Employer reconciliation: bring balance to the (work) force

Accountants like to balance. Everything must balance. We also like to think that a balanced diet is a cookie in each hand. 😊

That brings me to the joy of employer reconciliation.

Do you have staff working for you? Do you deduct UIF, SDL and PAYE from their salaries? If you do, then you also need to do an employer reconciliation of these payments to SARS twice a year. It makes sense that SARS needs to know for which employees the UIF, SDL and PAYE are being paid over.

So how do you do this?

SARS has special software that you can download for free. It is called e@syfile. Click on the link to download the software. http://downloads.sarsefiling.co.za/easyfilehome/easyfile.html

What do you need to do to get started?

First of all, you need to setup the company information for example the physical address, contact numbers and registration numbers
The second thing would be to insert all the employees’ personal information as per their employee contract

Once this information has been processed you can start by inserting the amounts pertaining to each employee. This is done via an IRP5 certificate (if the employee pays PAYE) or else an IT3 certificate (if the employee does pay UIF, but not PAYE).

There are specific codes that these amounts need to be recorded under. You can find these on SARS’ website. The e@syfile software also has a dropdown selection box to help you find the correct code. But here are the main ones you should be aware of:

You must specify the employee’s salary for the period in question. That would be under code 3601. If he/she earned an annual bonus that would be under code 3605.
If the employee contributes to a pension (4001) / provident fund (4003) the amount needs to be inserted under the specified code and his/her medical aid contribution needs to be inserted under code 4005. If the company contributes a portion of the funds, you also need to specify the fringe benefit part under the employee’s earnings.
You would then state the employee and the employer’s contribution of UIF paid over as one amount under code 4141. The employer’s contribution of SDL would go under code 4142. The PAYE deducted from the employee’s salary for the period will be inserted under code 4102.

It is very important that these amounts are captured correctly, as this information goes to SARS and straight onto the individual’s income tax form. If you feel that it is too complicated rather ask your accountant to handle the employer reconciliations on your behalf.

Once all the employees’ information and amounts have been entered you can go on to the EMP501, which is the reconciliation of all the periods in question’s PAYE, SDL and UIF paid to SARS and the totals from your IRP5s and IT3s are added up and deducted from the totals. The differences should then be zero. You have successfully completed the employer reconciliation! Have a cookie.

A few notes:

UIF = employer pays 1% of earnings and employee pays 1% of earnings
SDL = employer pays 1% of earnings
PAYE = employee pays tax as per SARS’ statutory tax tables

These reconciliations need to be submitted twice a year. The first one needs to be submitted before 31 October for the period March to August and the second need to be submitted before 31 May for the full financial year (March to February).

As I said in the beginning: accountants like to balance and reconcile, so ask your accountant to assist, or feel free to reach out to me. I will be happy to provide you with friendly and efficient service.

Until next month, have a springy October!

1 Sep 20181 Sep 2018

Put a spring in your company’s step

Spring is in the air and it brings with promises of new beginnings and growth. It is therefore not surprising that I am seeing more requests from clients about setting up private companies.

Are you wondering whether you should keep on trading in your own name or registering a company? Or do you have a registered company and need to know what the legal requirements are?

There would be tax advantages to register a company, as a company only pays 28% income tax whereas an individual can pay up to 45% income tax. However it is important to note that a company has more legal requirements to comply with.

To help you decide and demystify the process I have put together this little guide:

Here is a list of requirements at the different institutions:

CIPC (Companies and Intellectual Property Commission)

An annual return needs to be completed to confirm that the company is still trading.

This needs to be sent in the month of the company’s registration anniversary.

SARS (South African Revenue Service)

INCOME TAX – a return needs to be completed once a year (IT14) to show profit or loss. If a profit was made income tax of 28% needs to be paid on the profit.

A set of annual financial statements needs to be drawn up and reviewed by an accountant or auditor to accompany the income tax return.

PROVISIONAL TAX – returns need to be submitted twice a year and if the company is making a profit provisional tax needs to be paid on the estimated profit.

The provisional tax returns need to be submitted before end of August and end of February. If you need more info regarding provisional tax, please see my blog on provisional tax.

VAT – the company needs to register for VAT if the turnover of the company exceeds R1 000 000 per year (R83 000 per month). If the company is registered for VAT the VAT return needs to be submitted on SARS e-filing every second month before the last day of the month or if the last day of the month falls on a weekend it needs to be submitted and paid the Friday before.

PAYE & UIF – Return needs to be submitted on SARS e-filing on the 7th of every month or if the 7th falls on a weekend it needs to be submitted the Friday before.

Workmens Compensation

It is compulsory for a company to register for Workmens Compensation. This is to provide compensation when you or one of the employees gets hurt while working at a client or any other injury received while on duty.

You pay once a year before the end of March. The Compensation Fund gives you a percentage according to the type of work that you do. The more dangerous it is, the higher the percentage. You will then pay this percentage on the salaries (including the directors’ salaries) you paid for the year.

These are the main legal requirements around tax and accounting that every private company has to comply with. Weighing up the benefits of registering a private company and complying with these regulations can be a tough decision. That is why we are always willing to talk to you about your concerns and give you advice based on the experience we have gained helping other small businesses just like yours.

If you decide to go ahead and registering a company, or your company needs help with any of the other requirements listed above, we are willing and able to assist you on your journey and help you grow.

