Monthly Archives: April 2015

How to register a new company

A1The basic steps to register a company under the new Companies Act of 2008 at the Companies and Intellectual Property Commission (CIPC) comprise certain forms and supporting documentation that must be lodged and fees that must be paid.

The first step in registering a new company is optional. A CoR9.1 form must be completed and lodged with the CIPC in order to reserve a name for the company to be registered. However, the Act does make provision for a company to be registered without a name. The company registration number will then be the name of the company until such time as the company properly registers a name. A certified copy of the identity document of the applicant must be submitted as supporting documentation with this form and a filing fee is payable.

The next step is to complete and lodge the CoR14.1 Notice of Incorporation form together with the CoR15.1 Memorandum of Incorporation.

The Notice of Incorporation specifically contains information regarding the type of company to be registered, the incorporation date, financial year end, registered address, number of directors and the company name if applicable. A certified copy of the identity document of the applicant must be submitted as supporting documentation and a filing fee is payable. A CoR14.1A form contains specific information about the directors of the company who will be appointed at registration, and this form must be lodged together with the Cor14.1. Certified copies of the identity documents of all directors to be appointed must be submitted as supporting documentation. An optional form CoR14.1D may be lodged together with the CoR14.1, which indicates any company appointments to be registered with the CIPC, such as a company secretary or auditor.

The Memorandum of Incorporation is probably the most important document when registering a company, since the provisions contained herein will govern the company. It can be short and simple, or long and extremely technical, depending on what type of company is being registered. In this regard, it is best to seek professional advice. The supporting documentation and filing fees applicable will depend on what type of Memorandum of Incorporation is being registered.

If an auditor or company secretary is appointed at registration as contained in the CoR14.1D, a CoR44 form must also be completed and submitted. No filing fee is payable for this form. An original acceptance letter and certified copy of the identity document of the auditor or company secretary must be submitted as supporting documentation.

The CoR21.1 Notice of Registered Address must be completed with the particulars of the registered address of the company. Again a certified copy of the identity document of the applicant must be submitted as supporting documentation, but no filing fee is payable.

Once all the necessary forms and supporting documentation has been submitted and applicable fees paid, the CIPC will issue a Registration Certificate form CoR14.3 if it is satisfied that all provisions in the Act has been satisfied.

Any changes to the information placed on record at the CIPC at the original registration of the company, must be registered without delay and on the proper forms and possible payment of applicable filing fees.

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. 

Financial ratios: What do they mean? (Part 2)

A2The purpose of ratio analysis is to simplify the financial situation of a business by looking at the relationships between different categories of accounting data.

The amounts used in ratio analysis will normally be read from a set of financial statements.

Two important limitations of ratio analysis which must be kept in mind are:

  • Two people can interpret the same ratio result very differently as there are no fixed guidelines on how the results of ratios must be interpreted.
  • The same result of a specific ratio can be excellent in one industry, but fatal in another industry. It is crucial to interpret a ratio within the context of the circumstances of the business and the industry it operates in, as well as general market conditions.

The first article in the series on financial ratios dealt with liquidity (short-term solvency) ratios and efficiency ratios. This article will discuss profitability ratios, return on investment (ROI) ratios and operating efficiency (OE) ratios.

Profitability ratios

Profitability ratios measure if a business is making a profit or a loss, and whether the ratios are acceptable or not. The rule of thumb is the higher the return, the better the business is at controlling its costs.

Financial ratio Formula What this ratio measures
Gross profit margin Gross profit / Net sales x 100 = x% The percentage of each rand of sales that is left over, after deducting cost of inventory sold, for paying expenses and making a profit
Net profit margin Net profit after tax / Net sales x 100 = x% The percentage of each rand of sales, after all expenses have been paid, that will be left as profit

ROI ratios

ROI ratios are used to calculate the return on an investment made in a business or an asset. The general rule is that the higher the return, the more profitable the investment.

Financial ratio Formula What this ratio measures
Return on assets Net profit after tax / Average total assets* x 100 = x% The average percentage of profit after tax that was made on the business’s investment in total assets
Return on equity Net profit after tax / Average owner’s equity** x 100 = x% The average percentage of profit after tax that was made on the owner’s investment in the business

*Average total assets = (Opening long-term assets + Opening short-term assets + Closing long-term assets + Closing short-term assets) / 2

**Average total equity = (Opening equity + Closing equity) / 2

OE ratios

The result of operating efficiency ratios gives an idea of how efficiently a business is using its total investment in resources. Generally, the bigger the result of the ratio, the more efficient the business is at generating income from its assets and equity investments from its owner(s).

