Tax season 2019: what can you expect?

SARS recently released two media statements, in which it notes several improvements made to eFiling for the 2019 tax season, including the issue of customised notices indicating specific documents required in the event of an audit or verification and a simulated outcome issued before a taxpayer has filed.

What is the tax season?

Tax season is the period in which individual taxpayers file their income tax returns to ensure that their affairs are in order. Although the majority of taxpayers who earn a salary have already paid tax through monthly pay-as-you-earn tax (PAYE), which was deducted from their salary by their employer and paid over to SARS, employees may still have an obligation to file a tax return if they earn above the filing threshold (see in more detail below). Once SARS reconciles what was paid over by the employer with what a taxpayer declares on their tax return, an assessment is issued which may result in the taxpayer needing to pay an additional tax to SARS, or is due a refund, or neither.

Taxpayers who are natural persons and meet all of the following criteria need not submit a tax return for the 2019 filing season:

  • Your total employment income for the year before tax is not more than R500 000;
  • Your remuneration is paid from one employer or one source (if you changed jobs during the tax year, or have more than one employer or income source, you must file);
  • You have no car or travel allowance, a company car fringe benefit, which is considered as additional income;
  • You do not have any other form of income such as interest, rental income or extra money from a side business; and
  • Employees tax (i.e. PAYE) has been deducted or withheld

Although you are not required to submit a tax return if you meet the above criteria, it is always good practice to ensure that you have a complete filing history with SARS. If your tax records do ever become important in future (such as in the case of remission of penalties, tax clearance certificates, etc.), you do not want to be in a position to have to prove that you were not liable to file a return in a particular year. The administrative burden in the current year certainly outweighs the potential issues down the line.

Important filing dates

  • eFiling opens on 1 July 2019 and closes on 4 December 2019.
  • Manual filing at branches opens on 1 August 2019 and closes 31 October 2019.
  • Provisional taxpayers have until 31 January 2020 to file via eFiling.

There is already a steady increase in the number of taxpayers in queues at SARS branches – it is therefore advised that you engage with your tax practitioner as soon as possible, to plan for tax season 2019.

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)

2019 Tax legislative amendment: retirement funds

The 2019 tax legislation amendment cycle commenced on 25 June, when National Treasury issued the initial batch of the Draft Taxation Laws Amendment Bill which covers specific provisions that require further consultation. National Treasury will be publishing the full text of the 2019 Draft Taxation Laws Amendment Bill for public comment in mid-July 2019. One of the topics for amendment in the first batch deals with aligning the effective date of tax-neutral transfers between retirement funds with the effective date of retirement reforms, which is 1 March 2021.

The Income Tax Act[1] contains, in section 11F, similar tax treatment for the deductions from taxable income for contributions to pension funds, provident funds and retirement annuity funds. Previously, contributions to these funds were treated differently from income tax purposes.

Further retirement fund reforms intended to harmonise the treatment of different retirement funds, deal with the annuitisation requirements for provident funds. The primary objective of the 2013 amendments was to enhance preservation of retirement fund interests during retirement and to have uniform tax treatment across the various retirement funds, resulting in provident funds being treated similarly (as the case is with deductions) to pension funds and retirement annuity funds concerning the requirement to annuitise retirement benefits. These retirement fund reform amendments were supposed to come into effect on 1 March 2015. Parliament, however, postponed the effective date for the annuitisation requirements for provident funds initially until 1 March 2016, then until 1 March 2019 and eventually 1 March 2021.

Each postponement of the effective date requires several consequential amendments to various provisions of the Act. However, certain provisions were inadvertently left out in paragraph 6(1)(a) of the Second Schedule to the Act (dealing with the tax-neutral transfers between retirement funds). Failure to change the effective date in the provisions resulted in the non-taxable treatment of transfers from pension funds to provident or provident preservation funds taking effect from 1 March 2019.

The earlier effective date of 1 March 2019 for the tax neutral transfers from pension to provident or provident preservation funds creates a loophole as the intention was to align the effective date of the tax-neutral transfers from pension to provident or provident preservation funds with the effective date of retirement reform amendments, which is 1 March 2021.

To correct the inadvertent oversight, it is proposed that changes be made in the Act to align the effective date of the tax-neutral transfers from pension to provident or provident preservation funds with the effective date of retirement reform amendments, which is 1 March 2021.

