To Host or Not To Host a Year-End Party?

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“If you can laugh together, you can work together” (Robert Orben)

There’s no requirement or obligation for companies to host a year-end party for employees, clients or suppliers. This is true even if there’s a company tradition of an end-of-year bash, or where there may be expectations of a year-end party for clients or suppliers in certain industries.

Read on for the lowdown on the pros, cons and tax implications of hosting a year-end party (or parties).

The benefits of year-end functions

For many, a year-end party is a highlight. A great meal, free drinks and the opportunity to mingle socially with your colleagues. It can even be a motivator when linked to company performance over the year. Here are a few other benefits:

  • By creating shared memories that are talked about throughout the year, these functions can create a sense of belonging.
  • Employees get to know each other better, making connections, building trust and helping to improve communication and collaboration. In the same way, functions for clients and suppliers are a chance to make professional connections and even new friends.
  • A company-sponsored celebration offers a change of scenery, routine and pace that can boost employee productivity when you get back to the office. Among clients, it can increase levels of customer satisfaction and loyalty.
  • A dedicated function makes people feel valued. For employees it can boost morale, build loyalty and reduce turnover, while for clients and suppliers it can create long-lasting relationships and generate qualified referrals.
  • A party is also a great opportunity to share company achievements, like sales figures, special projects completed, or client video testimonials, in the process inspiring staff, clients and suppliers with your company’s vision and offering.


The possible drawbacks of year-end functions

The first step in arranging a corporate event should be setting a budget. Consider the costs – and the potential rewards – carefully. A boring or cookie-cutter party could nullify all the benefits – even if it’s not lavish. That’s why you need to make sure you host a thoughtful event that creates a positive and lasting impression of your company.

There’s also always a risk that staff, suppliers and even clients might conduct themselves inappropriately. This can cause reputational damage and sour working relationships. In extreme circumstances your businesses could even be held legally liable for employee behaviour.

Is it tax deductible?

A company year-end party for staff can be a tax-deductible expense where it’s regarded as a non-taxable occasional meal.

Where clients or suppliers are entertained at a year-end function, expenses such as meals, venue hire and live entertainment can be claimed as a tax deduction, but only if you can prove the expenses were incurred “in pursuit of business”. This means keeping a comprehensive schedule of the entertainment expenses along with the date, the venue, the company and people entertained, and the purposes of that entertainment (for example, prospecting for a new client) to prove to SARS that the expenses were genuinely business-related.

A claim for entertainment expenses is likely to be flagged for investigation by SARS, so don’t risk it unless you have verified your tax position with us and your ability to prove that the expenses claimed are legitimate business expenses.

Remember also that input VAT cannot be claimed on entertainment expenses, including but not limited to business lunches and dinners; annual functions; and expenses incurred for entertaining clients at restaurants, bars and night clubs.

To host or not to host?

If you are considering a year-end event, we invite you to rely on our expertise. While we won’t offer to help with the décor, we can assist you to weigh up the pros and cons for your specific business. We can help you to determine a budget and take care of all the tax stuff, so you can enjoy all the benefits of a corporate function with confidence. Cheers to that!

Can You Afford to Work Overseas? How Double Taxation Agreements Work

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“The hardest thing in the world to understand is the income tax.” (Albert Einstein)

With an increasing amount of business being conducted online, it’s perfectly possible to live in one country and earn an income in another. If you are conducting services for global corporations and earning foreign income in another country, you could get caught up in a world of tricky tax situations. Under these circumstances, you can find yourself being taxed twice, both in the country where the business is conducted and here at home in Mzansi.

To prevent this scenario and encourage South African residents to bring valuable foreign income into the country, the government has enacted Double Taxation Agreements (DTAs) with 79 foreign powers. If applied correctly at tax time, a DTA should mean you don’t pay tax twice. But how does this work, and just where are the pitfalls?


Check your residency status

Many people incorrectly believe that DTAs mean that income earned in a foreign country is taxable in that country. While the exact terms of each DTA are different, most DTAs actually give taxing rights on employment income to the residential country, unless the services are rendered elsewhere. This means that if you live in South Africa, you should pay all of your taxes in South Africa. On this basis, any taxes also paid to the government of the country in which the income was earned might qualify you for tax relief in South Africa.

