How to Prepare for a Possible Electricity Blackout

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“Eskom plays a critical role in the life of South Africa, and life of South Africans. Due to its important role in the economy, its inability to provide electricity on demand and on time is a crisis.” (President Cyril Ramaphosa)

The South African Reserve Bank’s Financial Sector Contingency Forum (FSCF) has recently encouraged South African businesses to develop plans for operation at stage 8 load-shedding levels and a total countrywide blackout. While it has tempered this warning by saying that total blackout is an improbable scenario (with a chance of 0.1% to 1% of happening), it’s not an impossible one. The FSCF does however, think that businesses would be prudent to prepare nonetheless, particularly given the very real possibility of load-shedding levels that could see power being shut off for 12 hours a day or more. Here is how businesses can make that happen.


Analysis

The first step is for your business to analyse exactly how a critical power failure or extended loss of power would impact you. Would it be a shutdown of production or a loss of e-commerce sales? Would information loss be important, or do you still need to communicate with clients? Understanding this will inform the rest of the process.


Plan financially

Talk to your bank, investors and insurance companies to fully understand what can be done at the moment of shutdown to ensure continued operations and put risk financing in place to make sure you can cover costs in the event of grid collapse. If you have insurance, you need to know if they cover blackouts and what you need to do when that occurs to ensure they provide assistance. Make sure you have a hard copy of the policy accessible even when the power goes out. We are no longer at the stage where blackouts can be considered “unforeseen”, which means your insurer will have requirements for your preparation in such an event if you expect them to pay out.


Backups

Set your computers to autosave and back up all necessary information to the cloud regularly.


Alternate Power Sources

While it may not be feasible to run the whole business on alternate power indefinitely, you should at least provide UPS units at key positions such as Wi-Fi to ensure that when the power goes out you can still save the necessary work, run billing, or ring up customer sales. Also turn off and unplug all sensitive equipment so that the surge of returning power does not damage equipment.


Security

In the event of a total collapse, businesses may be wiser to shut down entirely. With both fires and crime expected to dramatically increase at that time it’s important to prepare an evacuation plan for your building or factory and shut off all electricity points at the mains. Ensure your property is safe, even when electric fences and CCTV are off.

Directors: Prepare and Submit Your Company’s Beneficial Ownership Register

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“The lack of adequate, accurate and up-to-date beneficial ownership information facilitates money laundering and terrorist financing by allowing criminals to hide their true identities, and the true purpose and/or source or use of funds.” (Financial Intelligence Centre – FIC)

South Africa’s grey listing by the Financial Action Task Force (FATF) earlier this year and the subsequent passing of the General Laws (Anti-Money Laundering and Combating Terrorism Financing) Amendment Act 22 of 2022, resulted in amendments to the Companies Act, among others.

The changes to the Companies Act mean that company directors are now obliged to implement a detailed beneficial ownership register for their companies and submit the register to the Companies and Intellectual Property Commission (CIPC), along with a list of supporting documents. Such a register must also be kept up-to-date and verified annually.


Who must file a beneficial ownership register?

The vast majority of private companies must file a beneficial ownership register, but there are some complicated issues at play here and you would be well-advised to check with your accountant as to exactly what your company’s obligations are in terms of these new rules.


What are the penalties?

Failure to comply with the provisions relating to the beneficial ownership register requirements is an offence in terms of the Companies Act. A compliance notice may be issued in cases of non-compliance and an administrative penalty may be imposed.


What are the deadlines?

Entities incorporated before 24 May 2023 will be required to file the records of their Beneficial Interest Register as part of their Annual Returns filing process from 24 May 2023, the date of publication of the final Amended Companies Regulations.

Entities incorporated after 24 May will be required to file the records of their beneficial ownership within 10 days after incorporation.


What is required?

The beneficial owners of a company must be identified, their information collated and a register containing this information must be filed with CIPC.