Until next month then. Have a wonderful spring!

1 Aug 2018

Never fear when provisional tax is near

It is August which means it is time to pay provisional tax for the first half of the financial year. Provisional tax is a mechanism to split your tax liability into two, and pay half in August, and the other half in February.

For Individuals

If you are earning extra income over and above a salary you need to register for provisional tax. Extra income can be any of the following: rental income from a property, interest from a bank or financial institution or perhaps you earn both a salary and an annuity or pension income.

Calculating your provisional tax liability sounds daunting, but it is quite simple.

First you start off by determining or estimating your taxable income for the first half of the financial year. Once you have the amount for the six months, double the amount and declare that on the provisional tax form called an IRP6. The form will automatically work out the income tax on that income for the year and then divide it by two to get the amount payable for half the year. The IRP6 form will also contain the PAYE that you have paid on your salary for half the year and it will be deducted from the amount payable.

Therefore, for August 2018, you will submit an IRP6 for 201901 in other words the first provisional tax payment for the 2019 financial year (March 2018 to August 2018).

For the second provisional tax payment, which will be at the end of February 2019, you will complete an IRP6 for 201902. This is the second provisional tax payment for the 2019 financial year (September 2018 to February 2019).

The amount you need to pay is worked out automatically on the SARS form when you fill in your estimated taxable income for the full year. It works out the tax that needs to be paid for the second half of the financial year less the PAYE deducted from your salary every month and less the first provisional tax payment made.

Now you ask the question, after all this do I still need to complete a tax form like everyone else? The answer is yes you do. The tax return that you fill in during tax season is basically a reconciliation of all your income and deductions for the full financial year. You will then be able to see whether you have paid enough tax (by paying provisional tax in advance). If you paid too much tax you will get a refund and if you paid too little you will have to pay in.

For Companies

All companies are registered for provisional tax and need to pay tax in advance for the financial year.

Companies must pay provisional tax on the estimated profit for the relevant 6-month period:

In August 2018 companies will pay provisional tax of 28% on their estimated profit for the period March 2018 to August 2018.

The IRP6 form requires you to declare your turnover for the period and then declare your estimated taxable income (profit) for the year. The form will automatically calculate the 28% payable for six months.

In February 2019, provisional tax need to be paid for the period September 2018 to February 2019. This is calculated as 28% on the full year’s profit (the actual profit up to January 2019 plus the estimated profit for February) less the provisional tax already paid in August.

Paying your provisional tax is a straightforward process. If you are still unsure or if you have any questions or you think you need help in preparing your IRP6, you can always contact us and we will be more than happy to answer your questions or assist you.

1 Jul 20181 Jul 2018

Tax Season Starts!!!

Tax Season 2018

Tax Season 2018 starts 1 July 2018 and ends 31 October 2018

Some of us dread the word tax and others get quite excited, because there might be a refund from SARS as a little mid-year bonus. So, whether you are nervous or excited, either way we have to get it done.

When I help individuals prepare their tax returns, I always ask them to supply me with the following documents:

IRP5 from your employer: This one is easy. Your employer should already have given you this document.
IT3 from bank or financial institution: This one is important if you earn interest on an investment. Again, your bank or financial institution should have given this to you.
Medical aid tax certificate: You can deduct your contributions to your medical aid and also a portion of your family members’ contributions. You can also claim the medical expenses that the medical aid did not cover (but you have to be able to prove it). Your medical aid will send your certificate to you.
Retirement annuity tax certificate: You can deduct your contributions to any retirement annuity. Your financial institution will send you your tax certificate.
Donations tax certificate: If you made a donation to a registered PBO, and you want to deduct the donation from your income, you can get a donation tax certificate from the organisation you have donated to.
Travel Logbook: If you receive a travel allowance you need to supply a logbook. You can then claim all your business km from your travel allowance. The logbook needs to contain a description of your vehicle including the registration number, make, model, year and purchase price. The logbook needs to show your odometer reading as at 1 Mar 17 and then details of all your business trips for the year until 28 Feb 18 ending off with the closing odometer reading.
Schedule of expenses with regards to earning a commission: If you earn commission and the commission is more than 80% of your salary income, you can deduct other expenses that you incurred that assisted you in earning this commission income. You need to make a schedule of these expenses. This is simply a list of expenses you incurred during that year. Make sure you keep all the receipts too! In a future blog I will make a video to show you an easy way to keep such a schedule, and it will make your tax practitioner very happy!
Schedule of Rental Income: If you earn rental income for one or more properties, you need to make a schedule of income and expenses for these properties. The schedule needs to show your rental income less expenses for example – rates and taxes, interest on bond, repairs and maintenance and agent fees. It needs to show the profit or loss that you made for each property for the year.

If you have all the information ready, not only will the whole process run much faster and smoother, your tax practitioner will spend less time working on your return which should save you money too!

If you have any questions about what I wrote in this blog, or you have suggestions for future blogs, or you think you may need help with your tax return, you can contact us at any time.

25 Jun 2018

Welcome to our new site!

As a business we have been going since 2000, but amazingly we have never had our own website.

This has all changed…

Not only are we going to use this site to create more awareness of our business, but also share useful information and insights about the the tax, accounting and payroll world.

All we can say for now is: watch this space!