A generally jaundiced and cynical news feed regarding the nonsense our revenue authorities get up to. Hopefully it will entertain and inform, all at the same time. And for free too! |
Carl's Tax Blog
When tax maths gets really tricky...
Here's an interesting fact that I recently discovered. I was submitting a VAT return and getting very annoyed with the new "improved" (in fact, "modernised" as SARS puts it) efiling VAT form. You see, for some obscure reason, you are required on your VAT return to reflect your inclusive-of-VAT turnover, as well as the VAT amount that is included therein. On the wonderful old form, it was possible to only enter the latter and the form was programmed to work out the former. Wonderful. The new form insists that you enter the turnover figure and it calculates the VAT from that. Now, as any VAT vendor knows, you calculate the VAT amount from an inclusive-of-VAT amount by applying the so-called "VAT fraction" which is, based on the current VAT rate of 14%, 14/114. My annoyance stemmed from the fact that the form was getting this calculation wrong! For a while I thought either I was going mad (well, I was probably doing the return in the middle of the night, so it could well have just been fatigue) or my calculator was failing me. In the end, I confirmed that it was indeed the efiling system mucking it up. A query to a fairly helpful chap at SARS led me to discover that the reason for the differences was rounding errors caused by the system applying, instead of the VAT fraction of 14/114, a fraction of 0.1228 (which is 14/114 but rounded off to 4 decimals). Annoyed, I resigned myself to having to use the "adjustment" entry on the VAT form to correct the mess. I was therefore quite amazed to discover more recently that the use of the 0.1228 fraction by the SARS website is actually legislated. The VAT Act actually has a special section that specifies that the VAT fraction should be rounded to 5 decimal places (as it happens 14/114 = 0.12280, so based on 14% it actually only needs 4). I can only assume that 14/114 is maths too complicated for the idiots who write our laws. The interesting effect of this is that, by law, a vendor is required to pay over less VAT than it has collected from its customers. As an example: A (large) vendor charges R100m + VAT for a contract. He therefore collects R14m in VAT. When it comes time to pay this over, his calculation of what to pay is R114m X 0.1228 = R13,999,200. Okay, so on a deal worth R100m, R800 isn't a lot, but multiply it out across the economy and that's a fair whack of cash that SARS is giving back to vendors. Of course the bad news is that every single accounting package out there does know maths, and calculates the VAT correctly. So more than likely the differences on the VAT return will just cause differences in the accounts that will have to be rectified - something that probably costs more in wasted time and effort than the few rands the rounding saves. Even when the law is bizarrely stupid in your favour, its most likely to do it in a way that is just plain annoying. |
Why we should hate SARS
Here's an article I just read in SAICA's Tax Newsletter, courtesy of Ernst & Young. I'm probably breaking all sorts of copyright rules posting it here, but hopefully no-one will notice. Importers using accredited importing agents can sleep well at night in the knowledge that all VAT issues relating to importation are well under control, as the accommodating importing agent has taken care of it. Business as usual, with VAT being claimed once a valid tax invoice is received from the clearing agent. Or so it would seem… Even though a valid tax invoice is generally acceptable to substantiate the claim of input tax in respect of expenses incurred in the course or furtherance of a vendor’s enterprise, this is not the case with VAT incurred on imports. The VAT Act requires the vendor to obtain and retain the relevant bill of entry as well as the receipt for the payment of VAT on importation, before an input tax deduction is permissible in this respect. Unfortunately, most importers are unaware of this requirement and claim input tax based on the tax invoice received from the clearing agent. Consequently there may be a timing difference between when the input tax was claimed (the invoice date) and the date the vendor is entitled to claim the input tax (the date the clearing agent pays SARS). This problem is exacerbated when the clearing agent makes use of the so-called deferment scheme, i.e. it only pays the VAT on importation 30 days after the goods have been cleared for home consumption (the bill of entry date). In many instances, the vendor might not even be aware of the fact that the clearing agent is using a deferment scheme and that VAT had not been paid over at the date the clearing agent issued the invoice, resulting in a potentially costly tax exposure. SARS has recently started to raise assessments where vendors claim input tax in respect of imported goods before the VAT has been paid over to SARS by the clearing agent, and to levy penalties and interest. Depending on the level of imports, this amount may be quite significant. To mitigate the risk, importers should request clearing agents to supply proof of the VAT on importation being paid, before the related input tax is deducted. Although there is ultimately no VAT loss to the fiscus, SARS is chasing the penalties and interest on these timing differences. Also important to note is that SARS will raise assessments for a period of five years, despite the fact that the vendor might have been subjected to VAT refund audits on a regular basis. Am I the only person who thinks that the authorities set us up to fail so that they can charge penalties? |
