Employer Annual Reconciliation Due

VDJ_PAYE-01
Employers should be aware that Employer Annual Reconciliation submission due date is fast approaching. If the relevant deadlines are missed, certain penalties will apply.

When should it be paid?
 

The Employer Annual Reconciliation starts on 1 April 2018 and employers have until 31 May 2018 to submit their Annual Reconciliation Declarations (EMP501) for the period 1 March 2017 to 28 February 2018 in respect of the Monthly Employer Declarations (EMP201) submitted, payments made, Employee Income Tax Certificates [IRP5/IT3(a)], and ETI, if applicable.

What do I need to do?

Employer Annual Reconciliation involves an employer submitting an accurate Employer Reconciliation Declaration (EMP501), Employee Tax Certificates [IRP5/IT3(a)s] to be issued and, if applicable, a Tax Certificate Cancellation Declaration (EMP601).

Every employer who is registered at SARS for Pay-As-You-Earn (PAYE), Unemployment Insurance Fund(UIF) or Skills Development Levy(SDL), should submit an EMP501. An employer is required to submit accurate reconciliation declaration (EMP501) in respect of the monthly declarations (EMP201) that was submitted, payments made and the IRP5 / IT3(a) certificates for the following periods:

  • Annual period: this is for the period from 1 March 2017 to 28 February 2018
  • Interim period: this is for the period from 1 March 2018 to 31 August 2018

What is PAYE?

Employees’ Tax refers to the tax required to be deducted by an employer from an employee’s remuneration paid or payable. The process of deducting or withholding tax from remuneration as it is earned by an employee is commonly referred to as Pay-As-You-Earn, or PAYE.

What happens when you miss the deadline?

Employers who miss deadline submissions on any of the below are subject to a percentage-based penalty:

  1. Non-submission of an Employer Annual Reconciliation (EMP501) on or before the due date.
  2. Non-submission of employee IRP5 / IT3(a) certificates.
  3. Submission of incorrect or inaccurate data relating to the IRP5 / IT3(a) certificates.

This penalty will be charged for each month that the employer continues to fail to remedy the non-submission.

Avoid the confusion and late submission by contacting us for assistance.

This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

VALID TAX INVOICE REQUIREMENTS
FOR VAT VENDORS

Images-04When making a purchase for your business, you should always ensure you receive a valid VAT invoice. This enables you to claim input VAT from SARS. With the change in VAT rate from 14% to 15%, VAT has come under the spotlight. This brings more focus on VAT compliance and more specifically on when we can claim input VAT on an invoice, and what constitutes a valid VAT invoice. This is something small that is very much neglected when it comes to monthly bookkeeping. It is very important to pay attention to the invoices that are sent to your accountants as these invoices need to be “valid” before the input VAT can be claimed from the South African Revenue Service (SARS).

Please read through the following crucial information carefully with regard to valid VAT invoices.

South Africa operates on a VAT system whereby VAT registered businesses are allowed to claim the VAT (input VAT) incurred on business expenses from the VAT collected (output VAT) on the supplies made by the business. The most crucial document in such a system is the tax invoice. Without a valid tax invoice, a business cannot deduct input tax paid on business expenses.

The VAT Act prescribes that a tax invoice must contain certain details about the taxable supply made by the business as well as the parties to the transaction. The VAT Act also prescribes the timeframe within which a tax invoice must be issued (i.e. 21 days from the time the supply was made).

A business is required to issue a full tax invoice when the price is more than R5 000 and may issue an abridged tax invoice when the consideration for the supply is R 5 000 or less than R5 000. No tax invoice is needed for a supply of R50 or less. However, a document such as a till slip or sales docket indicating the VAT charged by the supplier will still be required to verify the tax deducted.

As from 8 January 2016, the following information must be present on a tax invoice for it to be considered valid by SARS:

  • Contains the words “Tax Invoice”, “VAT Invoice” or “Invoice”;
  • Name, address and VAT registration number of the supplier;
  • Name, address and where the recipient is a vendor, the recipient’s VAT registration number;
  • Serial number and date of issue of invoice;
  • Correct description of goods and /or services (indicating where the applicable goods are second hand);
  • Quantity or volume of goods or services supplied; and
  • Value of the supply, the amount of tax charged and the consideration of the supply.

