“The point to remember is that what the government gives it must first take away” John S. Coleman
If it weren’t for the PAYE system, which forces employees to pay taxes as they earn their money, each of us would be liable for a lump sum payment of between 18% and 45% of our total monthly earnings at the end of each tax year. Pay As You Earn (PAYE) requires that employers deduct money from their employees’ earnings as they earn it, and pay this money over to SARS on the employees’ behalf.
The Basics
To calculate PAYE an employer should multiply an employee’s taxable earnings (which include any fringe benefits such as Disability Benefit Contributions etc.) by 52 weeks, 26 weeks or 12 months (depending on how often they get paid) to get an annual amount. This annual sum is then cross-referenced against the SARS tax tables to calculate annual tax. This is then divided again by the same work period to get the monthly PAYE tax which is then withheld, displayed on your IRP5 and paid over to SARS.
Example
In cases where an employer pays certain things like medical aid, pension fund, income protection and/or retirement annuity fund contributions on an employee’s behalf, the employer must deduct these costs from the employee’s earnings and take these deductions/credits into account when calculating PAYE and making payment to SARS. This is where problems begin to creep into the system.
Four Common Problems
There are, however, instances in which a pension fund contribution may be tax deductible. This depends primarily on whether the pension fund is “approved” or “unapproved”. Whether a retirement benefit is “approved” or “unapproved” is determined by the way its associated fund is administered as well as the rules of the fund. The broker who administers the fund will be able to tell you whether it is approved or unapproved and it will then be easier to work out just how to treat those deductions for PAYE.
Speak to your accountant for detailed advice.
“By failing to prepare you are preparing to fail” (Benjamin Franklin)
The media is awash with warnings about the dangers of not complying with POPIA (the Protection of Personal Information Act) by 1 July 2021, and indeed the risks of non-compliance are substantial.
The clock is ticking …. if anyone in your business needs to be motivated to take this seriously, refer them to the Countdown Clock on the Information Regulator’s website.
Although you still have until the end of June 2021 to become fully compliant, there are major benefits to understanding POPIA and starting the compliance process now – before it becomes compulsory. The penalties for getting it wrong are sizeable, “preparation makes perfect”, you are giving yourself time to get it right, and for many businesses there is also good marketing potential in being able to tell your customers and clients that you are already addressing the situation.
Five practical steps to start with…
Before we start on your action plan, get to grips with the fact that you will almost certainly have to comply fully with POPIA. As soon as you in any way “process” (collect, use, manage, store, share, destroy and the like) any personal information relating to a “data subject” (customers, members, employees and so on), you are a “responsible party”. Very few businesses will fall outside that net. Equally you are unlikely to fall under exemptions like that applying to information processed “in the course of a purely personal or household activity”. Get going with these steps –
You must show that “given the purpose for which it is processed, it is adequate, relevant and not excessive”, data can only be collected for a specific purpose related to your business activities and can only be retained so long as you legitimately need to or are allowed to keep it.
There’s a lot more detail in POPIA, but you get the picture – you cannot collect or hold personal information without good and lawful cause.
If third parties (“operators”) hold or process any personal information for you, they must act with your authority, treat the information as confidential, and have in place all the above security measures.
If your approach is by means of “any form of electronic communication, including automatic calling machines, facsimile machines, SMSs or e-mail”, you must observe strict limits. Whilst you can as a general proposition market existing customers in respect of “similar products or services” (there are limits and recipients must be able to “opt-out” at any stage), potential new customers can only be marketed with their consent, i.e. on an “opt-in” basis.
You are much less likely to have a POPIA problem if everyone in your business (and most importantly you!) understands what your procedures are and implements them as a matter of course. Make sure that no functions “fall between two stools” – assign individual compliance tasks to named staff members and make sure everyone understands who is to do what.
This is a complex topic and there is no substitute for tailored professional advice. What is set out above is of necessity no more than a simplified summary of a few practical highlights.
“Designing a presentation without an audience in mind is like writing a love letter and addressing it ‘to whom it may concern” – Ken Haemer
In these challenging times, raising finance could very well be a matter of business survival, so knowing how to pitch to potential investors is a critical skill you should not neglect.