A “beneficial owner” in respect of a company, means an individual/natural person who directly or indirectly, ultimately owns 5% or more of that company, or exercises effective control of that particular company, including through:

  • The holding of beneficial interests in securities of that company.
  • The exercise of, or control of the exercise of the voting rights associated with the securities of the company.
  • The exercise of, or control of the exercise of the right to appoint or remove members of the board of directors of that company.
  • The holding of beneficial interest in the securities, or the ability to exercise control, including through a chain of ownership or control of a holding company of that company.
  • The ability to exercise control, including through a chain of ownership or control of a juristic person other than a holding company of the company, a body of persons corporate or unincorporated, a person acting on behalf of a partnership, a person acting in pursuance of the provisions of a trust agreement; or
  • The ability to otherwise materially influence the management of that company.

For each beneficial owner identified, the following information is required:

  • Full names, ID number or passport number with date of birth, or registration number
  • Business or residential and postal address
  • Email address
  • Confirmation as to the participation and extent of the beneficial interest.

All this information must be collated in a register that provides indexed access to all relevant entries for any one person. In addition, the information must be treated as confidential and adequate precautions must be made against theft, loss, damage, destruction and falsification.

This register must then be kept up to date, with changes updated with CIPC as soon as practical, but no later than 10 business days after notification.

This register must be lodged with CIPC through an online process detailed in a 16-page Guide, along with a list of supporting documents that must be uploaded. An updated register must also be submitted with the Annual Returns each year.


Great advice for trouble-free filing

While it remains the responsibility of the directors of companies and members of close corporations, as part of their due diligence and governance duties, to ensure beneficial ownership filing is facilitated as and when applicable, the assistance of an accountant is highly recommended, given the complexities, the tedious processes and ongoing maintenance requirements, as well as the risk of non-compliance, which constitutes an offence and may incur administrative penalties.

Ten Often-Overlooked Ways Your Accountant Can Help Your Business

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“If you talk to a top accountant about his field of expertise, it’s mind-boggling.” (Vincent Kompany, professional football manager and former player)

Accountants are the tax and compliance champions of any industry, but the best ones do so much more for their clients, as strategic advisors and trouble-shooters who can also assist with automating a variety of tasks and pave the way for the running of a smooth and profitable business. Here is a list of not-so-obvious services an accountant can assist with that will help your business thrive.

  1. Setting up a new businessSetting up a new business comes with a number of potential pitfalls that may not be discovered until it’s too late. For instance, the type of business you choose to set up, be it a company, sole trader, trading trust or partnership will come with different tax requirements, paperwork and personal liabilities. Changing the kind of business vehicle at a later stage can be a costly process, so having an accountant assist you in ensuring you are starting off with the best entity for your business could make a huge difference.
  2. Buying or selling a businessIf you are thinking of either selling your business or buying a new one, your accountant should be your first stop. Accountants can assist with business valuations, form exit strategies, and get the right financial reports and documents together to ensure you only make good decisions. Your accountant will also help keep costs down and make sure you don’t find yourself on the wrong end of a bad deal.
  3. Cash flow adjustmentsOne study performed by Jessie Hagen of U.S. Bank revealed that 82% of businesses fail because of poor cash flow management. There is, therefore, no doubt that not being able to meet financial obligations when you need to is certainly an indicator that things are not going well. The good news is that your accountant can help.

    By conducting a thorough business analysis, your accountant may be able to rebalance your budget and debts, optimise your cash flow and build cash flow projections.  By simply showing you what needs to be paid when, organising cash reserves, and adjusting the way money is used in the business, you can avoid upsetting suppliers and staff and ensure your business operates as smoothly as possible.

  4. Business operationsThere are many decisions in a business that look like they may be simple, but the fact that they involve an element of finance makes them a critical task to take to your accountant. Accountants can help with analysing whether your equipment should be bought, or leased, whether offices should be rented and where, and whether the terms and conditions offered by one supplier are truly better than those of another.