How the new Companies Act affects CC's
Well, the rabble at the Department of Trade & Industry managed
finally to drag Zuma out of bed, slap a pen in his hand and get him to
sign the necessary bit of paper to bring into force the new dispensation
under which companies in South Africa are governed. "Hang on," I hear
you say, "I trade in a CC not a Company... what's that got to do with
me". Well, I'm afraid the new law impacts CC's as well... read on. As you may recall, the powers that be originally decided that enough was enough, they're sick of allowing people to trade with limited liability without decent regulation (i.e. in a CC) and they announced the death of the CC. A public outcry duly ensued, and the tune was changed: existing CC's would live on (Viva!) but no new ones could be formed. Whew, we all breathed a sigh of relief and the Shelf Company/CC businesses all went ballistic registering Shelf CC's by the score so that although no new CC's can be formed, we can all still probably buy unused CC's for the next 20 years. Ah ha, but what we didn't realise was those lawmakers can be quite crafty. They might have relented and let CC's live on, but they never really intended this to be in more than just "in name". Already the new provisions that apply to Companies are starting to be made applicable to CC's after all. Basically they're saying: "What we said all along was that there would be no point in have an entity called a CC because a small company will serve just as well, so now we're going to make it that a small company and a CC are much the same thing". Okay, I haven't completely got my mind around what the difference will ultimately be between a CC and a company, but for now CC's do actually live on much as they did. Except (and that's quite big except... should probably have made it bold), the exemption from audit for a CC is no longer automatic (do I hear some boot-quaking). The new rules are basically that if your CC is big and important then you must be audited. Here's how it works. Give yourself 1 point for each person you employ Give yourself 1 point for each R1m you owe third parties at your year end 1 point for each R1m of turnover 1 point for each person who has a beneficial interest in the CC (for a CC, probably just the members, unless there's a trust involved) Right, now if you have more than 350 point, prepare to be audited. If you have between 100 and 350, and you draw up your own financial statements, you have to be audited too. If an independent outsider does your AFS for you, then you're off the hook. If you're below 100 then things stay much as they are (phew!) The rules are much the same for companies, except that in the 100 to 350 arena, you have to be "Independently Reviewed" which is another way of saying "Sort of audited". Below 100 I think there are still cases where a Review is required (I think this is where the shareholders are not also all directors). Apologies for the vagueness. When it comes time to evaluate this for each of my clients, I'll make sure I know exactly how it works... but for now I thought I'd just keep you all posted. |
Companies and CCs
It has been a while since you've heard from me. I guess I've been busy, and there has been no major news worth reporting. However, I thought I'd just send a quick message regarding some changes that are coming up. From 1 April, the new Companies Act that has been in the offing for quite a number of years now comes into force. Bureaucracy being what it is, the passage to life of the Act has been an interesting one with laws being made subject to promulgation only on announcement by some minister or other, only to be changed before the minister got around to promulgating them. This has meant anyone actually learning the law as it has been enacted has wasted a great deal of time and brainpower. Cunningly I have employed the ostrich approach to the whole thing. However, the whole shebang is now coming to life from 1 April and hence I've started to take notice. Anyway, probably the issue of most interest to you is what will happen with CC's. I have had a few people ask, intimate or even categorically state that CC's must be converted to companies and/or that new ones cannot any longer be set up. Well, on the first point 100% wrong and on the second point right, but only from 1 April. So, you can set up a CC before 1 April, but from then on, you're forced to go the Company route. I