This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

CRYPTOCURRENCY

Images-06Cryptocurrency and blockchain has been the hot topic in the media the past year.  It is a concept that few truly understand, and could change the future for everyone in a major way.

But what is cryptocurrency and blockchain?

Per the online dictionary:

A cryptocurrency is a digital currency in which encryption techniques are used to regulate the generation of units of currency and verify the transfer of funds, operating independently of a central bank.

The most popular currently in the market is Bitcoin; others include Eutherian and Litecoin. There are various platforms on which to trade in cryptocurrency, for example Luno. Luno functions like the JSE, where willing buyers and willing sellers transact in shares / cryptocurrencies.

Blockchain is a digital ledger in which transactions made in Bitcoin or another cryptocurrency are recorded chronologically and publicly.

An example to demontrate how blockchain works:

Pete wants to buy Bitcoin from Mary.  They both use Luno as platform to trade on.

By joining Luno, Pete and Mary effectively each receives a copy of the big overall “ledger” that shows where each unit of Bitcoin is at that point in time and where each unit of Bitcoin has been.

Each transaction is represented as a block. Each time a transaction is authorised, a block is then added to the other blocks already in place creating a chain, hence the term “blockchain technology”.

The chain is then compared between all the copies of the “ledgers” that are spread out over the world to validate them.  You can actually add Bitcoin to your own account without actually purchasing any, but as soon as your ledger compares to the others around you, it will see the unauthorised transactions and reject your version.

Bitcoin is severly encrypted, therefore to be able to finalise a transaction, there are people in the market who solve very complex mathematical problems using a significant amount of expensive computing power to authorise the transaction. These people are called “miners”. They receive one Bitcoin for every transaction they finalise.

As soon as the transaction between Pete and Mary is authorised by the miner, the “ledger” is updated by adding another block to the chain.

The question that then arises is why would hackers not just hack and authorise transactions for themselves? This is where the magic of blockchain technology comes in – the computing power required to solve the complex problem is so expensive, that is more costly to hack than to rather just act as miners themselves and earn Bitcoin. Therefore, no one needs to trust each other and the technology allows the users to trust the system.

It is this level of technology that will regulate the future, effectively eliminating the need for lawyers and banks. The concept is throwing governments across the globe into a state of panic as there is currently no proper regulation inbedded in current tax laws.

Like Da Vinci’s inventions, the technology is a little ahead of its time and the rest of the world needs some time catching up.  It is therefore critical to keep an eye on further developments as this will impact the way business is done in future.

This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

CHANGES TO INCOME TAX RETURNS
FOR TRUSTS

Images-02The South African Revenue Service (“SARS”) implemented several changes to the income tax returns for trusts (the ITR12T) on 26 February 2018. These changes apply in respect of the year of assessment ending on or after 28 February 2017, unless taxpayers have already saved or submitted the relevant 2017 ITR12T prior to the implementation of these latest changes.

One of the important changes includes the updating of the supporting trust participant schedule to the ITR12T in order to identify loans granted to the trust that are subject to the provisions of the newly introduced section 7C of the Income Tax Act.[1] This section deals with interest-free or low-interest loans to a trust that are made directly or indirectly by a natural person or a company in certain specific circumstances. Should these provisions apply, section 7C deems the interest foregone on the loan to be a continuing annual donation that attracts donations tax. This donation is deemed to be made on the last day of the year of assessment of the trust[2] (which is generally the last day of February) and is payable by the end of the month following the month during which the donation takes effect (which would then be the end of March).[3]

Also, trusts that are collective investment schemes or employee share incentive schemes are no longer required to disclose information relating to the details of persons that transacted with the trust. However, all other trusts must ensure that income distributed by the trust to other persons are fully disclosed. Additional validations in this regard were therefore also introduced.

Other amendments to the ITR12T include the introduction of a new local income type which relates to dividends that are deemed to be income in terms of section 8E and section 8EA of the Income Tax Act. (These provisions are aimed at penalising debt instruments that have been disguised as equity in order to avoid tax.)

