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“SARS is willing and ready to assist taxpayers who want to be compliant. Where taxpayers willfully and intentionally ignore their legal obligations, SARS will act sternly.” (SARS Commissioner Edward Kieswetter)

Businesses are often required to share their tax compliance status, for example for a tender application, bidding process or prequalification as a supplier; to confirm that their tax affairs are in order with SARS; to receive payment; or for foreign investment allowances.

This is because proof of tax compliance is accepted as an indicator of how well a company is managed and its good standing in terms of its legal obligations. Tax compliance also saves time and money.

SARS provides clear advice to owners of small, micro and medium enterprises (SMMEs) on how to achieve tax compliance, both in the business and in their personal capacity, including a recommendation to seek the advice of an accountant.

Which tax types apply to you and your business?

This handy table from SARS details the tax types that generally apply to SMME businesses and their owners.

Source: SARS

Compliance life cycle

The “compliance life cycle” as SARS calls it, applies to each one of the tax types for which the business and the owner are liable.

It involves completing these steps in your tax relationship with SARS from beginning to end: 

• Registration on SARS’ system for each tax type applicable;

• Timely and correct declarations or returns for each tax type, including submitting relevant supporting documents;

• Timely payments where a tax liability exists; and

• Deregistration from tax types if the business is liquidated or closed.

To meet these requirements consistently across all the relevant tax types over the tax year, in an always-changing tax landscape, taxpayers should consider professional assistance.

Consequences of non-compliance

Non-compliance is a costly choice, generally involving penalties and interest, as well as additional fees to rectify, and potentially further losses, such as losing a business opportunity or the confidence of clients, stakeholders and investors, or suffering reputational damage.

In addition, not registering for a tax type to evade paying taxes, as well as the non-submission of tax returns are criminal offences, which may result in a fine, imprisonment or both.

Outstanding returns will also negatively affect tax compliance status, and administrative penalties that will attract interest may be incurred for non-submission.

Where tax liabilities have not been paid, and no payment arrangement has been made, penalties and interest will also apply, tax compliance status will be affected, and SARS may appoint third parties, such as a registered bank, to recover the outstanding tax. 

Ensuring compliance

Human errors and simple mistakes are common given the complex tax types, rules and strict deadlines. Nevertheless, a taxpayer can be found guilty of an offence without SARS having to show that the taxpayer committed it wilfully, deliberately and knowingly. It means that even unintentional or administrative errors can be penalised with a maximum penalty and, in some cases, criminal sanctions.

This makes it essential to rely on your accountant, who is not only well-versed in the requirements and deadlines of the various tax types applicable to your business but is also up to date with the latest rules and processes, and how it affects your tax compliance.

“Employing an accountant, tax practitioner, or other tax professional to complete returns, or from whom to obtain advice before completing a return with entries that are not understood or adopting a position with tax implications” is among SARS’ recommended ways to ensure reasonable care has been taken by a taxpayer.

It is our best advice too for tax compliance throughout 2024.

“The best way to predict the future is to create it.” (Peter Drucker)

Facing what may well be another tough year, company owners and managers will be well aware that many of the external challenges will be beyond their control.

Fortunately, what remains under your control is how this new year is approached and starting 2024 with a thorough understanding of the three metrics below will ensure that this could be the best year yet for your business –

1. The business’ past performance,
2. Its current status, and
3. Its mission for the new year.

You don’t need an MBA or special knowledge to assess the company’s past performance, to understand the present situation, or to plan for the year ahead. Just schedule some time with your accountant, take inventory of what’s truly going on in your business and decide how to make 2024 your best year yet.

Assessing the past

An assessment of the company’s performance over previous years provides invaluable information about what is working and what needs to be changed.

A relatively quick and easy way of assessing the past performance is looking at the business accounts and financial reports.

