expenses paid and contributions to retirement funds and medical schemes.

Given this responsibility, as well as the deadlines and changes that have been introduced this year, obtaining advice and assistance from your accountant is highly recommended for a successful 2023 Tax Season.


Provisional Taxpayers – your first Tax Season 2024 deadline

If you are a provisional taxpayer, your first provisional payment for 2023/4 is due by 31 August 2023.

Tips for Getting out of Business Debt

/in /by

“Borrowing isn’t inherently bad; it depends a lot on what the debt is financing” (Stephen Moore, writer and economic commentator)

Taking on debt can be a good thing for a company. It can fund expansions, help you seize market share or diversify offerings. Handled incorrectly it can, however, lead to severe problems that could ultimately result in bankruptcy. Managing company debt is, therefore, something that should always be done alongside your company accountant, who can advise on whether taking on new debts is possible, whether the debt will pay itself off and how best to keep the payments down. Understanding just how debt works is, however, essential for any business owner and knowing how to pay it off before it becomes trouble is a skill that needs to be nurtured. These are our tips for paying off business debt.

  1. Analyse and prioritiseThe first step to breaking free from debt is understanding it. By knowing exactly how much you owe and to whom, and the different interest rates and payments involved, you get to take control of that debt. Look at the debts that are the most crippling and which cost you the most in interest each month and target paying these off first. Pay any extra money you have there and in the long run your bank balance will thank you.
  2. Cut expensesNo matter how closely you monitor your expenses on a day-to-day basis, there are always items that can be cut to finance debt repayments. Your accountant can help you to analyse your monthly expenses and find areas for improvement. Whether you are making multiple small savings, such as trading to less expensive office coffee, and buying energy saving light bulbs or selling vehicles that aren’t currently utilised, each cent found will make a difference.
  3. Shorten your payment cycleMany businesses operate on an invoicing system which gives clients a certain amount of time to pay for a product or service. The standard amounts are generally 30, 60 or 90 days. While it may be beneficial to clients, having long payment cycles can unnecessarily hurt the supplier. By getting paid sooner, a business is able to maximise the interest it receives on the income, or, in the case of companies with debt, decrease the interest they pay on any loan.
  4. Negotiate better debt repayment termsIf your business goes under, your creditors will lose the vast majority of their money. To prevent this from happening, don’t be afraid to approach the banks, or other lenders to renegotiate your payment limits, or interest rates. It is in your creditor’s best interests to ensure you pay (and to keep your business for the future!) so you might be surprised by what they are willing to do when you say you are struggling.
  5. Consolidate debtDepending on how your debt is currently structured and the different interest rates, it may be advantageous to consolidate that debt. Consolidating debt means taking out one large loan with a lower interest rate to cover all the other debts. Doing this can also help pay off your debt faster, as having only one monthly debt payment can feel more achievable than paying off numerous others.
  6. Look closely at your pricingMany people make the mistake of pricing a product based on their costs, plus what profit they hope to make. Accurately pricing a product is about so much more than that though. When pricing your products, you need to take into account the prices being charged by competitors, your true expenses in making that product and what your product brings to the market that is different from your competitors. It is distinctly possible you could be charging more per item, or conversely perhaps you could sell vastly more product if you simply lowered your costs slightly.
  7. DiversifyTake a close look at your product offering. Are there things you could add that would be beneficial to existing clients? Getting a new product onto the market that you can upsell as an add-on to already successful products is a great way to generate extra income, which has thus far not been tapped. Diversification is, however, not necessarily just about adding new products to your catalogue.

    Take a look at your current clients and your marketing. Are there other markets that might benefit from your product? Using your advertising budget to tap into groups of people who you may not have sold to before, is an excellent way to improve income and pay off that debt.

  8. Inventory managementIncorrect inventory management can lead to your company buying too much product, clogging up your storerooms and having things expire on your shelves. Buying too little product can also be a problem as it means you don’t have it on hand when clients come calling and might miss out on sales. Both of these are expensive drains on a company’s accounts and streamlining your inventory and ordering could ultimately save you a significant amount of money.
  9. Don’t lose sight of success

    In difficult times, companies often make the mistake of cutting back on advertising, or downgrading the business in other ways, by retrenching key staff or not maintaining or upgrading equipment. This thinking will hurt the business in the long run as you lose market share or aren’t able to take advantage of new opportunities. Remember if your profits grow, it will be easier to pay old debts.

The True Cost of an Employee

/in /by

“The value of a business is a function of how well the financial capital and intellectual capital are managed by human capital.” (Dave Bookbinder, author)

There are a lot of factors that go into working out the true cost of an employee. According to the US Small Business Administration, employees really cost between 1.25 and 1.4 times their monthly wages.  Understanding why this is, is critical to working out whether the company can really afford to bring someone onto the team. Determining the true cost of an employee helps a company to draw up better budgets, cost products more accurately and ultimately, make more profit. Here are all the things you need to consider before choosing to onboard a new hire.

  • Salary: The monthly wage paid to an employee is usually the base for deciding whether a company can afford to bring them on board. Obviously, the full “Cost to company” monthly wage needs to be taken into account including taxes, UIF and any other built-in components such as equity schemes or medical aid. The salary also includes the cost of leave. All employees are by law allowed to take holidays and days off when they are ill. These are days that you are paying your employee, but not gaining any benefit.
  • Additional employees: When you hire new employees, you may also need to consider hiring other people to manage those people, conduct the hiring process, administer employee disputes and complaints and ensure they are paid timeously each month. While new business owners may find it possible to do this themselves for one or two new employees, this can quickly start taking over in terms of hours, meaning the company owner is no longer doing their own vital job. It is advised that the costs of HR, finance and middle management are therefore looked at separately as this will give you a clearer idea of the ongoing costs for each employee.
  • Onboarding and training: From the minute you start writing the advert for a job posting, the cost of hiring an employee starts to add up. How much time is lost sifting through CVs, conducting interviews and running background checks? Once they are onboard, they will need to be trained on the company systems and rules and will take time to get used to their role. How much time do other employees need to do this rather than their own jobs? Employers should also not expect peak performance right from the beginning and this loss of productivity also has a cost.
  • Equipment: Any employee you hire will need to be given equipment, the cost of which will be determined by your industry. Everything from overalls to laptops and company cell phones as well as desks, chairs and meeting rooms need to be considered. What software do they need installed and how much is the annual subscription? How much office space does each employee take up? What does that space cost you to rent each month? On top of this comes costs like toilet paper, lighting, stationary and even coffee and tea, mugs and cutlery.
  • Overtime, bonuses and promotions: While generally optional, there are some industries where overtime cannot be avoided. As time passes business owners may also want to look at paying bonuses or giving their employees a promotion to ensure they remain happy and productive. These costs also add up and should never be forgotten.

If all of this seems too much to consider, don’t hesitate to contact your accountant who will be able to advise on whether bringing a new employee onboard is right for your business.

Your Tax Deadlines for July 2023

/in /by

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