    Your accountant is also best suited to assist in pricing your products to make sure you are getting the most profit from each sale and maximising your potential client base. They will also be able to point to areas of under-performance in the business and suggest possible areas for expansion.

  5. Cloud softwareYour accountant is also able to help you automate much of your business’s monthly bookkeeping and set up an invoicing system that will tell you at a glance who has paid and who has not. This smart software can even send emails to clients to chase up unpaid invoices, all of which saves you time and keeps you on top of your finances.
  6. NetworkingGood accountants work with other good businesses. If you are looking for suppliers or even investors it can never hurt to chat to your accountant about what you need – you never know, perhaps they know the right person?
  7. Securing financingAt some stage in every successful business’s life, there will probably come a time when additional finance is necessary. Whether it’s securing a loan that helps bridge tough times, or attracting investors for necessary expansion, getting this money will need well-structured and legible financials.

    Your accountant is therefore the first person you should speak to. They can help you structure your investment pitches and loan applications in a way that investors prefer, showcasing your business and making your investment-seeking efforts more likely to succeed.

  8. Stock managementIt isn’t always easy to tell on a day-to-day basis if your stocks are being managed correctly. Fortunately, your books will reveal a lot to your accountant about what’s happening in your stock room. Are you ordering too much, and therefore spending too much on storage, or writing off a high percentage of obsolete or expired goods? Or is the opposite true and you are missing out on sales by not having the correct parts or products in store? Your accountant can look at the trends over time and reveal what changes need to be made to ensure you are operating at peak efficiency.
  9. Long-term planningAn accountant can put long-term plans in place, which will ensure loans are paid off as efficiently as possible, staff are taken care of as well as possible within the business’s means, and that its systems and resources are set up to ensure the inevitable difficult times are as painless as possible.
  10. Advice

    Your accountant will no doubt be working with a number of other businesses in numerous different sectors. They may therefore be able to see the bigger picture. This together with their wealth of experience in business operations and in seeing where things have gone right and wrong in the past, makes them the ideal people to ask for advice or even get onto your board. Accountants will be able to help you make the right decisions to grow your business, pay off debt or point you in the best direction when you are struggling with a tough decision.

Ultimately, your accountant is so much more than simply your “tax guy”. By assisting you in every facet of your business your accountant can help you avoid a variety of frustrations and troubles and help you build a successful, well-oiled and streamlined business.

Your Tax Deadlines for June 2023

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

Can the R&D Tax Incentive Benefit Your Business?

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“The government expects that, by encouraging companies to undertake R&D in South Africa, local companies will strengthen their capabilities of developing value-added products, technologies and services.” (Department of Science and Innovation (DSI) – South Africa)

Research and development (R&D) is essential to boost innovation in the business sector, as it improves the capability to develop new products and processes and to improve existing ones. This is crucial for improving competitiveness and growth of the South African economy.

Section 11D of the Income Tax Act offers a R&D tax incentive to promote private sector R&D investment in South Africa. In the following paragraphs, you will find out what the incentive offers, which companies qualify, and the terms and conditions that apply.


What does the R&D incentive offer businesses? 

Section 11D allows R&D spending to be considered when determining taxable income in two ways:

  1. A deduction equal to 150% of expenditure incurred directly for R&D; and
  2. An accelerated depreciation deduction (50:30:20) for capital expenditure on machinery or plant used for R&D.

According to the DSI, the tax deduction will help to reduce the cost of R&D, which will enable companies to finance their R&D and scale up or undertake R&D activities sooner than otherwise.


Which companies can benefit from the R&D incentive? 

To be eligible, a company must be an incorporated entity and recognised as a company under the Income Tax Act. Individuals, non-profit organisations and trusts are not eligible.

As the aim is to encourage South African companies to invest in R&D, the incentive is available to businesses of all sizes and in all economic sectors.

Companies can also claim a deduction of R&D it outsources to another company, or to a South African university or science council. Companies in joint ventures (JVs) can claim to the extent that they fund the R&D. Prototypes and pilot plants created solely for purposes of R&D are also eligible.