The ITR12T also includes a new detailed schedule relating to learnerships for purposes of claiming the deduction in terms of section 12H of the Income Tax Act. Separate disclosure is required for learners with a disability and learners without a disability for both NQF levels 1 to 6 and NQF levels 7 to 10. Also, the number of learners and the allowance amount for each of these fields must be completed.

The take away is that trusts should carefully consider these new requirements in order to ensure that the new ITR12T is completed correctly.

[1] No. 58 of 1962

[2] Section 7C of the Income Tax Act

[3] Section 60(1) of the Income Tax Act

This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

EMPLOYEES’ TAX RECONCILIATION 2018

Images-08April to May each year is the time that employers are given to perform their employees’ tax reconciliation. During this Employer Reconciliation process, employers are required to submit an EMP501 declaration which reconciles the taxes collected from employees with the monies paid to SARS and the total tax value of employees, income tax certificates (IRP5), for the respective period.

The Income Tax Act No. 58 of 1962, states inter alia, that employers are required to:

  1. deduct the correct amount of tax from employees,
  2. pay this amount to SARS monthly,
  3. reconcile these deductions and payments during the annual and the interim reconciliation, and
  4. issue tax certificates to employees.

To comply with the Income Tax Act, employers must submit their Monthly Employer Declarations (EMP201s) to SARS on or before the 7th of the following month.

SARS has over the past few years improved the process of reconciliations with the use of applications, such as eFiling and e@syfile. It has significantly reduced the administration required to submit the reconciliations.

The EMP501 reconciliation for the 12 months ended 28 February 2018, must be rendered on or before 31 May 2018.

Some important pointers to bear in mind:

  • E@sy-File Employer software has been updated to version 6.8.3
  • Employers are urged to check their PAYE banking details on the e-Filing RAV01 form.
  • This will ensure that the banking details are correct in cases where an ETI refund is expected.
  • If the details are incorrect, employers will need to visit a SARS branch to update it.
  • Copies of all declarations submitted and related supporting documents (relevant material) must be kept for five years.
  • Send your reconciliation before the deadline to avoid penalties and interest being charged.

This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

WHY IT IS IMPORTANT TO KNOW THE VALUE OF YOUR BUSINESS?

Images-02A properly considered business valuation can be the first step in many essential business processes and activities. Although there are many examples, these might include procurement of a buy and sell policy or facilitation of a business restructuring process, for instance.

Initiating negotiations during a sale of business transaction, probably remains the most common business valuation trigger however, and for many business owners, such event might be the first and only time the thought of having a business valuation performed will occur.

Business valuations are therefore often treated as the end, rather than the means to an end.

Growing a successful business requires an enormous time investment. When doing it right, this investment is justified however, since no other investment has the potential to reward your time investment over the long-term, better than a successful business. For this reason, we have always found it peculiar when business owners are willing to wait until just before sale before deeming it important to quantify the value of their plans, time (often years), efforts, etc.

This is probably where the value of proper valuation is mostly overlooked – we tend to view valuation as the end while it should maybe rather be viewed as a guiding key performance indicator on the journey to comfortable retirement or eventual exit from a business, regardless of what the reason for exit might be. Valuations should be the means to an end, employed to help inform decision making and strategic process, not when you are ready to sell, but rather while it is still possible to make positive adjustments to your business.

In this context, we generally advise that a business valuation be performed at least on an annual basis, even if only employed in internal processes, as a key performance indicator. By taking this approach, performance and growth can be measured periodically while the necessary strategic and operational adjustments can be made while there is still time to build value through good and prudent business decisions.

Having said this, it is important to note that the value of a valuation is limited to the quality of its interpretation and application. It is important that a valuation instructs focussed action, and it is therefore always a good idea to involve a trusted and experienced financial advisor in your strategic, as well as financial processes.