Surprisingly though, in some cases, and depending on the domestic legislation in the particular country, an individual may find themselves tax resident in both South African and the other country, regardless of where you live. This can have enormous implications on your legal obligations and the taxes you end up paying. Luckily, all DTAs cater for such instances, with a set of rules to apply to determine which of the two countries you will ultimately be deemed tax resident in.

That’s why it’s vital to ask your accountant to first examine the laws and determine just where you are officially resident and how the specific DTA applies in your case.


Do you need a tie-breaker?

Some South African residents working in foreign countries should normally be given tax residency certificates by the country where they make their income. But don’t fall into the trap of assuming this means you’re not a South African tax resident. More likely you now have dual residency for tax purposes and will be required to apply a tie-breaker test under the specific terms of the relevant DTA to determine just where and how you need to pay taxes.

For something that was supposed to make things simpler and decrease the tax burden on residents earning money overseas, DTAs can actually be somewhat onerous.


Does the DTA even apply?

The fact that there’s a DTA between South Africa and the country of your income may fool you into thinking you’re automatically exempt from paying taxes in one of the two countries, but this is not so. DTA relief is something that must be proven in South Africa before it can be granted. SARS will want proof of your claims – only once they have satisfied themselves that the income is earned offshore will the DTA exemptions apply.

The bad news is that if you do not have the relevant supporting documentation, SARS may choose to view the omission as a material non-disclosure. The good news is that your accountant can help you assess what documentation you need.

Unlock the Benefits of an End-of-Year Company Review

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“In the business world, the rearview mirror is always clearer than the windshield.” (Warren Buffett)

Every business should conduct an extensive review of its business operations at least once a year. Doing a review allows you to track your company’s progress towards achieving its goals, to evaluate current strategies, practices and operations, and to determine what’s working and what isn’t. Think of it like going to the doctor for an annual checkup.


The benefits of a year-end review

A year-end review enables you to evaluate business performance across business functions and to identify trends and issues before these become serious problems.

It requires checking progress on goals, objectives and key performance indicators (KPIs). This will reveal what is already working well (these processes can be enhanced and replicated), as well as what is not working – prompting you to realign the team or change tactics. All of this empowers you to chart a well-informed plan of action for the year ahead.


What should be included in an annual business review?

For a big-picture understanding of your business’ performance across the various business functions over the last year, a multitude of factors should be reviewed. Luckily, we can help with putting everything together.

  • Financial reports, including:
    • Annual financial statements and management accounts
    • Profit and loss (P&L) statement comparing total income to total expenses
    • Cash flow statement to identify cash flow problems and inform budgeting and spending decisions
    • Debtors’ reports enabling proactive management of current and overdue invoices for improved cash flow
    • Budget vs actual spending report to identify areas over or under budget
    • Balance sheet summarising total assets and liabilities, shareholders’ equity, investments and retained earnings
  • Company vision, mission and values
  • Business plan covering:
    • Market conditions, industry changes and competition
    • Client base, changing client needs and client satisfaction
    • Goals, objectives and KPIs (Key Performance Indicators)
    • Current and pipeline projects, new opportunities
  • Human resources, key roles and employee satisfaction
  • Customer acquisition cost and lifetime value
  • Products/services, value proposition, quality, prices and fees
  • Sales, advertising, marketing and branding
  • Costs and expenses, including tax liabilities
  • Internal systems and processes, equipment, and resources
  • Statutory documents, registrations, certifications and contracts


The smartest way to benefit from a year-end review

Collating all this information may seem overwhelming, but with our professional assistance it can be done quickly and efficiently.

Our team will also assist you to understand the numbers and what the data says about your business. This insight will enable you to enhance or duplicate the processes that are already generating good results and to identify the changes necessary to obtain better results in other areas. It’s all about creating a solid plan for the upcoming year, so you can set your business up for greater success in 2025.

Your Tax Deadlines for November 2024

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  • 07 November – Monthly PAYE submissions and payments
  • 25 November – Value Added Tax (VAT) manual submissions and payments
  • 28 November – Excise duty payments
  • 29 November – VAT electronic submissions and payments, Corporate Income Tax Provisional Tax payments where applicable.