When you started your business you probably did so because your life experience allowed you to see a gap in the market or the opportunity to make the most of your skillset in a new way. You almost certainly did not go into it because your skill was presentations and pitching for investment. This is a common scenario in the world of small business and it leads to many great ideas being forgotten, or going without investment, simply because the new owner did not know where, how and when to sell the idea to those who could help with necessary funding. Here are five common mistakes that people make when arriving to pitch for investment.
1. Pitching to the wrong investor
One of the first things you should do when seeking finance is your research into just who is invested in the field, and who might be keen to take on a company of that kind. Not all investors are eager to diversify into all industries, and finding someone who understands your industry and further, wants to invest in it, is key if you want to find a business partner.
Once a connection is made or a name is mentioned, it is important to do your research into just who the potential investor is, what they are currently invested in, and what they are interested in. Showing awareness of who the investor is and what they like to invest in, will also help at the pitch level, because it will show them that you are the kind of person who does their due diligence as well as make conversation easier.
2. Not refining your pitch deck
Many entrepreneurs want to get funding as quickly as possible. They construct a pitch and approach the people they think are ideal investors without properly refining the deck and ensuring they can answer all necessary questions. The first step when creating a good pitch is to look at other successful pitches to see what information they included and how you can best present your business.
Once you have constructed a best effort it’s time to start reaching out, but don’t head for the office of your favourite investors just yet. Getting a pitch right takes practice and getting in front of a few people who you suspect may not invest will help you to get your pitch just right by revealing the kinds of questions an investor may ask. When turning you down these non-ideal investors may also give you advice on your business, which will help strengthen the pitch for next time.
At the end of the day, you need to be able to provide short, clear answers to every question and getting the pitch and your presentation right will ensure that this happens. You can’t simply tell an investor that you will get back to them with answers as this provides a bad impression.
3. Over-valuing your business
Going into a meeting it’s very important that a business owner not over value their business or its position in the market. Investors have been around and they will have a rough idea ahead of the meeting as to just what they think your business may be worth. Overselling it, or promising impossible returns simply makes it look like you don’t know what you are doing.
Entrepreneurs should further avoid making projections for growth that are unlikely. Telling an investor you will make 500% profit gains in a year with only 40% expense increases, only serves to tell them you are speaking about pie in the sky.
This is the same for your competitive landscape analysis. This part of your presentation is critical and you should not be going into a meeting saying that you have no competition – all that means to an investor is that you have not researched the field properly. If it’s true that your product is unique you need to present the information on how the industry deals with the problem you are solving now, which companies offer the alternative solutions and why yours is better. Do not just say you are unique.
4. Not understanding the risks
Any experienced investor is going to want to understand the risks of investing with you, and will want to see that you see them too and have planned for them. Inevitably any business has risks attached and if you understand yours, you instantly become a more bankable proposition.
Questions you should be able to answer might include: What are the principal risks to the business? Does the business have any legal risks? Do you envisage any technology risks in future? Are there any upcoming regulations which may impact upon your company? And are there any product liability risks attached? Just what are you doing to mitigate all of these risks?
5. Not accurately explaining the benefits of your business
At the end of the day your business’s benefits and unique selling points are going to be what makes it successful. But a business is more than just its product or unique idea. It’s a wonderful idea to have a video or demo model of your product or your company, but if that’s all you have you will not succeed in attracting investors.
To bring an investor on board, a business owner must accurately understand the things that make it a potential success. If you are pitching a new product or idea you will need to be able to explain why users will care about your product or service, what makes it unique, and if it is unique what intellectual property rights you hold over the product. Further you will need to be able to explain why the team you have on board is the right one for making your business a success. Knowing your team’s strengths, weaknesses and capabilities and being able to demonstrate them will give a lot of confidence to a potential investor.
“Is there a phrase in the English language more fraught with menace than a tax audit?” (Erica Jong, American novelist)
A number of recent tax developments strongly indicate that taxpayers will face even more intense scrutiny from SARS in this new tax year. Most recently, an additional R3 billion was allocated to SARS in the 2021 Budget Speech “to improve technology, data and machine learning capability and upskill SARS officials to improve the efficiency and effectiveness of SARS”. This will include expanding specialised audit and investigation skills and establishing another specialised audit unit for investigations into the tax affairs of high net worth individuals with highly complex financial structures, which will likely lead to in-depth lifestyle audits.
