How to Stay Fit in the New Financial Year
As many practices begin their new Financial Year, here’s some advice to ensure success in the new year
With the introduction of a VAT increase, unstable fuel prices and an increase in food and household expenses, consumer spending on necessities has become a significant burden thus there is no doubt that not only consumers, but also businesses, have felt the pinch in their pockets over the last few months. Business owners tend to focus too much on day-to-day problems and forget that the key to success is for businesses to invest time to create and manage their budget, prepare and review business plans and regularly monitor cash flow and performance.
If you’re able to budget properly, then you can ensure that you have enough capital to grow your business this financial year. You can start by reviewing your performance last year looking at your key objectives for the coming year and change or re-establishing your longer-term planning.
Some common budgeting tips you can use to manage your money:
Avoid Hidden Costs
To prepare yourself for hidden costs you must make sure that you’re well aware of legal/regulatory costs, tax/compliance costs, insurance, competition, employee turnover, and more. It’s always best to be well informed and prepared.
Have An Emergency Fund
Instead of putting all excess cash back into the business, you will do well by setting aside a portion towards an emergency fund. Having a back-up plan in the event of a disaster is crucial.
Pay Your Debts
If you’ve taken on personal or business debt, it’s always a good idea to pay it off as quickly as possible. Instead of paying the minimum payments each month, we recommend paying more than what is expected as the money you owe back will compound. If you suspect that you and / or your business’s it over indebted and that you will not be able to fulfil your commitments, then it may be best to apply for a consolidation loan. Your personal credit score determines how creditworthy you are and this applies to business as well. By reducing your debt, you can increase your credit score, both personally and for the business. It also boosts your score when your business profits increase consistently for a long period of time and a good business credit score influences a better and longer payment plan and an even lower interest rate but if the business has the potential to grow though then do wait before applying for consolidation loans. If not, your credibility will be reduced.
Lastly, don’t forget to budget in your own salary as you should always make sure you have enough to cover your expenses and to enjoy the good thing you deserve for your hard work.
Pay Your Taxes
Most of the State’s income is derived from Income Tax (personal and corporate tax), although nearly a third of total revenue from national government taxes comes from indirect taxes, primarily Value-Added Tax (VAT).
For the 2018 year of assessment (1 March 2017 – 28 February 2018), you are liable to pay income tax if:
- you earn more than R75 750 and you are younger than 65 years;
- you earn R117 300 and you are 65 – 75 years;
- you earn R131 150 and you are 75 years and older;
Taxpayers who do not submit their returns will be charged an administration penalty and have to pay it to SARS. This penalty is levied under Section 210 of the Tax Administration Act which also prescribes the various types of non-compliance which are subject to fixed administrative penalties.
The penalty amount that will be charged depends on a taxpayer’s taxable income and can range from R250 up to R16 000 a month for each month up to a maximum of 35 months. Each recurring penalty will have a unique transaction number.
If the administration penalty is not paid, SARS will appoint an agent (such as your employer) to collect the money on its behalf. This means that if you do not respond to any of the notices or demands informing you of your outstanding tax debts, SARS may appoint your employer or any other third party who holds money on your behalf or owes you money, including salary, wages and other types of remuneration, to pay the outstanding amounts to SARS. If convicted, the person is subject to a fine or to imprisonment for not longer than two years.
Businesses are reminded that VAT is also a tax and VAT vendors can claim back their VAT expenses from the revenue service. As an architect, if your total revenue for services rendered in a calendar year exceeds R1 million then you are obliged to become a VAT vendor.
Be warned that the High Court has sentenced three company directors to effective sentences of 25 years’ imprisonment each after being convicted of fraud, forgery, uttering* and money laundering involving R216 m in VAT refunds paid out by SARS.
* refers to money that you know is forged and yet you have placed this money back into circulation through your business
2018 Budget Highlights
Please note that this is applicable to the 2019 tax year, 1 March 2018 to 28 February 2019.
The most important change is the increase in the VAT rate from 14% to 15%, with the effective date 1 April 2018.
Please keep in mind that all the normal VAT rules will apply – the date of supply will determine the rate of VAT that has to be applied. If the goods, or service, was supplied before 1 April 2018, but invoiced after 1 April, VAT must be levied at 14%.
Any services rendered over a period, including construction, rental agreements and progressive supply of services or goods, will be subject to the 15% VAT rate for any of these supplied from the 1st of April onwards.
Example – the sale of a commercial building in January 2018, with registry at the deeds office after 1 April 2018, and payment on date of registration, will attract VAT at 15%, as the date of supply will be after 1 April 2018.
Changes that will affect financial liquidity/planning.
- Estate duty on estates with a value exceeding R 30 million will increase from 20% to 25%.
- Liquidity in the estate must be provided in order to ensure that the execution of the estate can go forward as planned.
- Donations Tax has been adjusted at the same rate as estate duty. Donations tax will be 25% on any amount exceeding R 30 million. The basic exemption of
R 100 000 has not been increased. The exemption on donations between spouses is also still in place.
May good financial health and success be yours during the next financial year as you continue to build your practice on sound business principles.