Since these amendments appear to be inserted to correct an oversight, it is not expected that they will be met with much criticism from the industry. The public comment period is, however, open if the amendments do create some other unintended consequences.

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 regarding Payroll Taxes

The South African Revenue Service (“SARS”) has recently made changes with regards to the management of payroll taxes in order for employers to more effectively manage their own accounts by way of a number of functions and tools.

SARS states that the aim of these changes is to allow employers to ensure that all their necessary payroll filings are correctly reflected, payments have been correctly allocated and that all charges to their accounts such as adjustments, interest and penalties have been correctly calculated and recorded.

The most recent changes include changes to the statement of account (“SOA”) which were introduced on 26 April 2019. These changes followed complaints by employers of errors on these accounts.

The purpose of the SOA is to reflect the balance and detailed transactions for a tax year with regards to Pay-As-You-Earn (“PAYE”), the Skills Development Levy, the Unemployment Insurance Fund and the Employer Tax Incentive (“ETI”) in order to allow for employers to complete their Employer Reconciliation Declaration bi-annually.

In order to make the SOA more clear and comprehensible, SARS made changes to the manner in which financial information is being displayed. In this regard, enhanced descriptions were included for liability and non-liability transactions. Also, all liability transactions are now grouped together and sorted in transaction date order. The exemption to this is any non-financial transactions with a date earlier than the first day of the period under consideration.

In order to identify payments and to better reconcile them with the employer’s bank statements, the SOA now also makes provision for receipt numbers for payments and journals.

Furthermore, ETI transactions (which have no impact on the PAYE account) are now grouped together and reflected at the bottom of the SOA.

In addition to the above, employers previously had to request SARS to make payment reallocations and corrections on their behalf. The monthly employer declaration (“EMP201”) and payment reference number (“PRN”) system was introduced to allow employers to amend their declarations and payments themselves. This tool also allows employers to identify and follow-up on incorrect or missing transactions using the consolidated employer SOA and query function as well as to correct unallocated payments.

Employers also have access to their financial accounts online to view and query transactions processed against their accounts in real-time. SARS also allows for a case management system where employers will be able to log queries, they are unable to resolve themselves and to monitor and track SARS’ progress with regards to the query logged.

With the annual employer reconciliations submission deadline now at 31 May 2019, employers are encouraged to use all these amended functions and tools to submit accurate information and to manage their payroll taxes more effectively in the 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)

Value-added Remarks on Value-added Tax (VAT)

VAT is an integral part of our economic society and is something that influences everyone, especially businesses in South Africa.  In this article, we will discuss a few do’s and don’ts regarding VAT.

  1. Valid tax invoices
  2. In South Africa’s current tax system, vendors that are registered for VAT are allowed a deduction for the tax they pay on eligible goods or services (input tax) from the tax you collect on the sales made (output tax). Tax invoices are therefore very important to vendors as failure to provide valid documentation during VAT audits will cause the vendor to lose all the input tax being claimed on the invoice. The following requirements will overcome the challenges that may be encountered because of SARS scrutinising the validity of VAT invoices.

    When the tax invoices exceed R5 000, a full tax invoice needs to be provided. For invoices of R5 000 or below they may issue an abridged tax invoice. There will be no tax invoice needed if the consideration is R50 or less. However, documents such as a sales docket or till slip will be necessary to verify the input tax deducted.

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

    1. Contains the words “Tax Invoice”, “VAT Invoice” or “Invoice”
    2. Name, address and VAT registration number of the supplier
    3. Serial number and date of issue of invoice
    4. Accurate description of goods and/or services (indicating where applicable that the goods are second-hand goods)
    5. Value of the supply, the amount of tax charged and the consideration of the supply
    6. Name, address and where the recipient is a vendor, the recipient’s VAT registration number
    7. Quantity or volume of goods or services supplied

    Note that an abridged tax invoice will only need to meet criteria 1 to 5, whereas the full tax invoice (tax invoices exceeding R5 000) must meet all criteria.

  3. When to declare output VAT/claim input VAT
  4. The date on which VAT becomes due on a transaction is the earliest of either the payment date or the invoice date. For example, if a payment is received in advance of the invoice issued for the supply, the VAT will be due on the date of receipt of payment. It is important to note that output VAT should be declared in the period in which the invoice has been issued or the payment has been received. With regards to input VAT, here the 5-year rule applies.This rule provides that any amount of input tax which was deductible and has not yet been deducted can be claimed in a following period but is limited to a tax period 5 years after which the tax invoice should have been issued.