Two ways in which SARS enforces compliance are through verifications and audits, both of which can now be expected to increase.
Being selected for a verification or audit entails significant risk to a taxpayer, whether individual or corporate. In addition to the time, cost and effort to collate the information, documents and clarifications required, a verification or audit can lead to the levying of understatement penalties varying from 0 – 200% where an understatement occurred, and even harsher penalties are reserved for ‘obstructive’ taxpayers or culpable repeat offenders.
What is SARS verification?
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 fairly and accurately represents a taxpayer’s tax position.
What is the SARS verification process?
If you were subject to a verification and the verification process has been completed, your tax affairs could still be referred for audit as part of the SARS compliance process.
What is a SARS audit?
A SARS audit goes further than a verification to examine the financial and accounting records and/or supporting documents of the taxpayer to determine whether the taxpayer’s tax position has been correctly declared to SARS. Where the taxpayer made no declaration or did not file a return, the audit is an investigation into the taxpayer’s compliance with the provisions of the relevant tax legislation.
By its nature, an audit is more intrusive than a verification and the scope could be extensive.
What is the SARS audit process?
Note that if, in your original submitted return, you anticipated that a refund might be due, the refund will not be paid out while the verification is in progress or during the execution of the audit process.
What to do – and what not to do
Taxpayers with complicated declarations or returns should ask their accountant to assist them in preparing for the likelihood of verifications and audits, and successfully completing a verification or audit when selected. Similarly, where penalties and interest have already been imposed, taxpayers may need expert assistance to successfully complete the process of objecting, particularly if the objection is submitted after the prescribed due date.
(N.B. The increases highlighted below are extracted from the Employment and Labour Minister’s announcement of 9 February 2021, and emphasis has been supplied where helpful in enabling quick identification of your employment sector. Comment is in square brackets)
“It’s been said that government doesn’t create jobs, business does. For the most part, this is true. But government creates the environment in which businesses can excel and expand” (American politician and lawyer, Christine Gregoire)
There are several resources that the government, under the guidance of the Department of Small Business Development (DSBD), has made available to SMMEs with the objective of assisting them to keep afloat and competitive in this current climate. The programmes below are but a select few.
The department until recently had a COVID-19 Debt Relief Finance Scheme, which unfortunately ceased to exist a couple of months ago. The fund had re-prioritised just over half a billion Rand to assist small businesses during the lockdown stranglehold.
However, the DSBD still has these resources to assist SMMES:
This resource was set up with the objective of assisting SMMEs in taking advantage of supply opportunities resulting from the COVID-19 pandemic and the shortage of goods in the local market. This includes the likes of PPEs and other COVID-19 fighting measures. This is a “counter attacking” resource that aims to assist small businesses respond to the COVID-19 pandemic, and is a programme that helps cushion them while leaning against the ropes as a result of COVID-19.
According to the department, to qualify:
The primary objective of the Hub is to connect at least 50 000 women owned businesses to markets by 2023. This is part of South Africa’s contribution to ITC’s goal of connecting three million women owned businesses to markets by 2021.
The objective is to fast-track and stimulate existing SMMEs that exhibit good potential for growth and to grow black-owned enterprises by fostering linkages between black SMMEs and corporate and public sector enterprises, among other objectives.
This programme provides grants of up to R1 million to small businesses that meet the selection criteria.
Ask your accountant how you can take advantage of these resources to give your business an edge.
How much will you be paying in income tax, petrol and sin taxes? Use Fin 24’s four-step Budget Calculator here to find out.
Have a look at the tax tables below for the new Individual and Special Trust income tax brackets, and for a convenient reminder of the various other taxes that remain unchanged –
“If we believe that tomorrow will be better, we can bear a hardship today” (Thích Nhất Hạnh)
According to a press release issued this year by the World Bank, the pandemic has taken “a heavy toll of deaths and illness, plunged millions into poverty, and may depress economic activity and incomes for a prolonged period”.