Global Corporate Tax Changes: Advice Is More Crucial Than Ever

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“Over the next few years, we are also implementing a global minimum corporate tax to limit the negative effects of tax competition.” (Enoch Godongwana, Minister of Finance, Budget 2024)

There have been significant shifts in the corporate income tax landscape in South Africa and globally. Recent trends noted by the OECD and The Tax Foundation include:

  • Statutory corporate income tax rate changes in 13 countries in 2023
  • A reversal of a two-decade downward trend in corporate tax rates
  • An increase in the average global CIT rate from 20% to over 21% in the last year.

Corporate tax rates have declined from the highs of an average 40% in 1980 and 28% in the early 2000s to around 21%. South Africa has also reduced its CIT rate over the years, from 30% in 2000 to 27% in 2022 – but it is still substantially above the international average.


A new global tax treaty

Dubbed “an historic step towards changing the financial landscape”, 110 UN Member States, including South Africa, recently voted in favour of the terms of reference for a new global tax treaty. The UN says that all 193 UN Member States could vote on a finalised UN global tax treaty as early as 2027.

In the meantime, more than 140 countries have already agreed to this global minimum tax, and some have already implemented this tax reform, including South Africa. Finance Minister Enoch Godongwana announced in his 2024 Budget Speech that South Africa will be implementing the global minimum tax with effect from years of assessment commencing on or after 1 January 2024.


Why a minimum global tax?

Multinational companies use tax planning strategies, like moving profits to low-tax jurisdictions, to minimise their tax liabilities. A global minimum tax aims to ensure that these multinationals pay their fair share of taxes, regardless of where they operate.

This limits the race to the bottom of effective corporate tax rates for large multinationals, with countries competing to attract income by offering low tax rates and tax incentives.

On a social responsibility level, it goes without saying that companies should contribute fairly to the financial stability of the countries they operate in.


Who is affected?

A global minimum tax will ensure that any multinational enterprise group with annual revenue exceeding €750 million (+-R15 billion) will be subject to an effective tax rate of at least 15%, regardless of where its headquarters, operations, sales or profits are located.


Implementation in South Africa

Government plans to introduce two measures to effect this change for qualifying multinationals:

  1. The income inclusion rule applies to multinational entities headquartered in South Africa and requires a tax top-up if the effective rate in the jurisdictions the multinational entity operates in is lower than 15%. This tax is payable to SARS as opposed to the relevant jurisdiction.
  2. The domestic minimum top-up tax applies in situations where the multinational entity’s effective tax rate in respect of its South African profits is lower than 15%. In such circumstances, the South African constituent entities of the multinational entity are jointly and severally liable for the top-up tax.


What is the expected impact?

A global minimum tax will ensure that multinational corporations contribute their fair share of taxes in jurisdictions where they operate, curbing tax avoidance and safeguarding countries’ tax bases. It’s expected to generate significant additional tax revenues for many countries, especially those in the Global South.

In South Africa, National Treasury predicts that implementing the global minimum tax will bolster our corporate income tax base by approximately R8 billion in 2026/2027.

Whether a global minimum corporate tax can deter corporate tax avoidance and evasion remains to be seen. Concerns have also been raised about the impact on companies’ competitiveness, likely increased compliance costs, and possible double taxation.


Will it affect SMEs?

In the long run, the changes should benefit smaller local companies. With a broadened tax base, there may be opportunities in South Africa to lower the personal income tax burden on individuals, or to consider more globally competitive corporate tax rates than the current 27%, which is well above the international average.

The change may also create a more certain and predictable global tax environment, which is conducive to long-term planning and investment decisions.


What needs to be done?

Qualifying multinationals should assess their effective tax rates for the income inclusion rule and domestic minimum top‐up tax from 1 January 2024. Their local and global tax planning, and financial structuring, may need to be reviewed and updated.

While this probably doesn’t apply to your business (yet), companies of all sizes should note the significant shifts in international and local tax policy. This makes our up-to-date, expert tax assistance a must-have for every company navigating the changing tax landscape.