However, where a company receives funding from government, a public entity or a municipality towards its R&D activities, this funding will be excluded when the R&D tax deduction is calculated.


What are the terms and conditions? 

  • The R&D activities must be approved by the Minister of Science and Innovation on recommendation by the R&D Tax Incentive Adjudication and Monitoring Committee that evaluates applications and reviews the annual progress reports that must be submitted.
  • The R&D expenditure claimed should be incurred directly and solely for R&D undertaken in South Africa, and in the production of income and the carrying on of any trade.
  • R&D expenditure claimed should be incurred after the date the application is submitted to the DSI.
  • Applications awaiting approval should not be included in provisional tax calculations to avoid penalties. Where approval is received after a tax assessment has been finalised, a Request for Correction can be made.
  • There is an extensive list of exclusions and limitations.
  • Since last year, applications and progress reports can only be submitted via the new online automated system.
  • According to the 2023 Budget Review, government is refining the R&D incentive to make it simpler to understand and administer.

Before claiming the R&D tax incentive against taxable income, and certainly before commencing any R&D activities in reliance on the tax incentive being allowed, ask your accountant to confirm that you can benefit optimally from this substantial incentive, while meeting all the requirements.

New Trustee Duties: More Admin, Impossible Deadlines and Hefty Penalties

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“A trustee has a responsibility to guard the assets of others with a higher degree of care than he does his own.” (John Ashcroft)

Onerous new duties have recently been imposed on all trustees of all trusts – by government through legislative amendments, and also by SARS – in addition to their existing fiduciary duty to act in the best interest of all the beneficiaries and “with the care, diligence and skill which can reasonably be expected of a person who manages the affairs of another”.

The legislative amendments follow South Africa’s grey listing by the global financial watchdog, the Financial Action Task Force, and the subsequent changes to the Trust Property Control Act (TPCA) and the Financial Intelligence Centre Act (FICA), among others.

The new trustee duties will require extensive and time-consuming additional administration, and have impossible deadlines, while non-compliance can result in hefty penalties. This makes professional trust administration assistance crucial for trustees, now and in the future.

Who is affected?

All trustees – not only independent trustees – are affected by the imposition of these new trustee duties.

In addition, all trusts are affected, regardless of the nature of the trust or the value of the assets in the trust, including family trusts, commercial and business trusts as well as public benefit trusts. Not even dormant trusts are specifically excluded.

The new regulations will also affect companies that provide services to trusts. Under FICA, the scope of ‘accountable institutions’ has recently been expanded to include trust service providers, company service providers, legal practitioners, crypto asset service providers, and clearing system participants, among others. These accountable institutions must conduct customer due diligence on their clients, including verifying identities, assessing the risk of illicit activities, and reporting suspicious activities. This will require significant resources, time and expertise from both trustees and accountable institutions.


What are the new duties and deadlines?

The legislative changes to the TPCA have given rise to trustee duties relating specifically to beneficial ownership registers and records of accountable institutions. In addition, SARS has issued new reporting requirements.

  1. Updated beneficial ownership registers – trustees are now required to collect, record and maintain detailed information and specific records of the beneficial owners of the trust – who are now far more broadly defined to include founders, trustees, beneficiaries, donors and protectors. In addition, trustees must lodge a register of the prescribed information with the Master’s Office, with only a trustee or a person with power of attorney allowed to use the Master’s portal to do so.
  2. Updated records of interactions with accountable institutions – trustees are now required to collect, record and maintain details pertaining to accountable institutions with which trustees have dealings, including, for example, accountable institutions acting as agents to perform trustee functions and accountable institutions providing any services to trustees. As noted, the definition of “accountable institutions” has also widened considerably.
  3. Submitting an IT3(t) for each beneficiary – SARS recently issued a draft notice requiring trustees to submit an IT3(t), which provides details of any amount vested in a beneficiary including income (net of expenditure), capital gains and capital amounts distributed by the end of September so that beneficiaries’ tax returns can be pre-populated.


