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The assessed loss rules have always allowed companies to deduct from their taxable income each year any assessed losses from previous years. The remaining assessed loss balances could be carried forward indefinitely. This meant that a company would only pay income tax once it made a taxable profit and all previous assessed losses had been deducted from the taxable income.

These rules have changed and may affect your next income tax bill.

What’s new? 

Under the new rules, assessed losses brought forward from a previous year of assessment can only be offset against a maximum of 80% of the current year’s taxable income or R1 million, whichever is higher.

This means that many companies will now pay income tax on up to 20% of the taxable income for the year if it exceeds R1 million, even if the assessed loss balance carried forward from previous years far exceeds the taxable income. Adjust your cash flow forecasts accordingly. 

What you should know 

• The new rules apply to any year of assessment that began on 1 April 2022 onwards and that ends on or after 31 March 2023.
• The new limitation applies to a company’s assessed loss balance as at 1 April 2022, and not only to assessed losses accumulated after this date.
• Companies do not lose the balance of an assessed loss that could not be utilised in one tax year, it is just carried forward to the next tax year.
• If a company does not trade for a full year of assessment and no income is earned from such trade, the assessed loss balance will be lost.
• Further complex rules may apply in certain circumstances, for example, the 3-out-of-5-years rule and the ring-fencing of losses if a business carries on one of the listed “suspect trades”, which means professional advice is essential when deducting an assessed loss against taxable income.

Will your tax bill be affected? 

Some companies will not be affected immediately, for example:

• Companies that made a loss during the year and therefore have no taxable income to reduce;
• Companies that do not have an assessed loss balance brought forward; and
• Smaller companies with a taxable income below R1 million are not affected by the new rules and can still deduct the full balance of an assessed loss against 100% of their taxable income. 

However, the changes will have tax cash flow implications for other companies. The examples below illustrate this.

Both the old and the new rules are complex. In addition, some of the wording in the legislation still needs to be clarified, so speak to your accountant about the impact the new rules will have on your next tax bill.

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

You have your idea, you have your mission statement and perhaps you even have an idea of who your first customers will be, but there are still a few things you should consider doing before you launch your company. When it comes to your finances doing these five things in advance will ready you and your business for success and allow you to focus more on the company and less on the necessary financial administration.

Deal with your personal finances

For some entrepreneurs starting a company is seen as a way to get themselves out of financial trouble. Unfortunately, if this is the case, the company will be starting off on the back foot. If your motivation for starting a business is as a way to repay your own loans or debts, then you won’t be making the best decisions for the company. Ideally, your finances should be clean with debts paid off and taxes up to date. This will allow you to focus on the company for what it is, rather than on what you need.

Ideally, you will be starting your company with your own personal finances sorted for the first six months at least, and with no debt.  If you are in trouble, or don’t have any savings, then it is important that you get any loans and debts under control and reshape your personal expenses in line with leaner times before you take your first new business step.

Consolidate any debts you may have and arrange for lower monthly payments. Cancel any unnecessary services and costs and try to get your monthly outgoings as low as you can before you quit your job or start your company. You are going to have tough months and it’s important that you are ready to weather them if you hope to succeed.

Open a business account

Many new businesses begin as extensions of the owner. Sometimes the owner’s finances are used to pay for business expenses and these costs get lost along the way in the search for success. It is therefore important to decide on a vehicle for your business (ask your accountant to advise you on whether you will be best off with a company, trading trust, or sole tradership) then open a business banking account to more accurately keep track of exactly what is owed by your business to you, or you to your business. All relevant business expenses are tax deductible, but this can’t happen if they aren’t accurately tracked and accounted for in the business. Opening an account will help you not only look more professional but also track your income and outgoings more effectively.

Get your taxes up to date

Your personal taxes are an important aspect of business leadership. If your taxes are not properly filed and up to date when you have a job, the chances are they are only going to get worse. Ask your accountant to look at your personal situation and ensure everything that is owed is paid and signed off.

The good news is that at the same time you can also ask your accountant to look at your business and advise you on how best to structure things to get the most from the money you are earning. In the early days, every cent is going to count, and you will want to wring every benefit possible out of the company to get it launched. You don’t want to be paying more tax than you are required to.

