In this letter we cover some important developments on Vat and the February budget speech as it concerns taxes and the importance of verifying inventory on hand for yearend purposes.
With many clients now having completed their financial year ends, we have begun the process of preparing Annual Financial Statements. Read the important attachment on Public Interest Score (PIS) to determine whether we need to conduct an independent review or audit of companies and close corporations.
We also attach a document on why you should be consulting with your accountant on a regular basis.[hr]
See the attached article on vat registration wherein the law regarding the vat that can be deducted once registered, relating to spend prior to registration. Effectively the input vat on all capital equipment and inventory on hand at registration date can be claimed, even if the spend was incurred prior to registration date.
Remember, any business that has turnover that is going to exceed R1m in the next 12 month period, must register for vat.
In registering a number of clients for Vat, SARS during the interview, ask where the funds were obtained to start the business. Thus we need to ensure that your income tax return submissions support the level of turnover and capital investment in your business to avoid any potential audit.[hr]
The tax amendments from the February budget speech were few and included adjusting tax levels for individuals, SBC‘s (small business corporations) and lump sum payments.
The change in medical aid deductions has now been fully effected, with the result that for all age groups, no medical expenses are deductible as an expense, but instead, can only be claimed as a credit rebate off tax already calculated, subject to some thresholds.
Any expense not recovered from a medical aid, ie so called out-of-pocket expenses, is claimable
as a rebate, as follows:
- Under 65: 25% of the expense, as exceeds 4 x medical aid credits allows, and so much of this amount, which exceeds 7.5% of taxable income.
- Older than 65 and taxpayers with disabled children: 33.3% of the expense as exceeds x3 x medical aid credits.
As can be seen from the above, medical expenses are no longer a tax deduction, but a rebate off
Does your company require an Independent Review or Audit?
The Public Interest Score (PIS)
Depending on this score, and / or the financial statements were internally compiled, the company or close corporation may require an Independent Review or an Audit.
Owner –Managed companies are exempt both from independent reviews and external audits. An Owner-Managed company is one where every shareholder is also a Director. By implication, all Close Corporations fall into this definition.[hr]
AFS: Yearend stock verification
For a number of industries and many of our clients, inventory on hand is a significant figure on the balance sheet. If the inventory is not controlled properly, there may well be amounts reflecting on the balance sheet which need to be written to cost of sales.
The companies act (and close corporation act), requires that all companies conduct a physical stock take at the end of each year. If the stock take is not under taken we cannot sign off a clean independent review or audit – this is a “must” and must be done and adequately recorded and adjustments made to the accounting system to ensure the correct figure is disclosed in the AFS.
Additionally, SARS requires that closing stock / inventory be added back to taxable income ie you cannot claim closing stock as a tax deduction.[hr]
For those of you who deal with me in valuing your business, as well as clients who have attended one of our valuation workshops know, we tend to place a value on our business which may not be realistic. In other words, we over price our business and are disappointed when we receive an offer of purchase.
Private equity firms reported average deal multiples of 5.5 to 7.5 times EBITDA. Investment bankers said average deal multiples varied from 4.2 to 7.7, while business brokers observed average deal multiples ranging from 1.5 to 6.
Do you know the value of your business, and its EBITDA multiple? If not you should, as this gives you a further target to work towards in enhancing the value of your business, which is directly related to its profitability and future prospects.[hr]
We are proud to announce that we have launched this week, our latest e-learning workshop called “Managing Sales to Cash Profitably: The Two Step Tango”.
The 2 / 3 hour e-learning workshop is an interactive course which allows entrepreneurs and other relevant users, to implement some key analysis to measure and monitor the effectiveness of their business in generating sales into profits and converting those profits into cash.
The workshop is a four –part course which describes how by using the financial statements of a business, one can measure profitability and cash flow conversion. The course not only shows you how to measure this two step process, but importantly, how to make improvements to enhance the business’s effectiveness across both areas with some real life examples to enhance the learning experience.
Please contact Lindi in our training department on 021 827 1847 to order.[hr]
Never too old!
Finally, I leave you with a document showing the ages of entrepreneurs who started late in life with their world wide inventions / innovations. You’re never too old![hr]
April 2014[/threecol_two] [threecol_one_last]
This Month’s Downloads
Office: 021 836 5493
Registered Financial & Tax Practitioners
Public Practice Number: PPG01087
Tax Practitioner number: PR-44861D6[/threecol_one_last]