• For example, your profit and loss (P&L) statement, or income statement, will reveal reasons for periods when net losses were recorded (for example, slow business periods or extraordinary expenses) as well as raise red flags where expenses regularly exceed income.
• A balance sheet summarises total assets and total liabilities, showing the company’s financial position and measuring liquidity or ability to pay short-term liabilities.
• Summarising expected cash inflows and outflows over a period, a cashflow report reveals where the most cash is generated and used; highlights potential cash flow problems and enables informed budgeting and spending decisions.
• Regular debtors’ reports enable proactive management of current and overdue invoices to improve cashflow. Similarly, budget vs actual spend reports compare actual spending to the amounts budgeted for the period, to reveal areas over or under budget and to flag problem areas.

Determine where the business is now

Review the business operations, successes and challenges, and the reasons for missed targets, whether simply drawing on paper or using special software. Understand the company’s current capacity for production and its performance – how many targets met, on target and/or overdue. This enables current strategies, practices and operations to be evaluated, and to pinpoint what is working or not.

Also look at customer satisfaction and retention rates, as well as employee satisfaction, both of which can be assessed through electronic surveys or simply speaking to clients and staff.

Planning ahead

Building on what’s working and realising that doing things differently is the only way to achieve different results, you can choose the goals that will create the future of your business.

Specific, Measurable, Achievable, Relevant and Time bound goals – or SMART goals – focus your team’s efforts and increase the chances of successfully achieving the targets, particularly if these are supported by step-by-step plans, a budget for the required resources, accountability assigned to specific people, and ongoing reviews to track progress.

SMART goals are crucial for achieving success, as they provide a clear focus, specific targets to work towards and motivation for the entire team.

Assistance is at hand

Your accountant will be able to assist you with the financial reports that will allow you to assess the past and present, with advice in respect of tracking non-financial metrics, and with planning for the year ahead – so remember: help is at hand to ensure you approach 2024 with clarity and a solid plan to make it your company’s best year yet.

“Think of giving not as a duty but as a privilege.” (John D. Rockefeller Jr.)

Most businesses want to show appreciation to their employees at the end of a long year’s work, and the “Season of Giving” is the ideal time. A thoughtful gift will make any employee feel more recognised and appreciated, and this will improve morale and enhance perceptions about the company and could even increase employee satisfaction and loyalty.

SARS, however, considers almost any kind of gift to employees as a taxable fringe benefit, and therefore companies need to check with their accountants before giving, to ensure the tax implications are fully understood and taken into consideration.

What does SARS regard as gifts?

Any asset, commodity, goods or property of any nature provided by the employer to the employee at no cost, or a cost which is less than the market value of that item, is regarded as a taxable benefit in the hands of the employee, as per Paragraph 2(a) of the Seventh Schedule to the Income Tax Act.

This means that any gift that can be regarded as an asset will be subject to employees’ tax – whether physical or intangible, and regardless of the value, because there is also no minimum value below which gifts from an employer are exempt from tax.

Furthermore, the gift will be taxable even if the gift is given to an employee’s family member, such as a partner or a child.

Also remember that the onus of proof lies with your company should SARS challenge the tax treatment of any gifts to your employees.

Tax on common employee gifts

Tangible gifts, such as watches or electronic devices, will be taxed in the hands of the employee based on its market value, or on the cost to the employer.

Intangible gifts such as flights, bus tickets or accommodation are also considered as taxable benefits to the employee and the cost to the employer is the taxable amount.

Gift cards and vouchers are among the most popular gifts for employees, but beware!  These are taxed at the same rate as if it the employee received cash. In some cases, it may be better to gift cash instead of a card or voucher that would limit the employee to a single retailer or outlet.

Similarly, bonusses are taxed at the same rate as other remuneration. This means that the amount of the bonus will be added to an employee’s annual salary when the rate of tax payable for the year is determined. The danger here is that the bonus amount might push some employees into a higher tax bracket.

How must the tax be deducted? 

Depending on the nature of the gift, employers will need to determine the cash equivalent, or the market value, or the cost to the company to calculate the employee tax that must be deducted.