Take a basic finance course

Everything these days can be learnt online. Whether you take a formal course or watch a series of YouTube videos, it is highly advised that you learn the basics of finance, especially if you have never worked in that department before. While working with your accountant is an important step when starting any new endeavour, it is also important that you understand the basics of what is going on day-to-day when it comes to pricing, sales, expenditure, profit and loss. Without this knowledge you won’t be able to make the important decisions that can make or break a company.

Set up automatic invoicing

Many small business owners opt to use Word and Excel invoice templates when starting out, but these require manual entries, can be time consuming and are difficult to track. A recent study also revealed that 39% of invoices are paid late and 61% of late payments are as a direct result of invoicing errors.

Do you know which invoices have been sent out, which have been paid and which are outstanding? There are many automated invoicing systems, which will take the worries out of invoicing and allow you to track payments and due dates. This in turn helps you to keep track of cash flow and ensure that you always have the money necessary to pay your expenses.

Invoice automation systems can also offer automatic reconciliation, generate recurring invoices and even capture data on expenses from photographs of receipts. Importantly you can also generate automatic reminder emails to chase up payments and make your monthly payments automatically, too. The time and stress savings are enormous and at the end of the day you will be able to hand over organised and presentable books to your accountant, enabling them to file taxes and notice potential areas for savings more easily.

At some point, around halfway through the pandemic, experts began to whisper that office space was dead. “No one will be using an office by 2023,” they said. And yet, while it’s true that office space use has declined steeply in some parts of the country, many companies are still finding a use for a dedicated environment in which to conduct business.

Do you need an office for your business?

Remote work has proven that the humble office we remember is not essential, but there are still several functions an office can serve. For many employees, an office can serve simply as a distraction-free environment in which to work, while for others it may cement team relationships. For others, it can be a way to separate work and home lives. Employees also often need physical meeting spaces, a place to pore over designs and showcase physical models. Moreover, introducing new employees is easier in a formal physical office space, as is hosting company celebrations.

Despite this, remote work has seen a decrease in demand in many parts of South Africa and given this there has never been a better time than now to negotiate for that dedicated office space if you find that your company needs it.

These tips will help you get what you need.

Get the right amount of space

Here’s a quick guide to getting the space you need and no more:

• Conference room (15 to 30 people): 75 to 90 square metres
• Small meeting room (2 to 4 people): 30 square metres
• Large meeting room (4 to 8 people): 45 square metres
• Manager’s office: 25 square metres
• Senior Manager’s office including private meeting table: 50 square metres
• Server room (1 to 4 racks): 12 to 40 square metres.

In addition, you will need roughly 30 square metres of space per employee. This may adjust upward dependent on the kind of work you do (do your employees need to spread plans out on their desks for instance?) or downward if employees are hot-desking and not expected to be in the office each day. Finally, remember your future expectations. If the plan is to hire more people shortly, then they should be catered for as well. No use incurring the cost of moving in a few years if you can avoid it. For a more accurate picture that includes what you need, try this office space calculator.

Consider also the “hive” or “shared office space” alternatives on offer in some cities.

Other facilities

When renting an office, you may want to consider a variety of factors that don’t include size. How easy is the office to travel to? Is there traffic and easy access to public transport? Does the block have a generator or solar for loadshedding? Do you need access to printing shops or mailing? What sort of hours will you be open, and will employees need night security and parking? Will your employees need food stores nearby, or are you catering for them?

The rent is only a part of the cost

Most people will want to exclusively look at the price per metre in rent, but remember, while important the monthly rental is only part of the cost. What will you pay for water, lights, security and internet? Can you afford the phone charges? What is included in the rental? Are you responsible for building maintenance or renovation? Is there an allowance for any renovation that might be needed before you take occupation?  Refuse removal costs? What about the cost of furnishing a new building? Will you need to change the carpets or put-up signage on the building? Now is the time to bring in an accountant to help you work out the true cost of your office.

Negotiate

Do not assume that the rent or the terms of the rental agreement are set in stone. These days there is a lot more supply than demand so those who are leasing have the option to ask for rent decreases and favourable terms and conditions.

At this stage, it may be wise to bring in a professional to look at the terms of the contract and negotiate for you. Remember, the party that wins in these situations is always the one who is prepared to walk away.