Financial ratio Formula What this ratio measures
Net working capital turnover Sales / Average net working capital^ How many rands of sales are generated for each rand of net working capital
Fixed asset turnover Sales / Average net fixed assets^^ How many rands of sales are generated for each rand of net fixed assets
Total asset turnover Sales / Average total assets^^^ How many rands of sales are generated for each rand invested in the assets of the business
Equity turnover Sales / Average total equity^^^^ How many rands of sales are generated for each rand invested by the owner(s) in the business

^Average net working capital = (Opening net working capital + Closing net working capital) / 2

^^Average net fixed assets = (Opening net fixed assets + Closing net fixed assets) / 2

^^^Average total assets = (Opening assets + Closing assets) / 2

^^^^Average total equity = (Opening equity + Closing equity) / 2

All the above ratios deal in some way or another with how efficient a business is at managing its expenses, income and assets. Remember to interpret all financial ratios against the backdrop of the business’s unique circumstances, taking into account the industry the business operates in and the market conditions for that industry.

For more information on this topic, please contact us for professional assistance and advice.

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. 

Reference List:

VAT: The difference between standard-rated, zero-rated and exempt supplies

There are three categories of supplies that can be made by a VAT vendor: standard-rated, zero-rated and exempt supplies. Output tax must be levied on all supplies except exempt supplies. The VAT Act gives specific guidelines for zero-rated and exempt supplies but these fall outside the scope of this article. Please contact your tax practitioner for more information.

The following simplified formula is used to calculate the amount of VAT that a registered VAT vendor have to pay to SARS or can claim as a refund from SARS:

Output VAT levied on standard-rated and zero-rated supplies* – Input VAT claimed on qualifying expenses = Net VAT due to/(refundable by) SARS.

* A supply is defined as the provision of a product or service by a VAT vendor in return for payment in cash or otherwise.

Standard-rated supplies

Standard-rated supplies are supplies of goods and services on which output VAT is levied at a rate of 14%. The input VAT incurred on purchases of goods and services to generate standard-rated supplies can be deducted from output VAT payable to SARS.

Example 1:

  1. XYZ Manufacturers manufactured inventories at a cost of R7 000 (VAT included).
  2. The inventories were sold for R10 000 (VAT included).
  3. All inventory sales qualify as standard-rated supplies.

Net VAT due to/(refundable by) SARS will be calculated as follows:

Output VAT levied on standard-rated supplies (R10 000 x 14/114) R1 228
Less: Input VAT on purchases to make standard-rated supplies (R7 000 x 14/114) (R    860)
Net VAT due to/(refundable by) SARS R   368

Zero-rated supplies

Zero-rated supplies are supplies of goods and services on which output VAT is levied at a rate of 0%. The input VAT incurred on the purchase of goods and services to generate zero-rated supplies can be claimed against output VAT payable to SARS.

Example 2:

  1. XYZ Manufacturers manufactured inventories at a cost of R7 000 (VAT included).
  2. The inventories were sold for R10 000 (VAT included).
  3. All inventory sales qualify as zero-rated supplies.

Net VAT due to/(refundable by) SARS will be calculated as follows:

Output VAT levied on zero-rated supplies (R10 000 x 0/114) R     nil
Less: Input VAT on purchases to make zero-rated supplies (R7 000 x 14/114) (R   860)
Net VAT due to/(refundable by) SARS (R   860)

Exempt supplies

Exempt supplies are not subject to VAT. No output VAT, either at 14% or at 0%, is levied on exempt supplies. Input VAT incurred on expenses to make exempt supplies cannot be claimed against output VAT due to SARS.

Example 3:

  1. XYZ Manufacturers manufactured inventories at a cost of R7 000 (VAT included).
  2. The inventories were sold for R10 000.
  3. All inventory sales are exempt supplies for VAT purposes.

Net VAT due to/(refundable by) SARS will be calculated as follows:

Output VAT levied on exempt supplies R nil
Less: Input VAT on expenses incurred to make exempt supplies (R nil)
Net VAT due to/(refundable by) SARS R nil

Combination of standard-rated, zero-rated and exempt supplies

Where a VAT vendor makes standard-rated supplies and/or zero-rated supplies and/or exempt supplies, input VAT must be apportioned in the same ratio as the three different types of supplies stand to each other.

