Monthly Archives: February 2013

TRADING STOCK – A SUBSTANTIAL ASSET

The importance of taking stock at year-end

Tax requirement

Section 22 of the Income Tax Act requires that a taxpayer values the trading stock held at the end of the year of assessment. This value has to be calculated at cost price and any reduction of this value is subject to the discretion of the Commissioner.

Business requirement

The actual value of the trading stock is vital for any business, in order to calculate the profitability of the business. To trade profitably stock has to be marked-up at an applicable percentage and this percentage must be checked when stock is calculated and the gross profit is determined. A lower than expected gross profit percentage can be indicative of theft, excessive discounting, bad buying, etc.

Continuous stock records are by far the best way of controlling your business and that by ensuring regular monitoring and checking, the business can be profitable and properly managed.

Be careful

Make sure that cut-off procedures are properly considered. In other words, stock should only be counted if the corresponding liability is included in the creditors balance at year-end, and vice versa. Similarly stock should not be counted if the sale has already been reflected at year-end, and vice versa.

Proper control of stock is essential to ensure a profitable business.  

BEWARE: SOFTWARE PIRACY COULD BE DEVASTATING FOR YOUR BUSINESS AND FOR DIRECTORS

In 2010, 35% of software used in South Africa was “pirated” – either it is downloaded illegally or a counterfeit copy of the software is purchased. The commercial value of this is in excess of R4 billion. It also puts businesses at risk as they are more likely to be exposed to viruses, have no recourse to the owners of the software in the event of it breaking down and take on the risk of being caught by increasingly vigilant owners of software.

Being in possession of pirated or counterfeit software is an offence in terms of the Copyright Act and/or the Counterfeit Goods Act. In addition, software vendors, such as Microsoft, will levy their own penalties when they find their software has been pirated. Apart from breaking the law, businesses are risking their reputations if they are caught. As it takes much hard work to build up a reputation, risking losing your good name by using pirated software makes no sense at all.

A new legal route to attack piracy

The 2008 Companies Act (“the Act”) offers software owners a new, potentially cost-effective and quick avenue of attack against software piracy. The Act provides that a company must not carry on its business –

  1. Recklessly,
  2. With gross negligence,
  3. With intent to defraud any person, or
  4. For any fraudulent purpose.

If the CIPC (Companies and Intellectual Property Commission) has grounds to believe that the above provisions have been breached, it may issue a notice to the relevant business giving it 20 business days to show that it is in fact not in breach, failing which the CIPC can issue a notice to the business requiring it to cease trading.

This is a devastating outcome for any business. So it is easy to imagine a software owner finding out that a company is illegally using its software and taking this to the CIPC.

Directors: Your personal liability risk

The Act makes directors personally liable for damages, losses or costs incurred by the business due to the director failing to meet his/her fiduciary duties (e.g. knowingly causing damage to the company) or not exercising the requisite due care and skill required of the director.

In the case of pirated software, directors (and this includes alternate directors and those senior managers deemed by the Act to be directors for this purpose) are clearly exposed in this regard to incurring substantial costs and, of course, potential criminal charges under the Copyright Act and the Counterfeit Goods Act.

Be Aware!

Software piracy is pervasive in South Africa and the consequences are severe for both the business and its directors personally if they are caught. The Act makes it easier to crack down on software piracy.
Make sure your business does not have any pirated software.

© DotNews, 2005-2012. This article is a general information sheet and should not be used or relied on 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.

First Year Cocktail Party

First Year Coctail Function_Art

We had a cocktail function for our new Article Clerks with our Partners and Managers.

L-R Front: Louise Booysen, Charlainé Nienaber, Minette Scheepers, Jeanett Mosoeu
L-R Back: Charmain Mofokeng, Refiloe Makhetha, Anchin de Beer, Leandi Rust, Jason Rothman, Sarena Goosen, Nadine van der Westhuizen, Elizna Prinsloo, Vaugh Healy

Redsocks Friday

Newtons Red Sock Friday Vibe Walk/Run/Jog:

Newtons and “I wear Red Socks on Friday” have started a fun initiative that gets us all up and active for 1 day of the month. For January some walked, some jogged and the extremely fit ran Naval Hill. Quite a few of the participants had never been up Naval Hill or even seen the fantastic Madiba Statue.

This fun event happens on the last Friday of every month. The February Newtons Red Sock Friday Vibe Walk/Run/Jog will be held at 7 Damme. For further information on Red Socks Friday contact Thelma Crossman 051-4034100 or tc@newtons-sa.co.za.

All funds raised on these walks are donated to Child Welfare Bloemfontein.

Redsock Friday (3) Redsock Friday (4) Redsock Friday (5) Redsock Friday (6) Redsock Friday (7) Redsock Friday (8) Redsock Friday (9) Redsock Friday (10) Redsock Friday (11) Redsock Friday (12) Redsock Friday (13) Redsock Friday (14) Redsock Friday (15) Redsock Friday (16) Redsock Friday (17) Redsock Friday (18) Redsock Friday (19) Redsock Friday (1) Redsock Friday (2)

PROVISIONAL TAXPAYERS – NEW RULES APPLY AND PENALTIES WILL BE AUTOMATICALLY IMPOSED!

Provisional taxpayers will know that they need to submit their second provisional tax payment by February 28. New (and proposed – not yet enacted) laws have changed the rules governing provisional taxes, and have codified penalties for underestimating provisional tax.

Estimating your provisional tax

Remember that different rules apply according to whether your taxable income exceeds R1m or not –

  • Taxable income up to R1 million
    If your finally assessed taxable income is under R1 million, your provisional estimate on February 28 must be equal to the lesser of either –

    • The “basic amount”* or
    • 90% of the actual assessed amount.

    * The “basic amount” is taxable income calculated as per your last tax assessment less capital gains and any lump sum payments in that year – in other words last year’s taxable income adjusted for one-off amounts.

  • Taxable income greater than R1 million
    There is no “basic amount” and your provisional estimate must be 80% of the final tax assessed.

Changes to provisional tax rules – the good news

  1. When estimating your provisional tax you will no longer need to include lump sum receipts from retirement funding, lump sum withdrawals from retirement funding or lump sums from severance payments.
    This will prevent penalties on underestimation of provisional tax due to not taking such one-off payments into account.
  2. The penalty based on the underestimation of the second provisional payment will now take into account all taxes paid (including the first provisional payment and any employee taxes) as at February 28. Previously, the penalty was based on the underestimation of the taxable income shown in the second provisional return.


Penalties – the bad news

An automatic penalty of 20% of the underestimated amount will be levied by SARS. The days of trying to convince SARS officials that there were valid reasons for underestimating your provisional tax are gone.

Plan your provisional payment and get professional advice!

Thus, while it will be easier to estimate provisional tax, the 20% underestimation penalty will automatically kick in. The Commissioner may waive the penalty if you can convince SARS that your provisional tax was “seriously calculated” and not deliberately or negligently understated taking into account factors available at the time you made your payment. However, you are now arguing from a position of weakness as the penalty must be paid upfront – the Commissioner will have your money and convincing SARS to refund the penalty will no doubt be a time-consuming and potentially costly exercise.

So, take time to ensure that your provisional payment is accurate enough to avoid penalties. This is a time where it is worth speaking to your accountant.

Lastly, don’t forget if you have made capital gains in the tax year, these must be included in your provisional estimate.

© DotNews, 2005-2012. This article is a general information sheet and should not be used or relied on 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.