6 Ways to Make the Most of Your Employees’ Performance Reviews

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“Always treat your employees exactly as you want them to treat your best customers.” (Stephen R. Covey, author of ‘7 Habits of Highly Effective People’)

Good business leaders recognise that regular employee performance reviews play a vital role in improving transparency, identifying talent, and enhancing performance – yet often this process is handled in a casual fashion or even not implemented at all. In fact, a recent study revealed that only 13% of employees and managers, and only 6% of CEOs, think their organisation’s performance appraisal system is useful. Even worse, 88% of respondents said their current performance review negatively impacted their opinion of the HR department.

Here are six tips for turning those opinions around and getting maximum value from your performance reviews.


Tip 1: Really listen

During a review it’s vital that the employee feels truly understood. Data shows that leaders who come to reviews with preconceived notions and a list of complaints are more likely to have unhappy teams. A massive 85% of employees would consider quitting if they thought their review to be unfair – and there is no surer way of making someone feel unfairly treated than to brush off their side of the story and make them feel unheard.

Companies should therefore focus on getting their leaders to:

  • actively listen to employees during reviews
  • avoid making assumptions
  • ignore distractions such as phone calls
  • pay attention to verbal and nonverbal cues.

Tip 2: Be transparent       

Because performance reviews are often linked to raises and other benefits, it’s extremely important that the employee understands exactly why certain decisions were made. Giving clear, fair, specific and actionable feedback allows the employee to see how they can get a better raise next year and what they need to do to gain a promotion. Vague or unclear feedback only leads to distrust of the system – and of the company’s HR and leadership.


Tip 3: Keep looking forward       

While the very name “performance review” suggests a look back over the course of the past year, it’s also the ideal time to project forward into the future. By using the review to set new goals and speak about career progression, your leaders will be able to motivate employees to do well. Knowing that you’re being considered for promotions or that there are rewards at the end of the tunnel is motivational. Little wonder, then, that forward-looking performance reviews have been shown to improve employee productivity by 13%.


Tip 4: Your employee’s opinion matters         

A decent performance review is a conversation between employer and employee. It is a chance to listen as well as to speak, and this dynamic should be carried through to the very design of the review. Speak with both managers and employees about the reviews. Ask them what works and what doesn’t and encourage them to suggest things that would make the process more useful. Then actually adjust the review to accommodate these requests where possible. Employees who feel they have power and buy-in over the review process are far less likely to feel hard done by.


Tip 5: Little and often       

According to many business experts, traditional annual business reviews are inadequate. Doing them once a year leaves you with too much ground to cover and places undue stress on the employee – who is then less likely to function optimally during the review. In fact, a recent study suggested the pressure can be so bad that 34% of millennials admitted to crying during their performance review.

By having more frequent and casual performance chats, and addressing any issues when they arise, companies can reduce stress and get better results. According to a report by ClearCompany, employees at companies that use continuous feedback systems are 65% more motivated and 66% more productive.


Tip 6: Be prepared

At the end of the day, an employee performance review is about reward and improvement. Before going into a review, it’s important to know exactly what rewards you’re able to offer, and how these can be implemented.

Work with your team to create a system that is not only motivational, but effective.

Your Tax Deadlines for October 2024

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  • 07 October – Monthly PAYE submissions and payments
  • 21 October – End of filing season for individual taxpayers (non-provisional)
  • 25 October – Value Added Tax (VAT) manual submissions and payments
  • 30 October – Excise duty payments
  • 31 October – VAT electronic submissions and payments, Corporate Income Tax Provisional Tax payments where applicable, and Personal Income Tax Top-up Provisional Tax payments.

Ready to Submit Your Interim EMP501 Reconciliation By 31 October?

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“The interim reconciliation process has become an integral part of the employer reconciliation and assists employers…” (SARS)

Employers are assisted by the interim EMP501 reconciliation, says SARS, because it makes it easier to:

  • make more accurate annual reconciliation submissions
  • maintain an up-to-date employee database
  • register employees for income tax purposes

Of course, there are other benefits, such as maintaining your compliant tax status, and avoiding wasting money on stiff penalties and interest.

It goes without saying that you want to reap all these benefits for your business. Allow us to help you to understand what needs to be done. We will be able to assist in ensuring a smooth, hassle-free submission process – even with the next deadline right around the corner.