World Bank Group President, David Malpass, explained that while the collapse in global economic activity in 2020 due to the onset of the pandemic, is estimated to have been slightly less severe than previously projected in advanced economies overall, for most emerging market and developing economies, the impact was more acute than expected.
“Financial fragilities in many of these countries, as the growth shock impacts vulnerable household and business balance sheets, will also need to be addressed”, added Vice President and World Bank Group Chief Economist, Carmen Reinhart.
It is under these circumstances that businesses are battling to keep their heads above water. Here are four simple things you can do to help your business survive in 2021.
1) Delve into your budget
Now more than ever the small business owner needs to understand their company and the way that company spends money. A budget is a roadmap for small businesses, and in the day-to-day running of a start-up or small enterprise it can often be neglected in favour of making payments if and when they seem necessary.
If you don’t have a budget, make one, and if you have one, take a fresh look at it. Understand what the costs are and where the money is coming from. Know what expenses are coming up down the line – are there licences or new machines you need to own or lease? Do the staff expect a bonus at a specific time of year? Do you need extra at year end for a marketing campaign? Where and how you spend money will show you what’s important to your business and where the fat can be cut. Trimming small amounts from dead areas and focusing that money on the places that deliver returns can make a dramatic difference to the bottom line.
Riley Panko, in a report on budgeting, said, “Businesses of all sizes should create a budget if they don’t want to risk the financial health of their organisation…Businesses may create more challenges for themselves by skipping a budget. This is because budgeting helps small businesses focus.”
Knowing what your long and short terms needs are will help you plan, and streamline your business, which in turn will help you survive 2021.
2) Focus on your core customers, and ditch your “barnacle clients”
In good times it is a good idea to expand your outlook and try to capture new markets for your products. You have the time to focus on those “barnacle clients” who eat up your time and don’t necessarily deliver the same return for time invested. But in tough times, it’s wise to return to key principles and focus on those clients and markets you know work.
Barnacle clients are, according to Joe Woodward, those clients who, “Whine about fees; complain about work quality even when you know it was well done; don’t supply needed information on a timely basis; and aren’t teachable”. Woodward suggests those clients should be jettisoned from a business as they only serve to drag a business down in choppy waters when the company needs to be running as sleekly and efficiently as possible.
“Those kinds of clients should be fired,” he says. “It’s a scary thing, but I have never had anything but a net gain from firing a client.”
At the same time the business owner needs to put the energy that was going into barnacle clients into those who offer returns. Go back to the best clients that you haven’t spoken to in a while, touch base with friends, networks and contacts who you know could benefit from your business, and, in this way, reinvigorate your client base.
Advertising too should start to focus on your core client demographic. Don’t know what that is? Then it’s time to start going through the data. Start with internal data on past customers, and focus on creating a customer profile. This includes basic demographic information, but also try to map your customer on a deeper level. What are their values? What are their spending attitudes? What makes them excited and what makes them tick?
All of this will give you a comprehensive picture of what your core customer demographic looks like. While you may want to market as widely as possible to capture as many customers as possible, this focused kind of marketing will be much more effective, especially for small businesses.
3) Advertise concisely
Repeated studies are finding that people are increasingly jaded, easily distracted and unwilling to engage with advertising – particularly on social media, an important area for the small business. This does not, however, mean that you should stop advertising. On the contrary, social media is still one of the most important tools that a modern business owner can utilise with 52% of new brand discovery happening on public social media feeds. The trick is to be clear, and concise.
According to stats from Instagram, 60% of users report that they have discovered a product on another person’s profile, but this never happens with overly long posts or wordy descriptions. Gone are the days when people would watch a full YouTube advert. If your brand message isn’t in place before the skip button can be pushed, you should consider the money wasted. And the rules of social media should be applied across the board to all other types of marketing be they newsletters, emails or even phone calls.
Luke Lintz from social media agency Highkey suggests business advertising should:
“The key is personalised honest communication that doesn’t eat up the client’s time,” he explains.
Repeated studies also show that getting staff to personally reach out to potential clients works much better than generic adverts.