  5. Overpayments by the customer
  6. When a vendor receives an overpayment from a customer, that vendor will not declare VAT on the overpayment. If a vendor fails to refund the overpayment within 4 months of the date of the invoice, the excess amount is deemed to be a consideration and therefore output VAT should be declared on the last day of the VAT period during which the 4-month period ends at a tax fraction of 15/115.

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 audit process

To get a better understanding of the audit process, we can take a look at the definition of an audit. Audit – “an official inspection of an organisation’s accounts, typically by an independent body”. An efficient audit is one that reduces the audit risk to the targeted level, ensures that there are no material errors contained in the financial statements and gives the stakeholders an independent reassurance that their interests are taken care of.

 

The audit process can be split up into what auditors do and why they do it.

What auditors do Why they do it
Compile the engagement letter The engagement letter sets out the terms and responsibilities of both the client and the auditor to give a clear understanding of what is required of both parties.
Audit planning To get a better understanding of the company being audited, the environment they operate in, the internal control systems in place and inherent risks of the company.
Risk assessment procedures After a better understanding of the inherent and control risks are established, the auditor will be able to determine the number and type of procedures to perform.
Perform the risk response procedures The auditor performs the procedures as determined during the planning stage to give reassurance that the accounting work is free from material misstatements and that other legislation has been complied with.
Compile a management report Give management feedback on findings from the procedures performed and make recommendations where required.
Give an independent and objective opinion (the audit report) Give stakeholders, for example, shareholders, the bank, etc. an objective opinion that the financial information as presented by management is free from material misstatement and can be trusted.
Going concern conclusion, Reassurance that the business is a going concern, in other words, the business is in a financial position to continue operating in the near future.

Due to the nature of testing (samples tested) and inherent limitations, an audit is not a 100% confirmation that the financial statements are free from all misstatements and that there is no fraud involved in the company. The objective of an audit is to give reassurance that the information provided to stakeholders by management are free from material misstatements. Due to the focus on specific areas of key legislation, the audit also does not guarantee that all legislation has been complied with even though during the audit fraud may be identified.

The goal for management is to get an unqualified audit report, meaning that the financial statements are free from material misstatements. There are no findings made by the auditor on the management report and the auditor identifies no material findings on non-compliance with legislation. To ensure an unqualified audit report, management is required to uphold high-quality governance, ethical leadership with appropriate policies and procedures in place and ensure financial and performance management of a high stand is maintained.

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)

IFRS vs IFRS for SMEs

The majority of financial statements in South Africa are arguably compiled by implementing the International Financial Reporting Standards for Small and Medium-sized Entities (IFRS for SMEs) as a financial reporting framework. The International Accounting Standards Board (IASB) published IFRS for SMEs during July 2009. The standard was introduced in order to reduce complexities and the burden associated with applying full IFRS for small and medium-sized entities. The standard was designed in order to fulfil the needs of the users of the financial statements of small and medium-sized entities.

In accordance with the Regulations of the Companies Act, the following profit companies are allowed to implement IFRS for SMEs as a financial accounting framework:

  1. Public companies not listed on an exchange, provided that the company meets the scoping requirements for IFRS for SMEs;
  2. Profit companies, other than state-owned or public companies, whose public interest score for the particular financial year is at least 350, provided that the company meets the scoping requirements for IFRS for SMEs;
  3. Profit companies, other than state-owned or public companies-
    • Whose public interest score for the particular financial year is at least 100 but less than 350; or
    • Whose public interest score for the particular financial year is less than 100, and whose statements are independently compiled
  4. Profit companies, other than state-owned or public companies, whose public interest score for the particular financial year is less than 100, and whose statements are internally compiled.

The scoping requirements of IFRS for SMEs state that the following entities are allowed to implement the framework:

  1. IFRS for SMEs is intended for use by small and medium-sized entities. Small and medium-sized entities are entities that:
    • Do not have public accountability; and
    • Publish general purpose financial statements for external users.
  2. The use of IFRS for SMEs ensures the following benefits for the entities that implement the standard as a financial reporting framework[1]:

    1. Some topics in full IFRS Standard are omitted because they are not relevant to typical SMEs;
    2. Some accounting policy options in full IFRS Standards are not allowed because a more simplified method is available to SMEs;
    3. Many of the recognition and measurement principles that are in full IFRS Standards have been simplified;
    4. Substantially fewer disclosures are required; and
    5. The text of full IFS Standards has been redrafted in “plain English” for easier understandability and translation.