EMP501 Reconciliation fast facts

  • All employers are required to submit an EMP501 Reconciliation
  • There are two deadlines in each tax year. For the 2025 tax year the deadlines are:

 

  • 31 October 2024 – 2025 Interim Reconciliation (for the period 1 March 2024 – 31 August 2024)
  • 31 May 2025 – 2025 Annual Reconciliation (for the period 1 September 2024 – 28 February 2025)


Potential pitfalls

The EMP501 Reconciliation is an intricate process which creates many opportunities for errors:

  • Payroll information must be verified
  • Correct deduction of employees’ tax (PAYE), Skills Development Levy (SDL), and Unemployment Insurance Fund (UIF) contributions must be verified
  • Deductions must reconcile with IRP5 / IT3(a) tax certificates
  • Employment Tax Incentive (ETI) values claimed must be reconciled
  • EMP201 returns must be reconciled with actual payments made to SARS
  • EMP201 returns must be reconciled with EMP501 statements
  • Employee information needs to be updated on eFiling
  • Employees without tax numbers must be registered
  • Employer’s Reconciliation Declaration (EMP501) needs to be submitted via the eFiling website or the e@syFile application

This is an intricate and time-consuming process, and, as SARS puts it, “accuracy and timely filing are critical”.


Consequences of non-compliance

This is serious business. Inaccuracies or late submission can result in severe consequences.

  • Calculating PAYE liability incorrectly will result in the imposition of both penalties and interest. This includes corrections made on the EMP501 reconciliation, as any shortfall is attributed to the last month of the reconciliation period.
  • If an employer submits their EMP501 late, administrative penalties will be charged. The penalty will equal 1% of the year’s PAYE liability, increasing each month by 1% (up to a maximum of 10% of the year’s PAYE liability).
  • An employer who wilfully or negligently fails to submit an EMP201 or EMP501 return to SARS is guilty of an offence and could face a fine or imprisonment for a period of up to two years.


The bottom line 

The penalties are stiff, and the submission process is fraught with opportunities for inaccuracies and errors.

How To Avoid an eFiling Profile Hijacking

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“…it is vital that all stakeholders in the digital ecosystem, including the taxpayers, SARS, and the banks, work together to prevent and combat profile hijacking.” (SARS)

The recent spike in the number of SARS eFiling profiles being hacked by cybercriminals should raise red flags for every taxpayer. It’s got so bad that the Minister of Finance has given the Office of the Tax Ombud (OTO) approval to conduct a review of SARS’ service failures in assisting taxpayers timeously with eFiling profile hijacking.

This is a type of cybercrime in which fraudsters use phishing, malware, or social engineering to access and modify your personal or professional profile on a digital platform like SARS’ eFiling without your knowledge or consent.


Has this ever happened to you? 

  • You receive an email, SMS, or WhatsApp, seemingly from SARS, asking you to click on a link or attachment to update your profile, verify your information, or claim a refund. It appears legitimate, and not realising it’s a fake, you just do as the message says…
  • You receive a call from someone pretending to be a SARS official, asking you to confirm your personal details or to click on a link, and you do, not realising that it will install malware on your device…
  • You are contacted by someone pretending to be a SARS official, offering you tax assistance or advice, and asking you to share your login credentials, OTP, or personal information with them, and you do…

Fraudsters use methods like these to trick you into revealing your login credentials. An alarming number of taxpayers have fallen victim to these unscrupulous predators, despite continuous system enhancements to secure and strengthen the security of SARS’ channels.


What could happen if my SARS eFiling profile is hacked? 

Fraudsters can access and modify your details (e.g. contact number, password) without your knowledge or consent – with serious consequences for your tax compliance and financial security.

They can then also change the bank details to divert a SARS refund due to you into their own accounts. And they can even submit fraudulent returns on your behalf to claim refunds!


How can I prevent profile hijacking?

Prevention is far better than cure. Here are a few pointers, direct from SARS.

  • Use a strong and unique password for your eFiling profile. Change it regularly.
  • Don’t use the same password for other online accounts or services.
  • Never share your login credentials, OTP, or personal information with anyone, even if they claim to be from SARS.
  • If you hear about a security compromise at any organisation you deal with, immediately log in to your account and update your password.
  • Always access eFiling through the official website (https://www.sars.gov.za) or the SARS eFiling mobi app.
  • Do not click on any links or attachments in emails, SMSes or WhatsApps that claim to be from SARS, and never “confirm” or submit your login details after clicking on a link.
  • Keep your computer and mobile devices updated with the latest security software and antivirus programs.
  • Activate multi-factor or “app” authentication on your eFiling profile. This will authenticate you every time you log in by sending an OTP message to your registered mobile number or email address or requesting you to authorise the action via your mobile phone.