What are the penalties?

Failure to comply with the obligations as contained in the TPCA is an offence and, on conviction, trustees are liable to a fine not exceeding R10 million, or imprisonment for a period of five years or both.

Trustees are already non-compliant with the TPCA, as the new regulations were published after business hours on Friday 31 March 2023 and became effective on the next day, Saturday 1 April 2023. This means that trustees were simply unable to comply with the regulations by the deadline, both due to the timing of the gazette and delays in establishing the requisite online electronic register on the Master’s ICMS Web Portal.

SARS’s IT3(t) deadline seems more doable, but in reality, the 30th of September is not that far away. Various stakeholders are submitting comments regarding the implementation of this requirement to submit an IT3(t) for each beneficiary, but probably no more than a delay could be expected.

Considering the extent of the new duties, the deadlines, and the hefty penalties involved, trustees are certainly well-advised to seek professional assistance to comply with these additional obligations and to ensure compliance.

How to Use AI to Improve Your Small Business

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“The amount of work we can automate with AI is vastly larger than before. As leaders, it is incumbent on all of us to make sure we are building a world in which every individual has an opportunity to thrive.” (Andrew Ng, Co-founder and lead of Google Brain)

Artificial Intelligence has come a long way very fast, and now every second app is claiming to be able to change your life using this ground-breaking technology. Many of these apps are simple software solutions designed to automate routine tasks, sometimes while mimicking a level of human interaction – as in chatbots, and the aim is to use them to free up human focus for more important, strategic or engaging activities, which cannot be mimicked. The truth is that many of these apps are only able to offer services at a fraction of the skill of a human new to the job, or still require significant human knowledge or input to get the most use out of them.

There are, however, some apps out there where this assistance is more than just a little valuable, particularly for a new company that may have no staff at all in a specific role, or where an entrepreneur may simply not have the time to do everything themselves. Here then, is a list of ways you can use current AI to improve your small business.


Customer service

Probably the most common use for Chatbots is the spreading of content marketing on social media. Many people are familiar with these fake profiles popping up to link to various services or leave comments defending various points of view. While at one time there may have been a benefit to such marketing this is rapidly reaching its climax as people become more savvy to the existence of these tools and online bots now seem to outnumber actual people online.

A far more interesting use has been in customer service where bots are being deployed as a first line of assistance to clear the bulk of customer questions before they take up the time of real members of staff.  Sold as being capable of mimicking a human conversation, business owners should, nonetheless, never fool themselves that modern chatbots are coming across as real staff members. People are, however, becoming increasingly comfortable with having their questions answered by an automated service, and chatbots in this scenario can help free up time by becoming an interactive FAQ. The benefit to a small business owner is that their time is no longer cluttered with routine enquiries and response times to customers are now rapidly sped up, lowering frustration and improving real world relationships. They can also be set to send you notifications to alert you to serious cases, or issues that only humans can resolve.

Among the best AI chatbot programs are Netomi, WP-Chatbot, Microsoft Bot Framework and of course (the one getting all the media attention!) ChatGPT.


Cybersecurity

Cybersecurity is an increasingly important and regulated aspect of modern business. Doing business these days requires that companies have top of the line security with no flaws in order that they meet the legal requirements for protecting customer information and data. In the past, they would just ignore it and hope for the best, but fortunately this no longer has to be the case.

The days of constantly needing to upgrade and deploy security software, learning new skills and manually backing up servers to prevent malware, ransomware and phishing attacks could now be now a thing of the past. AI solutions save business owners time and give them peace of mind by handling all of that, ensuring companies are safer than they have ever been.

But it doesn’t stop there. In a world where hackers are able to bypass common virus protection programs with little effort, and the average ransomware pay out sits at around R2-million, AI security is also capable of analysing networks for weaknesses and vulnerabilities, and spotting abnormalities in user behaviour. These AI security systems are also capable of using their database of previous malware versions to predict and prevent future attacks based on patterns and commonalities.