This can be quite complex, for example, the value of a benefit where accommodation is provided depends on whether the company owns the property or rents it, as well as whether or not the employee pays towards the accommodation.

The taxable amount calculated must then be reflected as a fringe benefit on the employee’s payslip, and PAYE must be determined and deducted. The benefit must also be declared on the employee’s IRP5/IT3(a) certificate.

Some exceptions?

There may be some possible exceptions, for example, if a gift to an employee does not involve any cost to the employer or where the employee gifts are used for business purposes.

An end-of-year function – whether a lunch celebrating the year’s achievements, or a team-building experience with snacks and refreshments, or a Festive Season office party with employees and their partners – is also a great way to treat your team with a delicious meal and complimentary drinks in a fun and social setting. The food and drinks will be tax-deductible expenses, regarded as a non-taxable occasional meal.

Paid time off work may also be an option that does not have tax implications for the employee.

An employer could also make a donation on an employee’s behalf as a gift. If an employer agrees to process a donation to a S18A-approved organisation through its payroll, such a donation can reduce the employee’s PAYE liability.

Professional advice is vital!

Whichever way your company decides to gift your employees, check with your accountant first to ensure it is both tax compliant and tax efficient.

• 7 November – Monthly Pay-As-You-Earn (PAYE) submissions and payments
• 29 November – Excise Duty payments
• 30 November – Value-Added Tax (VAT) electronic submissions and payments & CIT Provisional payments where applicable

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

Small businesses often lose their talent to large companies simply because they can’t afford the kinds of salaries and incentives on offer at a global corporate. Keeping staff happy is, however, critical for business success. Here are five employee incentives that really work to keep your staff happy, effective and engaged.

1. Allow flexible timeIn the modern world nothing is as precious as time and employers should not underestimate what this would mean for employee motivation. In a recent study on the 4-day work week 89% of all respondents said they would make sacrifices to work four days a week, and 54% said they would gladly work longer hours on the other four days.

   It costs nothing to offer employees the opportunity to set their own hours, and work when they are able. It also gives them the ability to look after families, run errands and still meet their work obligations – something larger companies may not be able to do.

2. Profit sharingProfit sharing is a bonus incentive scheme that effectively only kicks in when the company is profitable. Better yet, it provides personal incentive to employees to make the company as profitable as possible. By offering employees an equal share in the profit sharing regardless of their position you also create a strong sense of teamwork and bond them in a united cause.
3. Public recognitionA big positive of working in a small company is being able to see and know each employee as an individual. Genuine recognition of achievements is therefore possible – did someone go above and beyond, or make a personal sacrifice to make a deadline? Acknowledge it publicly, in front of everyone else.

   In a recent survey, 92% of all employees say they are likely to repeat an action if they are recognised for it. Simple acknowledgement can be motivation enough, but if this is backed up with a real reward, like paid time off or a monetary bonus it can become even more effective.

4. Make the office more funSmall companies can introduce flexibility in office protocols as well as work hours. Think about how you can make things more relaxed in a genuine and helpful way. Consider providing a room where people can bring their children to do their homework after school pick up or allow employees to bring pets in on one day a week. Is South Africa playing a cricket test match? Put it on in the break room. Let people have a say in which coffee and tea are available and always remember birthdays with a thoughtful gift.
5. Points-based incentives
   
   A points-based incentive program allows employees to gather points and ultimately redeem them for rewards. You could develop a book of rewards your employees will genuinely enjoy from small things like free lunch and gift cards to theatre tickets, holidays, spa treatments, and cell phones.

   These incentive programs offer two major benefits, firstly your employees get things they actually want instead of generic rewards creating more motivation and secondly, they allow you to closely tailor where, how and for what employees are rewarded. This means greater incentive can be given for things that move your business closer to its goals.

Ask your accountant for advice on structuring these incentives to be as beneficial and cost-effective as possible.