We can help to keep you safe  

As your accountants, we are well versed in avoiding these scams. Whenever you receive communications that seem to be from SARS, simply contact us.

  • We are alerted to all known scams claiming to be from SARS, so we can quickly help you to identify phishing attempts.
  • We can check your eFiling profile and tax information regularly and report any discrepancies or unauthorized changes to SARS immediately.
  • We constantly update our security details to ensure the safety of our profile and our clients’ profiles.


In summary

SARS itself recognises that profile hijacking is a serious crime that harms taxpayers. But prevention is always better than cure. Take proactive steps to protect your security and contact us whenever you receive communications that seem to be from SARS. 

Business Owners: Have You Tried These Money-Saving Hacks?

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“Beware of little expenses; a small leak will sink a great ship.” (Benjamin Franklin)

When a company is struggling with cashflow, or simply looking to improve profitability, the directors will often consider making grand sweeping changes like retrenching staff, slashing the marketing budget or even selling off resources. While this kind of kneejerk reaction can provide instant gratification, it may not be the solution to your long-term struggles. Cutting back on marketing might impact future sales, for example, and end up making things even worse.

That’s why it’s often a good idea to eliminate small expenses and wasteful expenditures, when you’re looking to streamline cash flow. Here are five simple ways to save money that you may not have considered.

  1. Beware bank charges

    How did your company open its first bank account? Why did you choose that particular bank? If you haven’t thought about these things in a while, now’s a good time to start. The first step would be comparing bank charges – how much are you being charged to transact, and could you be paying less? Your accountant can help you to break down your company’s needs and find the best solution. Do you need to transact every day, or can you save money by paying off your creditors in scheduled payment runs? Would bundled services work better than transacting at will? How many credit cards do you need? Do you use overdraft facilities? The bottom line: stop paying for services you don’t need.

  2. Trim the tech costs

    Technology is essential for running a business, but do you need (or even use) everything you currently have? Costs such as software subscriptions, fibre lines and cell phone contracts should all be looked at closely. Do you need a 200Mb/s download or will a 50Mb/s work just as well? Which of your employees really uses their company phones to generate profit? Small businesses will even benefit from looking at their software licences. Many popular work solutions have free, open-source counterparts that work very well and don’t require a monthly payment. Even if you decide you do need to pay for licences, you might be able to cut down on the number of licences.

  3. Exercise office efficiency

    Monthly utilities may seem like something you can’t go without, but it might be wise to reconsider. Have a look at your work arrangement. Could you operate a shared desk situation for hybrid workers? Have you considered installing flow restriction nozzles on bathroom taps, and LED bulbs in the light fittings? Reducing the size of your office space and then maximising the savings attained on the utilities can save thousands each month – money that could be spent on attracting new clients.

  4. Commit to your favourite vendors

    In business, commitment can be a cost-saving. If you have regular suppliers you’re happy with, why not speak to them about longer-term arrangements for cheaper monthly charges? Small business owners are particularly guilty of accepting supplier prices without considering the various ways these can be negotiated. Some of your suppliers might place great value on a one-year contract as opposed to a month-by-month one. Or they may be prepared to throw in free services in exchange for your guaranteed monthly spend. Ask your accountant to take a look at your current supplier arrangements and suggest alternatives and/or ways to reduce costs. It could have a significant impact.

  5. Adjust your payment and collection terms

    Most big companies have their invoice payment and collection systems down to a fine art – but smaller businesses may not even think about them. Making sure that your creditors settle their invoices long before you need to make payments yourself allows you to benefit from the interest of having money in your account. It also ensures you never have to pay fines for missed payments or become overdrawn. As your accountants, we can help to streamline your payment and collection terms, and potentially achieve some significant savings.


The bottom line

Making cost savings doesn’t need to mean losing clients, products or expertise. And the hacks above are just the tip of the iceberg – there are loads of other small ways to save money. Speak to us about taking the small steps to greater profitability.