Example 4:

  1. ABC Distributors made the following supplies for VAT purposes (VAT included where applicable):
Standard-rated supplies R  60 000   60%
Zero-rated supplies R  10 000   10%
Exempt supplies R  30 000   30%
Total supplies R100 000 100%

2. Expenses incurred in the making of total supplies amounted to R85 000 (VAT included).

Net VAT due to/(refundable by) SARS will be calculated as follows:

Prorata Output VAT levied on standard-rated and zero-rated supplies

[(60 000 x 14/114) + (R10 000 x 0/114)]

Output VAT on exempt supplies

  R7 368

 

R      nil

Less: Apportioned input VAT on expenses to make standard-rated and

zero-rated supplies [(R85 000 x 60% x 14/114) + (R85 000 x 10% x 14/114)]

Less: Apportioned Input VAT on exempt supplies

(R7 307)

 

R      nil

Net VAT due to/(refundable by) SARS  R       61

Accounting software can be set up so that VAT is automatically recorded correctly for standard transactions. However, a computer programme will not be able to classify unique transactions for VAT purposes. Therefore it is still important that accounting staff is trained to handle VAT correctly, especially where grey areas exist.

If you would like more information about this topic, feel free to contact us for professional assistance and advice.

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.

 

Reference List:

  • VAT 404 – SARS Guide for Vendors

Financial ratios: What do they mean? (Part 1)

A1The purpose of calculating ratios is to get a bird’s eyeview of the financial situation of a business by analysing the relationships between different amounts on the financial statements. The major advantages of using ratio analysis is that it simplifies the information in the financial statements and allows you to compare the ratio results over time in a specific business, or between different businesses.

Some limitations of ratio analysis are the following:

  • There are no specific standards for what ideal ratios should be, so different people may interpret the same ratio in different ways.
  • Single ratios do not necessarily paint an accurate picture. Just like the meaning of a word can differ depending on the context of a sentence, a ratio must be interpreted in the context of the background of the business and the industry in which it operates.

Set out in the tables below are a number of financial ratios with their formulas and a brief explanation of what each ratio measures. 

Liquidity ratios (short term solvency ratios)

The liquidity ratios measure a business’s ability to pay off its current/short term liabilities i.e. the liabilities which will become due in the next 12 months.

Ratio name Ratio formula What it measures
Current ratio Current assets / Current liabilities Can the business pay their debts due in the next 12 months from the assets they expect to turn into cash within those 12 months?Generally a ratio of 1 or higher than 1 is considered acceptable.
Quick ratio (Acid test) (Current assets – Stock) / Current Liabilities Can the business pay their debts due in the next 12 months from the cash and short term investments they have? Stock is excluded from the ratio as it must still be converted to a liquid asset (debtor/cash).Generally a ratio of 1 or higher than 1 is considered acceptable.

Efficiency ratios

Efficiency ratios show how efficient a business is in using its investment in current assets to make a profit.

Ratio name Ratio formula What it measures
Debtor days (A) Average trade debtors* / Sales x 365 Average number of credit days clients take to pay their accounts.If the number of days are high, especially higher than the industry average, it can indicate problems with debt collection.
Stock days (B) Cost of sales / Average stock** Average number of days it took from receiving stock to selling the stock.If the stock days are higher than the average stock days for the industry, it can indicate poor stock management, for example, having too much money tied up in stock.
Creditor days (C) ((Trade creditors + accruals) / (Cost of sales + other purchases)) x 365 Average number of days it takes from purchasing from a supplier until paying their account.If the creditor days are very short, it may indicate that the business is not taking full advantage of trade credit available to it.
Cash conversion cycle (CCC) Debtor days + Stock days – Creditor daysOR

(A) + (B) – (C)

How fast a business turns stock into sales (debtors), then turn those sales (debtors) into cash by collecting what the debtors owe them, and then pay its suppliers for goods and services bought from them.The shorter the CCC, the better. This will mean:

  • Better liquidity,
  • Smaller need to borrow money,
  • Money available to make use of discount terms for cash payments to creditors,
  • Better capacity to fund expansion of the business.

*Average trade debtors = (Debtors’ opening balance + Debtors’ closing balance)/2

**Average stock = (Stock opening balance + Stock closing balance)/2

If you need professional assistance with the above calculations, submission or payment of any of your provisional tax returns, please do not hesitate to contact our office. Our staff are friendly and knowledgeable and are looking forward to the opportunity to assist you. 

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. 

Reference List:

 

SARS payment options and rules

A2The purpose of the prescribed payment rules is to ensure that payments to SARS are allocated to the correct tax account of the taxpayer. If these payment rules are not adhered to, SARS will reject the payment. This article will explain the different payment options available to taxpayers and some of the general SARS payment rules. 