These security solutions are also able to monitor staff behaviour on the company network, and over time learn normal patterns of behaviour. By identifying the usual patterns, it can quickly recognise if one of your staff members has an account that has been compromised and shut it down before it can be used to cause any damage. Just be careful of privacy concerns before implementing any such solution in the workplace.

All of this helps keep the small business up to date with regulations, and customers safe, while preventing costly downtime and giving owners peace-of-mind.

While there are literally dozens of useful and important security apps some of the best AI Cybersecurity solutions include IBM Security, Targeted Attack Analytics by Symantec and Tessian.


E-Commerce

Online shopping is only getting more embedded in our society and small businesses often have a long way to go to keep up with the Amazons of the world when it comes to their level of operations. Luckily, AI can now be used to automate or assist with a variety of tasks such as product recommendations (Clarifai), listing optimisation (Klevu) and inventory management (Inflow Inventory) while also analysing customer behaviour and personalising the shopping experience (Amazon Personalize). All of this can save the business owner time, and lead to a richer, more satisfying experience for customers, which in turn leads to improved sales and better client retention.


Financial Management

One of the most arduous, but also necessary, tasks for small business owners is the management of all financial affairs. Luckily, financial management software has been around for a while and the very best solutions are all incorporating AI to automate bookkeeping tasks, reconcile bank transactions and generate reports.  While they are by no means a replacement for an accountant who can help with advice, compiling complete financials and assisting with tax savings, both Xero and Quickbooks, for example, have AI apps that can help ease the burden of your day-to-day, time-intensive bookkeeping tasks.

There are even apps that help small businesses stay up to date with regulatory requirements. Compliance.ai for instance will monitor and analyse regulatory changes, automate compliance tasks, and generate reports reducing penalties and other non-compliance risks – even in South Africa.


Take specific advice from your accountant!

Don’t implement any AI solution without first running it past your accountant, particularly when it comes to the financial management aspect. There is still no substitute for specific (human) advice tailored to address your particular needs.

Your Tax Deadlines for May 2023

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

Setting Up Your Finances in a New Business

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“A house built on granite and strong foundations, not even the onslaught of pouring rain, gushing torrents and strong winds will be able to pull down.” (Haile Selassie, Former Emperor of Ethiopia)

When starting a new business, few things are as important as establishing your finances and making sure they are right. Building the foundation for stable, accurate financial reports and tax filing will see you in good stead in the future and establish the practices that will lead your company to success. Here are the top seven tips.

 

  1. Set up a deadline calendar

    Whether you use a large whiteboard in your office, or a digital reminder service like Google Calendar, it is vital that you track which payments are due and when. Whether it’s your staff salaries, business loan payments or accounts payable, you need to know exactly when each amount is due in order to plan your cash flow accurately. Not having the cash on hand when a payment is due not only hurts your business credit rating but can also cost you more in fines or late-payment fees.

 

  1. Monitor your accounts receivable

    Just because you have invoiced a client doesn’t mean that money is immediately coming in. Check the terms of each client’s contract to understand exactly when they are likely to pay. If a client pays on a 60-day cycle it is unreasonable to expect the money will come in before that and you therefore need to plan other ways to have cash on hand to meet payments. For each invoice make a note on when it is likely to be paid.

 

  1. Track your inventory

    Inventory on hand is as much a part of your finances as the actual cash in your bank. Are you ordering too much and letting things rot on the shelves, or are you ordering too little and being forced to pay for rush deliveries to meet your orders? Tracking inventory will allow you to make better purchase decisions and streamline the operations of your business thereby reducing costs and stress.