    [1] In accordance with the IASB website

    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)

South African Reserve Bank procedures

The South African Reserve Bank (“SARB”) is the central bank of the Republic of South Africa and the primary purpose is to achieve and maintain price stability in the interest of balanced and sustainable economic growth in South Africa. Part of the SARB’s functions is to maintain a database of all loan commitments by South African residents to non-residents.

In situations when loan commitments are made between South African residents and non-residents, approval needs to be obtained in advance from the SARB. When an application is made to the SARB, certain information and supporting documents will be requested by the SARB prior to approving the transaction and providing the applicant with a foreign loan reference number. The following information and supporting documents are generally sufficient –

  • Copies of any agreements relating to the terms and conditions of the transaction. In these instances, it is important to ensure that any drawdown provisions, interest rates etc. are communicated to the SARB to update their records accordingly. Should there not be any documents, contact your advisor to assist with the drafting thereof.
  • Confirmation of the source of funding and the relationship between the parties.
  • Completed and signed application form which can be obtained from your bank.

The aforesaid documents can be accompanied by an executive summary of the transaction to provide the SARB and its representative with a clear background to the transaction and the salient terms thereof. As soon as the SARB have processed the documents and all is in order, you will receive a document with a foreign loan reference number.

It is generally accepted that SARB approval must be obtained prior to introducing foreign funds to South Africa. It is important to note that even in circumstances when cash does not flow immediately, a loan is created. This would also fall within the ambit of the loan policies of the SARB and therefore approval should be obtained for such transactions/undertakings.

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)

SimplePay – Frequently asked questions

Can SimplePay integrate with other systems?

  • SimplePay currently integrates with Xero and Quickbooks Online.
  • SimplePay has built an API that will allow other systems to integrate with the software.

Is SimplePay able to post per pay point?

  • You are able to post the information for each pay point on SimplePay separately to your accounting system if required.

How do I backup my information?

  • SimplePay is cloud-based, which means that you get access to the latest data that you have captured.
  • All data is securely stored and backed up.

Will SimplePay be able to use Xero Tracking Categories?

  • Yes, SimplePay has the option to use Xero Tracking Categories.
  • In SimplePay, pay points can be used to group employees as needed.
  • You can post the pay points in SimplePay to the Tracking Categories in Xero so that information posted from SimplePay can be categorised appropriately.

Can you import clocking information into SimplePay?

  • You can import clocking information from various providers into SimplePay.

What to do if you are not able to see your payslip when logging in?

  • Payslips will only appear on the Self-Service portal once they have been released by the payroll administrator.
  • If the payslips have already been released or you know that you have more than one user role, you may need to switch roles in order to view your payslips.

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)

VAT Regulations dealing with the supply of electronic services

Since 2015, foreign suppliers of electronic services (such as audio-visual content, e-books etc.) in South Africa are deemed to operate an enterprise for VAT locally. Although the regime has been in place for several years, new regulations in this regard are continuously published, the latest being on 18 March 2019, with an effective date of 1 April 2019. Along with the new regulations, SARS has published a “FAQ” document that addresses some of the questions that vendors and the public at large are likely to have about the implications of the updated regulations and recent legislative amendments. Below, we explore some of the more pertinent matters that SARS addresses in the “FAQ” document.

 

What are electronic services? Electronic services mean any services supplied by a non-resident for consideration using –

  • an electronic agent;
  • an electronic communication; or
  • the internet.

 

Electronic services are therefore services, the supply of which –

  • is dependent on information technology;
  • is automated, and
  • involves minimal human intervention.

 

Simply put, this means that from 1 April 2019, you will have to pay VAT on a much wider scope of electronic services. The regulations now include any services that qualify as “electronic services” (other than a few exceptions) whether supplied directly by the non-resident business or via an “intermediary”.

 

Some examples include:

  • Auction services;
  • Online advertising or provision of advertising space;
  • Online shopping portals;
  • Access to blogs, journals, magazines, newspapers, games, publications, social networking, webcasts, webinars, websites, web applications, web series; and
  • Software applications downloaded by users on mobile devices.

 

What is specifically excluded from the ambit of electronic services in the updated regulations?