suspect, however, that the shelf company/CC purveyors, realising how much South Africans love CCs, are going berzerk registering shelf CCs which will probably mean that starting a business in an unused CC will be possible for quite some time yet. You might be wondering on what basis they decided to shut down CCs. The main point is that they reckon a small owner-managed company under the new system will look much the same as an old CC under the old. They're presumably right and I guess over the next while we'll see how it all pans out. It seems that an entity with no real public interest won't need to be audited, putting it on a par with a CC in terms of administrative headache and cost. An entity of sufficient size or public interest (I'm being deliberately vague here because I haven't yet read the specifics of the criteria) will be subjected to an "independent review", another beast whose definition I haven't quite figured out yet, but I think a fairly airy-fairy concept that won't involve nearly the same amount of in-jou-slaai-krappery as a full force audit, and therefore won't cost the earth. The main point is that if you're thinking you might want to start a CC, then you should probably move to do so, although more than likely you'll still be able to buy a shelf CC without too much headache or cost for quite a while. Or, a company under the new rules shouldn't be much different to a CC, so as the hitchhikers guide says "Don't Panic" - just set up a company in due course. Of further interest is that after possibly even longer than the whole companies law process has taken, SARS has finally announced the actual date that Secondary Tax on Companies will die and be replaced by Dividends Tax. A bit of background in case you don't know: STC = a tax triggered by the declaration of a dividend by a company or close corporation (or in some cases by being deemed to declare a dividend) payable by the company paying the dividend. Dividends tax is the same thing, except the recipient of the dividend is liable for the tax. However, they've made it a withholding tax, which means the company declaring the dividend still physically pays it. So it'll look very similar to STC. The reason they decided to change it is that STC was pretty unique to South Africa, so all the dumb foreigners didn't understand it. And apparently it makes things look bad because it increases the tax rate that companies pay. So cunningly they'll shift the burden from companies to their shareholders, and wala, suddenly it looks much cheaper tax-wise to start a company in SA than it used to. The rate of tax is unchanged, however because under STC the tax reduced the reserves of the paying company, thereby reducing the tax base of the company, the effective rate under the new system works out to about 0.9% more than before (I'll bore you with the maths proving this is you want me to). So, if your company is sitting with a bunch of undistributed reserves, and you're likely to have to distribute them sometime, then best to do it before the change and save that ~1%. The date of the change, by the way is 1 March 2012... so you've got a year to think about it. |
Here's a little nugget
This item will only really be of interest to bodies corporate, such as Sectional Title schemes, and there only really of impact to those rich enough to have to bother about tax in the first place. First off, lets mention the bit that many people who should know about it, for many moons didn't know about, although it seems they mostly do now, but just in case there are any who still aren't aware, here it is again: Since time immemorial, bodies corporate have been exempt from tax on levy income they receive from their own members which is specifically used to defray the expenses of the corporate body. Since a while ago (I think about the 2009 tax year but would have to look it up to say for definite here so let me rather be vague and let you do the work if you need to) Bodies Corporate have been exempted from the first R50,000 of other income too. So that's the new bit you might have missed. Now the bit that I missed. This time I can tell you exactly when it starts: years of assessment commencing after 1 January 2009 (so generally speaking, for years ending sometime during calendar year 2010). And the big news: such entities are no longer required to pay provisional tax whether they earn investment and other income that will ultimately be taxed or not. For them, taxation becomes an annual event. I suspect if you have already paid provisional tax for a year that you didn't need to, you'll have a devil of a time getting SARS to refund it to you. And you'd probably have an even worse time getting them to pay interest on it. Both those options are probably strictly available, but good luck if you try. Rather write to SARS now telling them to "get stuffed regarding future provisional tax" (well, maybe be a little polite... difficult, I know) and let whatever you've paid in the meantime go to settle that final liability on assessment. |
The latest on PAYE