 

 

  1. Consider opening two business bank accounts

    Account 1:     It is vital that you be able to track all expenses you are incurring in order to make accurate business decisions and monitor your business spending. To do this you will need one bank account in the name of the business dedicated to the daily running and expenses of the business. This will allow you to accurately reconcile the account at the end of the month and see whether more money is coming in than going out. Don’t have more than one daily operations account, and don’t use your personal accounts to pay business expenses – if you do, monitoring your cash flow, income and expenses becomes that much harder.

    Account 2:     The second account you should think of opening is a savings account, into which you will deposit a percentage of each month’s income to cover the taxes at the end of the year. The last thing you want to do is arrive at year-end unable to afford what you owe to SARS. Ideally, you should pay more than you owe on taxes alone into this account to also build a cash reserve. This cash reserve will see you through difficult times or cover unexpected expenses.

 

 

  1. Get a bookkeeper

    Whether you get a bookkeeper or download bookkeeping software, it is vital that you keep track of all your incomings and outgoings. QuickBooks, Wave, Zoho Books, Xero, and FreshBooks are a few examples of the best apps for small business owners. Apart from making the issuing and tracking of invoices easier, knowing exactly which jobs have been invoiced, which have been paid and which are still owing as well as to whom, and how much you owe, will help you to plot payments, make cash flow decisions and price your product more accurately. Moreover, come tax time, you will have all of the paperwork necessary to give to your accountant to ensure as favourable a tax season as possible.

 

  1. Download a receipt scanning app

    Now that your bookkeeper or bookkeeping software is tracking your invoices and accounts, you need to also track and accurately record your expenses that are made independent of your monthly suppliers. Fortunately, there are many receipt scanning apps that will help you to quickly and accurately record each business lunch receipt and stationary purchase, and then add them to an online database. Exactly which one you download will depend on your exact needs, but here are a few to get you started: Zoho Expense, Expensify, Wave, QuickBooks Online and Evernote Scannable.
  1. Download an app to record business travel

    While you can get digital logbooks that you plug into your computer, it is far easier these days to simply download an app that will record each of your journeys automatically in the background on your phone. MileIQ, for instance, is great, because with a simple swipe after each journey you can record whether it was for personal or business reasons, and at the end of the year can print out a full record of all your travels and the related expenses.

    Setting up your business foundation is essential for the health of your business. Once you have done all of the above, and accurately tracked your expenses and income for the year your accountant will have an easy time saving you money, ensuring you only pay the taxes you owe and not a cent more.

How You and Your Business Can Benefit from SARS’ Solar Tax Breaks

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“The lack of reliable electricity supply is the biggest economic constraint… I am pleased to announce two tax measures to encourage businesses and individuals to invest in renewable energy and increase electricity generation.” (Finance Minister Enoch Godongwana – Budget 2023)

In the 2023 Budget, the lack of a reliable electricity supply was highlighted as the country’s biggest economic constraint. South Africans have been subjected to loadshedding every day of 2023, often at stage four, five or six. Recent research by the Bureau for Economic Research revealed more load-shedding in the first two months of 2023 than in all of the previous four years. It is a situation expected to deteriorate even further as demand rises with the winter months approaching.

To encourage businesses and individuals to invest in renewable energy and to increase electricity generation, government announced two tax measures in the 2023 Budget in February. The first will provide R5 billion in tax relief to companies through an expansion of the renewable energy incentive, and the second will provide R4 billion in tax relief for households that install solar panels. Both entail a number of conditions and requirements, as well as tight timelines, which are summarised below.


The expanded tax incentive for businesses

To encourage rapid private investment to alleviate the energy crisis, this is a temporary expansion of the existing tax incentive Section 12B of the Income Tax Act, which provides for capital expenditure deductions for assets used in the production of renewable energy.

It originally allowed businesses to deduct 50% of the costs in the first year, 30% in the second and 20% in the third for qualifying investments in wind, concentrated solar, hydropower below 30 megawatts (MW), biomass and photovoltaic (PV) projects above 1 MW, and provided an accelerated capital allowance of 100% in the first year for solar PV energy projects of less than 1MW.