This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

THE VAT INCREASE AND REAL ESTATE SALES

Images-08On 21 February 2018, former Finance Minister, Malusi Gigaba announced National Treasury’s decision to increase the VAT rate from 14% to 15%, with effect from 1 April 2018. Since then our practice has been inundated with queries regarding the correct treatment of VAT specifically in the context of residential properties being sold. Where an agreement has already been concluded for the sale of a property by a VAT vendor, is VAT required to be levied at 14% or 15%? The question is of specific relevance in the property market given the high values typically associated with such transactions.

Ordinarily, output tax would become due when immovable properties are sold by VAT vendors at the earlier of when any amount as part of that transaction has been paid, or when the transfer of the property has been registered in the Deeds Office.[1] Therefore, ordinarily, when an agreement for sale of a property (by a VAT vendor) has been signed by both parties, output VAT only needs to be charged once any payment is made by the purchaser (which would include payment of a deposit) or when the sale is registered with the Deeds Office.

The concern is therefore that properties for which an agreement has already been signed may be subject to VAT at 15% due to the delayed effect that the above provision gives rise to in determining the time of supply for VAT purposes.

In the case of a change in the VAT rate, the above rule does not apply. Which VAT rate is to apply then is not determined by when the underlying VAT is payable. Rather, section 67A(4) of the VAT Act provides the necessary relief.[2] It determines essentially that where any residential property is sold in terms of an agreement signed and concluded before 1 April 2018, that that transaction will still be subject to VAT at 14%.

The above therefore provides at least some reprieve for residential property purchases concluded prior to the announcement of the VAT increase. However, we have come across various more complex scenarios and would encourage affected parties to contact us to ensure that the VAT treatment of their immovable property transactions is correctly accounted for.

This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

[1] Section 9(3)(d) of the VAT Act, 89 of 1991

[2] (4) … [W]here, before the date on which an increase in the rate of tax leviable … becomes effective, a written agreement is concluded for – the sale of fixed property consisting of any dwelling together with land on which it is erected, or of any real right conferring a right of occupation of a dwelling or of any unit …; or

(b) the sale of fixed property consisting of land, or of any real right conferring a right of occupation of land for the sole or principal purpose of the erection by or for the purchaser of a dwelling … on the land, as confirmed by the purchaser in writing; or

(c) the construction by any vendor carrying on a construction enterprise of any new dwelling, and- the price in respect of the sale or construction in question was determined and stated in the said agreement, as in force before the said date, and that agreement was signed by the parties thereto before the said date; and

(ii) the supply of such fixed property or services under the said agreement is in terms of section 9 deemed to take place on or after the said date,

the rate at which tax is in … leviable in respect of that supply, shall be the rate at which tax would have been levied had the supply taken place on the date on which such agreement was concluded.

FRINGE BENEFITS PROVIDED TO EMPLOYEES

Images-04The Seventh Schedule to the Income Tax Act[1] lists various benefits that employers may grant to employees which will attract income tax for the employee,[2] and require the employer to also withhold PAYE on the amount of the benefit granted.[3] These provisions act as anti-avoidance measures to avoid employees receiving “masked” remuneration in formats other than cash in order to avoid a liability for income tax.

The Seventh Schedule identifies a number of such taxable fringe benefits, and further quantifies the cash flow equivalent of that benefit for purposes of inclusion ultimately in the employee’s taxable income. These taxable benefits provided by employers to employees include:[4]

  1. The acquisition by the employee of assets from the employer at less than its value;
  2. The right to use an asset for free or without the employee paying adequate consideration for the use thereof;
  3. Free meals, refreshments or vouchers to that effect;
  4. Free or cheap residential accommodation;
  5. Free or cheap services provided or sourced by the employer for the benefit of the employee;
  6. Where the employer provides an interest-free or low-interest loan to an employee;
  7. Where the employer pays all of, or a portion of, the employee’s debt owed to another person, with no recourse to the employee;
  8. The employer settles any direct or indirect medical costs incurred by the employee and to the benefit of the employee him/herself, as well as any other dependents;
  9. Contributions made by the employer to any insurance policy which will benefit the employee; and
  10. Contributions by the employer to any retirement type fund on behalf of the employee.