Payment options

The following payment options are available for payments made to SARS from South Africa:

  • Electronic payment via SARS eFiling
  • Electronic funds transfer (EFT) through the taxpayer’s internet banking
  • At a SARS branch
  • Over-the-counter deposit at a bank

Payments from South Africa’s neighbouring countries (Namibia, Botswana, Lesotho and Swaziland) can be made via EFT through the taxpayer’s internet banking.

Any other payments made from outside South Africa, excluding the neighbouring countries in the previous paragraph, can be made using the SWIFT payment method.

Electronic payment via SARS eFiling

When payment is made through eFiling, a payment reference number (PRN), which links the payment due to the relevant tax return, is automatically generated when submitting the return.

A credit push payment is initiated by the taxpayer via eFiling. SARS then sends a payment request to the taxpayer’s bank. The payment must be authorised by the taxpayer via his/her internet banking before the bank will transfer the money to SARS.

It is important for taxpayers to ensure that the tax return they submit contains the correct declaration of tax due before initiating a credit push transaction as a credit push transaction cannot be reversed after the taxpayer approved it through their internet banking.

EFT via internet banking

The SARS bank accounts into which taxpayers can make payments are pre-populated on the various banks’ internet banking facilities. This means that the taxpayer does not have to create a beneficiary for SARS but can just select the relevant SARS bank account from the pre-populated list of beneficiaries on their internet banking profile. 

At a SARS branch

All payments paid directly to a SARS branch must be accompanied either by a copy of the tax return or clearly state the tax reference number, tax period, tax type and PRN.

SARS do not accept any cash payments except for SARS Customs branches where customs and excise can still be paid in cash.

There are a number of limitations on cheque payments at a SARS branch. Please contact your tax adviser for more information if you make use of cheques.

Certain SARS branches will accept payment via credit or debit card only if this is indicated on a notice board.

Over-the-counter deposit at a bank

Over-the-counter payments done at a bank must be accompanied by the correct information otherwise the bank will reject the payment. The information that must be submitted to the bank together with the payment can be found on the relevant SARS tax return.

Cheque deposits exceeding R500 000 will be rejected by the banks. “Split cheque” payments where the full amount due is larger than R500 000 and then split into two or more cheques of which each cheque is below R500 000, will also be rejected by banks.

How to determine a PRN

If a PRN has not been pre-populated on a tax return, a taxpayer can still determine the correct PRN him/herself by manual means by combining the following information in a 19-digit PRN:

  • tax reference number
  • tax type
  • tax period

Example:

Tax reference number: 1234 567 89 0 (digits 1 – 10)

Tax type identifier: 7 (digit 11)

Tax period being paid: June 2014 (digits 12 – 19)

The PRN will be 1234567890730062014.

Taxpayers should check that they use the correct PRN to ensure that payments are accurately and timeously processed and allocated to the correct account. It remains the full responsibility of the taxpayer to ensure that payment is received by SARS on time in order to avoid any penalties and/or interest from being charged on late payments.

If you would like more information on the regulations regarding payments to SARS, please contact your tax practitioner.

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. 

Reference List:

SARS prescription

A3Imagine the following scenario: A taxpayer named Andrew is on his annual vacation for four weeks. On the fifth day of his vacation, he is lying carefree in the sun with his toes wiggled into the warm beach sand.  A thought crosses his mind: perhaps he must check his email for a change.

Fast forward eight hours: Andrew logs in to his email. He gives the emails in his inbox a quick scan. Suddenly his stomach cramps. His heart beats faster. His hands start to sweat. His eye caught an email from SARS. Andrew opens the email and then the attachment reluctantly. The attachment contains a letter from SARS stating that they are going to re-assess his income tax for a specific tax year. The assessment for that particular tax year has been issued more than four years ago. Can SARS do this?

To be subjected to the prescription (or re-opening) of an assessment that has been finalised a few years ago already, is something taxpayers don’t even want to contemplate. However, in terms of the new Tax Administration Act (TAA) SARS may go back more than three tax years into the past, prescribe and re-assess a tax return but only if the Commissioner is objectively, based on the facts, satisfied that both the following statutory requirements are met:

  • There was fraud, misrepresentation or non-disclosure of material facts.

“Fraud” is defined as an unlawful act committed with the intention of misleading another person. The misleading information must cause the other person to act differently than they would have acted if they were not given the misleading information.

The legal meaning of “misrepresentation” refers to a false statement made by a person, regardless of whether the statement is made negilently, fraudulently or innocently. Misrepresentation does not include the expression of an opinion or an interpretation of law.The taxpayer must have made a positive statement which contained one or more facts that were untrue.