This incentive has now been temporarily expanded as outlined below.

Highlights of the expanded incentive

  • Under the expanded incentive, businesses will be able to claim a 125% deduction.
  • Moreover, that deduction can now all be claimed in the first year.
  • Businesses will be able to reduce their taxable income by 125% of the cost of renewable energy assets used for electricity generation.
  • The adjusted incentive will only be available for investments brought into use for the first time between 1 March 2023 and 28 February 2025.
  • The deduction applies to all renewable energy projects.
  • There will be no thresholds on the generation capacity size of the projects that qualify.
  • The expanded incentive is only available for two years from 1 March 2023 to 28 February 2025 to stimulate investment in the short term.

Example: business renewable energy tax incentive

For businesses with a positive taxable income, the deduction will reduce tax liability. For example, a renewable energy investment of R1 million would qualify for a deduction of R1.25 million against taxable income.

Using the current corporate tax rate (27%), this deduction could reduce the corporate income tax liability of a company by R337,500 in the first year.


Tax rebate for individuals  

This is a new tax incentive available for a very limited period to encourage individuals to install rooftop solar panels to increase electricity generation and reduce pressure on the grid. Individuals can claim the rebate against their personal income tax liability.

 

Highlights of the individual tax rebate

  • This incentive will be available for one year between 1 March 2023 and 29 February 2024.
  • Individuals who install rooftop solar panels will be able to claim a rebate of 25% of the cost of the panels, up to a maximum of R15 000 per individual.
  • The rebate can be used to reduce tax liability in the 2023/24 tax year. PAYE taxpayers can claim the rebate on assessment during the 2023/24 filing season, while provisional taxpayers can claim the rebate against provisional and final payments.
  • There is no ownership limitation, so installations by either landlords or renters are eligible, but only the party that pays for the solar panels can claim the rebate.
  • The rebate applies only to new and unused solar PV panels with a minimum capacity of 275W per panel (design output), installed as part of a new system, or as an extension of an existing system, which must be connected to the mains distribution of the residence (i.e. no off-grid installations qualify).
  • The rebate is only available for solar PV panels (excluding portable panels), and not for other components of a system such as batteries, inverters or fittings. Installation costs do not qualify.
  • The solar panels must be purchased and installed at a private residence used mainly for domestic purposes (i.e. dual-use residences such as a guest house or Airbnb used more than 50% for trade, will be excluded).
  • A certificate of compliance for the installation must be issued between 1 March 2023 and 29 February 2024 and the certificate must confirm the date the solar panels purchased were brought into use for the first time.
  • To claim, taxpayers will need a VAT invoice that indicates the cost of the solar PV panels separately from other items, along with proof of payment.
  • There will be no recoupment if the residence is sold after claiming the rebate, but there will be a claw-back if the panels themselves are sold within one year.
  • SARS has issued draft third-party regulations for comment that will require solar installers to report to SARS the complying installations they have completed together with the details of the purchaser.
  • Like other rebates, it may only be claimed against tax payable and only to reduce the tax payment to nil. If the tax payable is less than the rebate, the balance is forfeited.

Example: tax rebate to individuals  

An individual who purchases 10 solar panels at a cost of R40,000 will be able to claim 25% of this R40,000 cost – or R10,000 as a rebate. This means that the individual’s personal income tax liability that is payable for the 2023/24 tax year can be reduced by R10,000.

Another individual who buys 20 panels at a cost of R4,000 per panel, will have invested a total of R80,000. The calculation of 25% of R80,000 amounts to R20,000, but only R15,000 can be claimed against income tax liability for the 2023/24 tax year, as the deduction is limited to R15,000 per individual. If the tax payable is less than R15 000, the rebate is reduced to the amount of tax payable. The balance of the rebate is thus forfeited.

Given the many conditions and requirements, as well as the tight timelines, professional tax advice is recommended before installing solar power or renewable energy alternatives, to ensure the full benefit of these time-limited tax incentives can be realised.