 

Excluded from the updated regulations are –

  • telecommunications services;
  • educational services supplied from an export country (a country other than South Africa), which services are regulated by an education authority under the laws of the export country; and
  • certain supplies of services where the supplier and recipient belong to the same group of companies.
What is the reason for the updated regulations?

 

The original regulations limited the scope of services that qualified as electronic services, and which must be charged with VAT at the standard rate. The intention of the updated regulations is to substantially widen the scope of services that qualify as electronic services, so that all services supplied for a consideration (subject to a few exceptions), which are provided by means of an electronic agent, electronic communication or the internet, are electronic services and must be charged with VAT at the standard rate.

 

Do the updated Regulations make a distinction between Business-to-Business (B2B) and Business-to-Consumer (B2C) supplies?

 

No, there is no distinction between B2B and B2C supplies, therefore, B2B supplies will be charged with VAT at the standard rate. This outcome was intentional as the South African VAT system does not fully subscribe to the B2B and B2C concepts.

 

What are some examples of supplies that are not electronic services?

 

·  
         
  •   Certain educational services
  • Certain financial services for which a fee is charged
  • Telecommunications services
  • Certain supplies made in a group of companies
  • The online supply of tangible goods such as books or clothing
  • Certain supplies or services that are not electronic services by their nature, but where the output and conveyance of the services are merely communicated by electronic means, for example:
    • a legal opinion prepared in an export country, sent by e-mail; and
    • an architect’s plan drawn up in an export country and sent to the client by e-mail.

Given the much wider scope of application for electronic services, both local and foreign vendors need to ensure that VAT is levied at the appropriate rate on the supply of electronic services – and local vendors, where relevant, need to retain the necessary supporting documents to substantiate any input tax claims.

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)

Application for reduced assessments

Where taxpayers are aggrieved by assessments issued by the South African Revenue Service (SARS), the Tax Administration Act[1] makes provision for a dispute resolution process, whereby a taxpayer can request reasons for an assessment, object to an assessment, and if necessary, further appeal procedures are available. Dispute resolution is process-orientated, and strict rules prescribe the form, dates and general procedures applicable to both taxpayers and SARS. Given the involved process, dispute resolution is often costly, with professional assistance being required to ensure compliance with the system. When there are obvious mistakes in an assessment (as opposed to matters of substance or interpretation), going through a dispute resolution process can be a frustrating process for taxpayers, since amounts assessed should never have arisen in the first place.

Fortunately, the Act makes provision (in section 93), for SARS to make reduced assessments if SARS is satisfied that “there is a readily apparent undisputed error in the assessment” by SARS or the taxpayer in a return. SARS may make such reduced assessments even though no objection has been lodged, or no appeal has been noted. There are however some difficulties in applying section 93, both practically and in substance.

On a practical level, neither the Act nor any dispute resolution rules make provision for the process to be followed in terms of section 93. In a recent tax court decision,[2] the judge concluded the following regarding the process:

However, the basis on which a taxpayer can have a matter considered under s 93(1)(d) is clearly not by way of objection to, or appeal against, an assessment. A separate procedure is available for these. Neither does it envisage a formal application. It seems to me that it is simply by way of a request.

The request procedure, unfortunately, leaves the taxpayer out in the cold, since it is doubtful that an outcome to the request would have been obtained within 30 business days after an assessment was issued – the period within which an objection was required to be lodged. An application in terms of section 93 will not suspend the period during which an objection is required to be lodged – should the request ultimately be denied; the taxpayer has severely damaged his chances on success if objection is the next recourse, since the objection may potentially be submitted late.

Equally challenging, is that there is no clear indication or definition for what would amount to a “readily apparent undisputed error”. What may be very apparent to the taxpayer, may not be interpreted as such by SARS. Arguably, a “readily apparent undisputed error” would be something along the lines of incorrect tax rates applied, or incorrect penalty percentages applied – requiring minimal (if any) interpretation of tax provisions.

Although providing an avenue for the reduced assessments for taxpayers, a request in terms of section 93 should be managed very cautiously, as it may be necessary to run a parallel objection process to ensure that taxpayers are not jeopardised in the other remedies available to them, in the event of an unsuccessful request.

[1] No 28 of 2011 (“the Act”).

[2] Rampersadh and Another v Commissioner for the South African Revenue Service and Others (5493/2017) [2018] ZAKZPHC 36 (27 August 2018).

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)