Note that innocence cannot be pleaded as an excuse for misrepresentation. Taxpayers thus have to make sure about the content of any statement they make regarding their tax affairs before making such a statement.

“Non-disclosure” means failure to reveal a fact if there is a duty to disclose it. Whether or not there is an intention to conceal it is irrelevant.

  • The above fraud, misrepresentation or non-disclosure of the material facts was the direct cause that the taxpayer had been assessed for a lower amount of tax than if the taxpayer had disclosed these material facts referred to in section (i) above, to SARS.

There must be evidence of a direct link between the non-disclosure or misrepresentation of the material facts and the taxpayer paying too little tax. If the fraud, non-disclosure or misrepresentaiton of the material facts did not cause the taxpayer to be liable for less tax than he was assessed for without the material facts, the second requirement listed above is not met and SARS shouldn’t be able to apply this section of the TAA.

Generally the onus of proving that income is not taxable or that an expense is tax-deductable rests with the taxpayer. However, if SARS wants to apply the provisions of this section of the TAA, the onus of proving that the above requirements are met, rests with the Commissioner.

It seems that if the fraud, non-disclosure or misrepresentation of material facts did take place but did not cause the taxpayer to pay less tax than if SARS had been in possession of these material facts, and SARS would have assessed the taxpayer in exactly the same way as with the original assessment, despite SARS becoming aware of the material facts now, SARS cannot claim that the under-assessment was due to that fraud, non-disclosure or misrepresentation of the material facts.

If SARS wants to issue an additional assessment on the basis of requirement (i) above but requirement (ii) is not met, the taxpayer can deal with this situation using the objection and appeal provisions available.

In the light of SARS’s tools to go back and prescribe assessments for old tax years, it might be prudent to keep tax records for longer than the required retention periods prescribed by SARS.

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 ommissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice.

Reference List:

 

Newtons First years’ concert

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“Through a First Years Eyes”

You walk into Newtons, a new apple, up two flights of stairs and into Training with Thelma. Somewhere along the line Thelma mentions that you have to participate in the First Years’ Concert and you think: you want me to WHAT?

Accountants doing drama? That’s like KFC selling McDonalds, but hey, if you have to do it, you have to do it.

At first everybody has their own idea of what the show should be. As the days crawled by, discussions dwelled on a theme instead of progressing to planning and repetition. Somewhere deep in my gut I got this feeling that this is going to be the biggest fiasco ever.

Then Helensha suggested a News Cast and everyone was in agreement. As lunches were spent on planning and evenings were spent on drafting the show slowly came together. Little by little you got pulled out of your comfort zone, pushing yourself to be more than you thought you could be. Nico refused to do a talking role and yet he ended up in a cross-dressing role of a teacher in the Newtons advertisement. Alongside him Chantelle, Leonie and Sané starred as school kids having to give apple idioms.

Helensha became the dry news caster called Riana Cruywagen. Martinus revealed his slightly disturbing crazy side by being the blind sign language interpreter called Stevie Wonders. Wayne was in charge of audio and visual.

Tanya hosted her own quiz show called: Ask the Audience with Joelene, Thembakazi, Duminque and Carlin assisted with the scoring. One phone call to the audience and it became a huge hit. The most memorable moment was when Sharidon answered the phone with: This is Sharidon, unfortunately I am not available.

Next up was the dance number, a slightly chaotic interpretation of Grease but great fun all the same.

The show ended with Wayne doing the witty weather cast for the Newtons building, but the best was yet to come. As a finale we showed images from our Random Act of Kindness. It was Nico’s brilliant idea and Tanya’s planning that enabled us to give a hundred loafs of bread away to hungry people. We also challenged the Second Years to do their own Random Act of Kindness which, by date of publication, is yet to happen (wink, wink, nudge nudge).

By the time it was over, in spite of our differences, we had somehow become a team. Then the partying began.

..and the next morning I woke up with a bad headache and a screaming alarm clock. That morning was the first morning I really started to feel at home at Newtons and suddenly I realized what made the show worthwhile.

Written by Martinus de Beer

 

Awards Congratulations

1/4 Apple Awards March 2015

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Congratulations to Pieter van Rooyen on receiving the 1/4 Apple Award for his dedication, excellence and commitment to Newtons!

1/4 Lucky Draws

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Our 1/4 Lucky Draw Winners are Duminque van Niekerk, Sané van der Watt, Isaac Adam, Chantelle Schnuir and Louise Wagner.

 

1st Years 2015 Commitment to the Newtons Apple Tree