As you have probably heard, maybe from me in one of my previous communications, our ultra-efficient Revenue Collection Service thinks it is a wonderful idea to register everyone for tax, even if they'll never in a million years pay tax. They made out to employers as if they'd have to submit income tax numbers for all their employees on the next PAYE reconciliation. Proactive employers therefore told their employees: you'd better go and get registered. Said employees did so, only to be turned away by SARS on the grounds that they don't need to be registered. Which in some cases was true, but not necessarily. Let's cut to the chase here: chaos kind of limply reigned. So here comes the next communication from SARS: please stop sending your employees to us. If they don't have a tax number you can leave it out on the next return. We'll issue them a number. Wonderful! (Can you imagine how many people will end up with 2 tax numbers now. Theoretically SARS should be able to distinguish by ID number, but that kind of places some reliance on Home Affairs and we all know how efficient that organisation is). Prediction: more chaos. But, the key thing to note for now is that if you are an employer, you can stop threatening your staff with wet noodle whippings or whatever else you might have over them if they don't come up with a tax number. If you're an employee, don't worry yet: SARS will issue you with a tax number in due course if you don't already have one - lucky you! If you're a tax practitioner, practice a knowing smile combined with a grimace, because there might be lots of work (some scary no doubt) coming your way... erm, I guess that's me. |
A correction and something on timing - 02/07/2010
Thanks to Lawrence for pointing out a small but vital error in my last The correction is to the very first line where I said that the opening of is correct that the return is only due by 31 January: if you miss that deadline SARS is entitled to charge penalties. However, if you owe any tax, SARS can start charging interest from 1 October. So, if you anticipate a liability and want to avoid the interest, then even though the return can be delayed, you must make a payment by 30 September. This is the monster previously known as the "topping up payment". There is a proposal that this situation will start to apply to everyone (currently it only applies to provisional taxpayers) and in fact, the change is even in the law and has been for a while. But the lawmakers, in their wisdom, made it subject to an announcement of the starting date by the minister of finance, and as far as I am aware, Pravin hasn't bothered to do that yet. |
Tax deadlines and medical expenses - 01/07/2010
The big news from SARS today is that Tax Season 2010 is open. This means A new requirement announced has prompted me to briefly mention medical Seriously, and with apologies for my crude sense of humor, medical expenses How the tax deductions for medical expenses work is a bit complex, but let If your medical aid covers any of the costs, even out of your medical If you are over 65, the 7.5% excess falls away. So all your medical expenses If you are handicapped or have a handicapped member of your family, you also Note that you can claim for all medical expenses that you pay, even if not |
How cars are taxed or untaxed
As promised, some details on changes in taxes around motor vehicles, and an attempt at a synopsis on how it all works, which I hope you'll find useful. The question of how cars are taxed can be divided into 2 broad categories COMPANY CARS The company car provision kicks in where you're an employer owns a vehicle A small adjustment can be made reducing the fringe benefit where the The situation regarding company cars is touted to change, I believe from 1 First, the rate that will apply is now 4% for the first vehicle, and I Second, there will be a way to reduce the taxable benefit to the extent that Oh, I just remembered: there is a third leg to the proposal: they want to TRAVEL ALLOWANCES The second broad category is where an employee owns his own vehicle. In this The changes since 1 March are pretty small, but with far-reaching effect. So So, on the old system, the idea was that the costs of the vehicle, being The 2 options basically are: reimbursive or "the rest". Under a "The rest" option usually takes the form of a set monthly "travel allowance" Regarding that deduction, the idea is to work out the cost of using the This is the point where I can mention the change. Basically, option (b) on SUMMARY So what does this all mean. Well, for those in receipt of travel allowance Finally then, what is a logbook. Well, it ain't defined so the line I take everything I've said is right, but with tax you can never be sure. |
Changes in PAYE reconciliation process - 21/06/2010
This message is for those of you who are employers. SARS has implemented new To register with SARS I believe a payslip, a copy of ID and a bank statement delivered it yet. Since promising it, more changes have been mooted by treasury, which I need to take into account in my communication. I'll try to get to it sooner rather than later. |