The ongoing level of rental (and agreed rates of escalation) are likely to be your focus when negotiating the best deal but other negotiation points could include:

• Maintenance of the building – who is responsible for what?
• Length of the term – if you plan a long-term rental, many landlords could be open to lowering the initial rental, perhaps even granting an initial rental holiday, and/or to carry some of your other costs beyond rental.
• Amenities (such as internet, water or electricity) might be included in the bill.

Among businesses, one of the most misunderstood aspects at the moment is ‘The Metaverse’. Businesses that do understand this new phase of the internet are currently seizing opportunities that their competition doesn’t even know exist. This is beginning to change the face of business and social interaction around the world. But what is the Metaverse and why should you be paying attention?

What is the Metaverse?

Quite simply, the metaverse is an extension of the current internet. It is a virtual three-dimensional space where people can interact with one another by developing 3D avatars. This space can take on the appearance of numerous real-world places, such as meeting rooms or concerts, or even more fantastical spaces. It is a fully immersive space on the internet

A blend of virtual reality, second lifestyle online worlds and augmented reality, the Metaverse can be accessed using a simple smartphone or laptop. This makes it extremely accessible for everyone.

What will it be used for?

No one knows for sure just how wide the eventual use case will be, but it will no doubt be huge. Some diverse examples will help illustrate just how fundamentally this might affect our lives and businesses:

• Advertising and marketing – finding new customers and communicating with them;

• The average person in the street – who may use it as a virtual reality gaming platform, or a place to attend a concert by an artist they would otherwise never get to see;

• Businesses tapping into machine learning and AI to incorporate multiple, diverse data sets into a virtual space to improve presentations and decision making;
• Surgeons from around the world all interacting over a patient’s scans;

• Classrooms exploring the James Webb telescope images in 3D projections they can fly through;

• Immersive in-depth product demonstrations;

• Interactive TV shows;

• Remote maintenance assistance to areas where technicians are usually unavailable; or

• News production that puts viewers seemingly on the spot.

At the moment, the opportunities seem unlimited.

Watch for example The Economist’s “How will businesses use the metaverse?” on YouTube.

How will this affect your business?

At the moment only a small percentage of businesses are using, or even aware of the Metaverse, but this is set to change.  A recent Gartner Marketing Survey found that 35% of consumers have never heard of the Metaverse but as per projections, Gartner expects that by 2026, 25% of people will spend at least one hour a day in the Metaverse for work, shopping, education, social media, and entertainment etc. Be ready to adapt!

Here are just a few areas the rapidly developing Metaverse may impact your industry:

Remote work

Using the Metaverse for remote work will involve more than simply creating a virtual office to connect teams that may be working from home. Short, interactive virtual reality meet-ups could allow chats between colleagues and facilitate gatherings with, for example, a comedian or musician for entertainment.

Three-dimensional online shopping

Online shopping has the distinct downside of not allowing customers to interact with what they are buying. They are unable to visualise the object or get a sense of just what it may look like in their homes. Interactive 3D shopping will start narrowing this gap.

Manufacturing

Prototyping and product testing can be accelerated online. Factory layouts and warehousing can be tested for efficiency and raw materials can be sourced and shipped more easily and with fewer delays.

Streamlined workflows and cost optimisation

In a virtual world of in-depth, real and accurate simulators, employee training, onboarding and orientation need no longer take as much time as they once did. Everything from how to work your unique machinery to pitching the product to clients can be done in quantifiable virtual simulations.

Better sales

Advertising at the moment is all about connecting emotionally and drawing the consumer into the world of the brand. Imagine how much easier this will be when you can invite the customer into a virtual world to experience a tailor-made experience?

Global market for talent

Companies that operate out of countries with weaker currencies are going to find it increasingly difficult to source the staff they need. As the Metaverse draws the world together, those with talent and skills are going to be able to work remotely wherever they like and that will generally be in the places that pay them better. Everything from HR policies to salaries and benefits will need to change.

What is abundantly clear is that businesses that fail to adapt to the sea-change coming with the Metaverse will find themselves facing precarious times, as did those who failed to adapt to the internet.

The Metaverse is coming. Will you be ready?