Fringe benefits further also extend to where the above benefits are granted to family members of the employee, or any other person where those benefits are extended by virtue of an arrangement between the employer and the employee and which is granted as a result of the existence of the employment relationship.[5]

Given the very wide definition afforded to the word “employee” for purposes of the fringe benefit regime,[6] we often find that clients are surprised at the very wide potential application of the above benefits, be it to the employee directly or not. Given that the PAYE regime, affected by the above mentioned, carries a potential penalty of imprisonment for up to twelve months in instances of wilful contravention or contravention without just cause,[7] it is of the utmost importance that employers too are completely up to date with and aware of the obligations that they may have towards SARS and arising from fringe benefits provided to employees.

This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

References:

[1] 58 of 1962.

[2] See paragraph (i) of the specific inclusions in the “gross income” definition in section 1 of the Income Tax Act.

[3] Paragraph 2 of the Fourth Schedule to the Income Tax Act.

[4] Paragraph 2 of the Seventh Schedule to the Income Tax Act.

[5] Paragraph 16 of the Seventh Schedule to the Income Tax Act.

[6] Paragraph 1 of the Fourth Schedule read with paragraph 1 of the Seventh Schedule to the Income Tax Act.

[7] Paragraph 30(1) of the Fourth Schedule to the Income Tax Act.

CHANGES TO INCOME TAX RETURNS FOR COMPANIES

Images-06The South African Revenue Service (“SARS”) implemented several changes to the annual income tax returns for companies (the ITR14) on 26 February 2018 as part of SARS’ ongoing efforts to promote efficiency and compliance.

Two new schedules were added to the ITR14. Firstly, companies that wish to claim the learnership allowance in terms of section 12H of the Income Tax Act[1] will now need to disclose details of its registered learnerships in a separate schedule. In terms of this schedule, separate disclosure is required for learners with a disability and learners without a disability for both NQF levels 1 to 6 and NQF levels 7 to 10. Also, the number of learners and the allowance amount for each of these fields must be completed.

The second schedule relates to controlled foreign companies (“CFCs”). In terms of section 72A of the Income Tax Act, resident companies that hold at least 10 percent of the participation rights in any CFC (otherwise than indirectly through a company which is a resident), must submit a return to SARS. The “old” IT10B Adobe PDF schedule has been replaced with a simplified MS Excel IT10B schedule, which enables companies to declare all CFC information in one consolidated schedule that can be uploaded to eFiling as a supporting document, regardless of the number of interests held in CFCs. The new IT10B schedule must be used and uploaded on eFiling for all ITR14s submitted from 1 June 2018 onwards. This is to accommodate taxpayers that already completed CFC information based on the old format.

Additional disclosure requirements were also introduced for groups of companies that prepare consolidated financial statements. In future, companies with subsidiaries are required to submit a complete group structure together with the ITR14. New questions with regards to the country-by-country reporting regulations have also been added.  Companies that are subject to these regulations will have to specify the tax jurisdiction of the reporting entity for the multinational entity group as well as the name of the reporting entity. A number of additional line items have furthermore been added to the tax computation portion of the ITR14 to take other legislative amendments into account.

An example of this new ITR14 is available on SARS’ website for further consideration. Tax compliance officers of companies should carefully consider these new requirements in order to ensure that the relevant ITR14 is completed correctly and that all the required supporting documentation is submitted together with the ITR14. Companies that have already created new tax returns on eFiling but which have not yet been submitted should furthermore consider to what extent these changes will affect such returns.

This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

Reference:

[1] No. 58 of 1962

VAT INCREASE AND ACCOUNTING SYSTEMS

As you are aware, the National Treasury announced an increase in Value Added Tax (VAT) from 14% to 15% effective 1 April 2018.

We urge you to ensure that your accounting systems are set up to process transactions at the new VAT rate of 15% from 1 April 2018.  This is to avoid any penalties or interest due to an under declaration or an over claim on your VAT201 return.

Also note that vendors under Category B (March/April), Category E (annual return) and most farmers registered under Category D VAT reporting periods, will have transactions subject to the VAT rate of 14% and 15% which must be correctly reflected on the VAT201 return.

SG_VAT_AccSystems

Feel free to contact us should you have any questions or require assistance.

This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE)