Month: February 2016

VAT in a nutshell

VAT in a nutshell

Whether your business is registered as a Close Corporation, Sole Proprietorship or Private Company, there are variousFinanceGuy.jpg tax requirements you have to meet and one of these could be value-added tax (VAT). Here is a broad explanation of what VAT is and how to meet your tax obligations as a small business.

It is mandatory for any business to register for VAT if the income earned in any consecutive twelve month period exceeded or is likely to exceed R1 million​. Any business may choose to register voluntarily if the income earned, in the past twelve month period, exceeded R50 000. Although this will add to your administration workload, it can also benefit your company in that you’ll be able to claim VAT back on your expenses.

What is VAT?

VAT is an indirect system of taxation (which means it’s not directly deducted from your income) that is currently levied at 14% on the value of all goods and services supplied by vendors. It doesn’t matter if the supply of the goods is of a capital or trading nature. The VAT system is not as complicated as it may seem. It works like this:

  • You buy your goods from your supplier. The price will include VAT.
  • You sell these goods to your customer, charging VAT on the goods sold.
  • The difference between the VAT you paid and the VAT you have collected, you will pay/claim to/from the Receiver of Revenue according to the VAT cycles.

VAT is levied on the value of the goods or services – whether by sale, rental agreement, instalment credit agreement or any other forms of supply. Where supply between unconnected parties is done at no cost, no VAT is charged.

Registering for VAT

Businesses with a turnover (or a forecasted turnover) of more than R1 million per year are obliged to register as a VAT vendor. A business can also register voluntarily if turnover in a 12 month period has exceeded R50 000.

A vendor is any person who is required to register in terms of the VAT Act. A “person” includes any natural person, public or local authority, company, trust, body of persons (i.e. partnerships) and the estate of any deceased or insolvent person.

An enterprise is any regular activity carried on in or partly in the Republic of South Africa, whether or not for profit, in the course of which goods are sold or services are rendered. There are specific inclusions and exclusions relating to enterprises.

To register for VAT, you need to complete a VAT101 form. Take note: if you operate more than one business under one entity, you must only register once. Once you’ve registered, SARS will let you know in writing what your registration details are, the date on which it took effect and the tax period allocated to you.

VAT compliance

For any sale of more than R50, you have to issue a tax invoice, with the word “tax invoice” printed on it. This is the most important document in the VAT system, so make sure you get it right. The invoice must contain:

  • The value of the goods/services excluding VAT
  • The VAT calculated at 14% of the value of goods/services
  • The value of the goods/services including VAT
  • The name, address and VAT registration number of the person buying the goods/services
  • Your business name, address and VAT registration number

The VAT cycle

The frequency with which you have to pay VAT to SARS depends on what “taxable period” you qualify for.

The tax periods that are available are classified into six categories namely:

Category A

Under this category a vendor is required to submit one return for every two calendar months, ending on the last day of January, March, May, July, September and November.

Category B

Under this category a vendor is required to submit one return for every two calendar months, ending on the last day of February, April, June, August, October and December

Category C

A vendor is required to submit one return for each calendar month. A vendor will fall within this category if the turnover exceeds or is likely to exceed R30 million in any consecutive period of 12 months, the vendor has applied in writing to be placed in this category or repeatedly failed to perform any obligations as a vendor.

Category D

Under this category, a vendor submits one return for every six calendar months, ending on the last day of February and August. This category applies mainly to a vendor who carries on farming activities with a total turnover of less than R1.5 million for a period of 12 months.

Category E

This is commonly referred to as the annual tax period because a vendor is required to submit one return for 12 calendar months. The vendor must, amongst other things, be a company or trust fund in order to fall within this category. The additional criteria to fall within the ambit of this category are set out in Chapter 3 of the VAT 404 guide.

Category F

This is a four-monthly tax period that was introduced, effective from 1 August 2005, to assist small business. The four month period for each year is as follows:

  • March to June to be submitted in July
  • July to October to be submitted in November
  • November to February to be submitted in March

A VAT return must be submitted within 25 days of the end of each VAT cycle or the business can face penalties and interest on late submission. Penalties are 10% of the amount payable and interest is levied at the standard charge for interest.

Also, it’s important to know that you have to keep your records for a period of five years from the date of the last entry in any book, as SARS can ask to see these records at any time within this timeframe.

Making VAT payments

For businesses that file their VAT returns and make payments electronically, the VAT must be paid by no later than the last business day of the month after the end of the tax period.

For all other businesses, the VAT must be paid by no later than the 25th day after the end of the tax period.

VAT payments can be made through one of the following channels:

  • Post
  • SARS branches(Cheques only – no cash are accepted)
  • Electronic Funds Transfer (EFT)
  • Debit Order and eFiling
  • Various banks
Contractor Development Programmes

Contractor Development Programmes

The National Contractor Development Programme (NCDP) is a public sector led programme comprising of a partnership between the cidb, National and Provincial Public Works and other willing stakeholders and partners.

The objective of the NCDP is to increase the capacity, equity ownership, sustainability, quality and performance of cidb registered contractors – effectively raising the contribution of the construction industry to South Africa’s accelerated and shared growth initiative. To achieve this objective, participants within the NCDP should commit to all or some of the following developmental outcomes:
• Improve the grading status of contractors in targeted categories and grades;
• Increase the number of black women, disabled, and youth-owned companies in targeted categories;
• Create sustainable contracting enterprises by enabling continuous work through a competitive process;
• Improve the performance of contractors in terms of quality, employment practices, skills development, safety, health
and the environment; and
• Improve the business management and technical skills of these contractors.

WHAT IS A SUCCESSFUL CONTRACTOR DEVELOPMENT PROGRAMME?
A CDP should be a well-planned operation that aims to exit and graduate contractors from the programme with measurable improvements (e.g. NQF level or improvement in contractor grading) and involves commitment of financial and human resources by both the client and the contractor. Clients that commit to contractor development must use an appropriate portion of their procurement of infrastructure budget to support the objectives of the NCDP.

Getting started
As a sector, CDPs development initiative normally require significant support from the political stakeholders in the process. It is important that the key role players in a CDP are involved from the start of the process.

Developing a programme business case The Programme Manager: Contractor Development must develop a programme business case that addresses the following aspects:
• Programme goals and description;
• Scope of programme and interventions;
• Contractor, organisational and institutional arrangements;
• Resources and budget to support the programme and attain desired results;
• Programme implementation timescale;
• Measurable outcomes; and
• Programme operations monitoring and evaluation mechanisms.

Establish a contractor development steering committee
A steering committee is an important part of the success of any CDP as this will ensure buy-in and improved communication. The purpose of the steering committee is to direct initiatives that do not fall directly under the management of the Programme Manager: Contractor Development. Examples of this would include supply chain management arrangements and payments and contract conditions. The steering committee must approve the business case for contractor development.

Identify required role players and establish stakeholder forum
Appropriate consultation with key role players will ensure that there is a common understanding of the CDP and it will significantly increase the chances of success. Although specific key role players must be identified by the client, the following participants are recommended:
• The contractor development steering committee members;
• The local Construction Contact Centre (CCC) manager;
• Other clients that may want to participate in CDPs;
• Construction sector representative; and
• Training authorities and training institutions

Staff resource planning
As contractor development is an initiative of the client, the client must ensure appropriate resourcing of the contractor development initiative. The structure should incorporate a unit which is focused on contractor development, with the following functions:
• Planning contractor development interventions;
• Coordinating contractor training during the programme;
• Coordinating mentoring activities;
• Procurement specialisation specifically focusing on sourcing strategies that will promote contractor development;
• Stakeholder management and communication of contractor development activities, including coordination with financial institutions; and
• Monitoring and evaluation.

What Is Business Technology?

What Is Business Technology?

Business technology encompasses a wide range of hardware, software and services that keep companies running and enhance operations. Technology plays into every aspect of a business, from accounting to customer communications to product design and development. The rapid forward movement in technology development over the last couple of decades has provided more powerful and less expensive options for companies. Business technology can help small business look bigger than they are and keep them ahead in a competitive marketplace.

Hardware

The most visible sector of small business technology is the hardware–the desktop computers, laptops, printers, monitors, cell phones, projectors, servers, digital cameras, keyboards and “mice” that keep a business going on a daily basis. Laptops, an increasingly popular computer hardware option for business users, are more mobile than ever. Budget-conscious small businesses often purchase consumer hardware rather than enterprise hardware, but many manufacturers offer products designed specifically for small business users.

Software

Software covers everything from the operating system that a computer runs on to image editing programs, accounting software and word processing applications. Most businesses run on either a Windows or Macintosh platform. Macs are particularly popular with entrepreneurs who deal with multimedia and video creation. Most businesses use an office productivity software suite such as Microsoft Office or openoffice.org that includes word processing, presentation and database programs that handle a wide array of common business tasks. Business software also includes more specialized programs such as CAD design tools for architects and recording software for audio engineers.

Internet

The growth of the Internet has marked a sea change in small business technology. Businesses use websites to advertise, provide information, sell products and reach new customers. Software as a Service (SAAS) is software that is delivered in an ongoing fashion over the web rather than through CDs or downloads. Often it is paid for in a monthly or yearly service plan. This can be a more affordable and flexible option for small businesses compared to traditional methods of purchasing and using software.

Specialized Technology

Business technology isn't limited to uses surrounding desktop and laptop computers. Technology also makes a mark with high-tech manufacturing robots, advanced microscopes and other specialized hardware and software. Many tasks that used to be done by hand are now automated and handled by specialized technology tools. For example, an independent machine shop may use computer-aided manufacturing equipment that combines specialized software with machines to create parts to specifications. Innovative small businesses are also working in high-tech industries like nanotechnology and biotechnology and are on the cutting edge of creating new technologies.

Benefits

The smart use of business technology helps small companies stay ahead of the competition by improving communications, making employees more efficient and tapping into effective marketing channels. Small business owners are often pressed for time and wearing many different hats. The use of business tools like accounting software, email, customer relationship management applications and “smart phones” can take some of the burden off entrepreneurs and help them make the most effective use of their time. Up-and-coming generations of workers are accustomed to a world full of technology. Small businesses need to adapt and keep up with new advancements.

Businesses can gain from volunteer programmes

Research indicates that companies with high levels of employee engagement enjoy a significant increase in productivity and general well-being, which leads to increased profitability and stability for their company.
© Cathy Yeulet – 123RF.com

© Cathy Yeulet – 123RF.com

So what does it take to engage your workforce and ensure a positive sentiment towards your business?

“Business is changing. It’s being shaped by a more consciously aware generation that wants to have a positive impact on society,” says Andy Hadfield, CEO of online social platform forgood. “Millennials especially want the purpose of business to include addressing problems in society and they want to feel that they are making a difference to the world around them.”

According to Mind the Gaps: The 2015 Deloitte Millennial Study, the millennial generation are just as interested in how a business develops, and its contribution to society, as they are in products and profits.

How to engage

“One way in which you can engage your employees and address their need for meaning or accomplishment is by creating a well-managed employee volunteering programme, that benefits the community that you operate in,” says Hadfield.

Volunteer programmes are perceived to add value to the recruitment, retention, training, development, loyalty and overall satisfaction of staff. The Deloitte study echoes this finding, with six in ten millennials stating a ‘sense of purpose’ as part of the reason they chose to work for their current employers.

Besides the operational benefit and the feel good factor for employees, volunteer hours can be incorporated into a company’s CSI mandate, which contributes to its B-BBEE ratings. For this it is essential for the HR department to keep an up to date register of the charities and the hours spent volunteering.

Link with causes

forgood has created an online platform which links causes with individuals and groups who are looking to contribute. The platform helps businesses run a successful and innovative employee volunteering and donation programme.

All causes subscribed to forgood are vetted to ensure they meet NPO criteria. By asking for goods or services on forgood, causes are able to indicate exactly what they need and individuals are able to advertise what they can offer, including specialised skills and abilities. This creates meaningful connections between the staff of a company and the social sector they choose to target.

The platform also offers business functionality that allows companies to manage their internal CSI campaigns and reports on staff activity through these mechanics.

What is a Social Entrepreneur?

What is a Social Entrepreneur?

Over the past two decades, the citizen sector has discovered what the business sector learned long ago: There is nothing as powerful as a new idea in the hands of a first-class entrepreneur.

Social entrepreneurs are individuals with innovative solutions to society’s most pressing social problems. They are ambitious and persistent, tackling major social issues and offering new ideas for wide-scale change.

Rather than leaving societal needs to the government or business sectors, social entrepreneurs find what is not working and solve the problem by changing the system, spreading the solution, and persuading entire societies to move in different directions.

Social entrepreneurs often seem to be possessed by their ideas, committing their lives to changing the direction of their field. They are visionaries, but also realists, and are ultimately concerned with the practical implementation of their vision above all else.

Social entrepreneurs present user-friendly, understandable, and ethical ideas that engage widespread support in order to maximize the number of citizens that will stand up, seize their idea, and implement it. Leading social entrepreneurs are mass recruiters of local changemakers— role models proving that citizens who channel their ideas into action can do almost anything.

Why “Social” Entrepreneur?

Just as entrepreneurs change the face of business, social entrepreneurs act as the change agents for society, seizing opportunities others miss to improve systems, invent new approaches, and create solutions to change society for the better. While a business entrepreneur might create entirely new industries, a social entrepreneur develops innovative solutions to social problems and then implements them on a large scale.

Enterprise Supplier Development

Enterprise Supplier Development

ESD is a combination of Preferential Procurement, Supplier Diversity, Supplier Development and Enterprise Development programs to service business needs. It is part of the Broad-Based Black Economic Empowerment policy to advance economic transformation in South Africa. The aforesaid can be defined as follows:

  • Preferential Procurement is a national policy that encourages government departments and agencies to buy goods and services from previously disadvantaged individuals or businesses.
  • Supplier Diversity is the proactive business process of sourcing products and services from previously under-used suppliers. This process helps to sustain and progressively transform a company’s supply chain thus quantitatively reflecting the demographics of the community in which it operates by recording transactions with diverse suppliers.
  • Supplier Development is the process of working with certain suppliers on a one-to-one basis to improve their performance for the benefit of the buying organisation, leading to improvements in the total added value from the supplier in question in terms of B-BBEE rating, product or service offering, business processes and performance, improvements in lead times and delivery.
  • Enterprise Development is a strategy for promoting economic growth and reducing poverty by building SMMEs, membership organisations to represent them and competitive markets that are stronger and more inclusive. It consists of monetary and non-monetary, recoverable and non-recoverable contributions actually initiated in favour of a beneficiary entity by a measured entity with the specific objective of assisting or accelerating the development, sustainability and ultimate financial independence of the beneficiary.

The broad practice statements which underpin ESD are;

  • There is no single approach to ESD. Companies must select the most appropriate approach to suit their needs and their relationship with the beneficiaries that they select for development;
  • Before any decision is made to implement ESD the organisation’s needs and objectives must be established;
  • ESD is a two-way activity that should be thought of as a joint-venture;
  • Whatever approach to ESD employed, companies should ensure quantifiable and measurable results that lead to business benefits;
  • ESD projects should be capable of being assessed, monitored and evaluated in terms of quantifiable operational and financial impact;
  • A Project plan must be developed and implemented to ensure that supporting evidence needed to guarantee that ESD projects will benefit under the B-BBEE codes is collected;
  • It is not necessarily only the best suppliers which should be eligible for ESD programmes – each supplier should be assessed on the basis of individual merit and potential;
  • ESD professionals should possess relevant expertise; in particular they need to have the necessary interpersonal and communication skills to be able to persuade stakeholders and beneficiaries who may otherwise be reluctant to embark on a development programme;

Companies must identify sound reasons for embarking on ESD such as:

  • Improving B-BBEE rating;
  • Improving beneficiary performance;
  • Reducing costs;
  • Resolving serious quality issues;
  • Developing new routes to supply;
  • Improving business alignment between the beneficiary and the sponsoring organisation;
  • Developing a product or service not currently available in the marketplace;
  • Generating competition for a high price product or service dominating the marketplace.
Business Support Environment

Business Support Environment

There are many reasons why it is in the interests of a local authority and local businesses to build mutual understanding and effective working relationships. Private sector businesses play a fundamental role in delivering economic and social well-being to citizens, whilst local authorities and other agencies have the ability both to promote and regulate private sector activity. It is essential that the public and private sectors work together in order to foster healthy and competitive businesses, as well as ensure that public sector interventions are fully aware of private sector needs.

Most local authorities have established local business forums which enables local businesses to raise any issues and concerns directly with local authority members and officers. They also offer the opportunity to input into the policy and decision making process of the local authority and to network with other businesses in their areas.

Supportive Business Environment
1. Passionate Entrepreneurs – The business ecosystem can only thrive with passionate
entrepreneurs who are well equipped for running their business ventures and who love
what they do and identified an opportunity to convert that love into a viable business.
2. Government Support – The business ecosystem cannot survive without an important role from government with drawing up policies that are concussive for small business to thrive.
3. Private Sector Support – Private sector has a very important role to play in terms of market access and enterprise development through various mentoring and coaching platforms available to encourage entrepreneurship and providing a supportive business environment.

Lessons my mentor taught me

Many people have this notion that if they follow the exact steps that a “successful” entrepreneur took to get to where they are today, they too will become successful. As a result of this mindset, accomplished entrepreneurs are often asked what steps they took on their journey.

As a young man, I asked my mentor: “What’s the secret to becoming wealthy? Surely if it were as simple as reading a book on ‘10 steps to success’, everyone would be rich?” He gave me quite an unexpected answer: “It’s about knowing what questions to ask yourself and others.”

Of course it is necessary that you make the right choices on your entrepreneurial journey, but more importantly than that, is your ability to ask the right questions. An invaluable skill I’ve learnt and one I still apply daily.

Knowing what questions to ask, when to ask them, and how

The entry point of a question, and how you frame it, will determine how much information you will receive. It’s all about asking the right questions, at the right time, and in the right sequence. Start by asking open-ended questions and then tailor them to elicit specific information. When a person answers your questions, they give you a clue as to what the next question should be, by revealing information and setting themselves up for the next one. Always take note of their tone, body language, and answer. Often the information they don’t tell you, is more important than what they have said.

Socratic Questioning is a technique where every question acts like a “lens” that takes a closer look and investigates what was not previously visible. You have an infinite number of “lenses” at your disposal and it’s important to know which “lens” to use depending on the context, in order to “see” the right information.

A great question for an interviewee is: “What do you and a lawnmower have in common?” This seemingly silly question opens a conversation which will allow you to ask more questions that will uncover a treasury of information about a person. If they respond that they don’t need to be pushed, you can infer that they are most likely a self-starter. If they respond that they like to trim the edges, you can infer that they most likely strive for order in their life.

Their responses will inform what the next question should be and the conversation will deepen.

Knowing what questions you need to ask yourself

The secret to shifting your own mindset and therefore your business, is asking yourself questions and answering them honestly. In many instances people answer questions with a “public” response instead of an honest self-reflective one.

An example of an introspective question that entrepreneurs could ask themselves regularly is: “Are you adding enough value to your clients?” If they answer this question to themselves with a “public response” and say they are definitely adding value, when deep down they know they aren’t, their business won’t shift because they are only deluding themselves.

If entrepreneurs admit to themselves that they aren’t adding sufficient value to their clients, they open up more questions which will lead to actions they can then take to change their current situation. After they’ve answered the first question honestly, they then need to ask themselves more questions, such as: “Why aren’t I adding value?”, “How could I add more value?”, “What do my clients perceive as value?”, “What are my competitors providing to my potential clients?”, and “Will the value I am providing today be sufficient for my clients in a year’s time?” By continuing to answer these questions honestly, you will unlock ways to improve your business and its value proposition to your clients, thus increasing your relevancy and probability of growth.

What exactly is the Informal Economy?

What exactly is the Informal Economy?

The International Labour Conference in 2002 defined the Informal Economy as “all economic activities by workers and economic units that are – in law or in practice – not covered or insufficiently covered by formal arrangements” (ILO 2002a). This definition includes informal workers in formal businesses.

Informal employment is defined as persons that are employed without any contract, paid leave or pension contribution.

This definition creates a problem for an enterprise development practitioner because it does not distinguish between an enterprise and employment. It focuses on self employment and informal employment.

The definition is very valid because it deals with the total Informal Economy.

So an enterprise development practitioner needs to define informal enterprises to be able to distinguish between the formal and informal businesses.

This should be relatively easy. A formal business is either registered for taxes or in a company or closed corporation. What then about an enterprise which registered at the local municipality for a trading license but does not comply to the other requirements? I’ll classify such a business as informal.

How about having a bank account or not? A sole trader with a trading license and a bank account will still be classified as informal if the business is not registered for any taxes.

What about a teacher who owns a car wash? The owner is formally employed but the enterprise may not be formal. If the teacher declares the income from the car wash to the Receiver of Revenue then it is a formal enterprise. Or if the car wash is registered in a company it will also be a formal business.

How will you know then if the teacher declares the income from the business? The only way is to ask the teacher and hope the information is true because the only way to verify that is at the Receiver of Revenue who will not give you any information.

I am sure there are many more examples like this. It is certainly not that easy to distinguish between formal and informal businesses.

During a recent survey of small enterprises in the Northern Cape we were astounded by the large number of especially Bangladeshi men who operate small shops in townships and villages. Almost 90% of shops were owned by them. Anecdotal evidence shows that they do not have bank accounts, they marry African women to get citizenship and they do not have any form of transport.

The local traders can’t compete against their low prices. These foreign owned enterprises are certainly informal and they do not create jobs but they provide good prices to the consumer. If they could be formalised then at least taxes will start to flow into the state coffer and the local traders may then be able to compete. Your thoughts?

A practical framework for managers of local economic development (LED) to achieve key socio-economic outcomes

The innovative Local Economic Development framework developed in a number of municipalities first of all aims to:

  • Quantify Gross Geographic Product (GGP), unemployment and poverty in a region as the socio-economic baseline for LED action.
  • Use this baseline to set specific turn-over, employment and income objectives
  • Explore opportunities for enterprise and job creation in the various sectors
  • Create an assortment of investments to satisfy income and job creation goals
  • Introduce an Small and Micro Enterprise incubation system to support the objectives
  • Deal with the required skills development in this region
  • Set up a special purpose vehicle to create and manage a Venture Capital Fund

Successful new Local Economic Development initiatives involve a cooperative agreement between the

A: municipality, B: organised business and C: the community:

  • The municipality is responsible for the enabling environment in keeping with the municipal mandate for Local Economic Development.
  • Organised business is responsible for the trading environment and supporting start-up entrepreneurs and businesses

Together, municipality and business create and manage the venture capital fund to drive sustainable socio-economic development.

“If you want to see real long term results local economic development needs to be a joint venture between municipality, business and community”