Accountants are reinventing themselves. The Covid-19 pandemic has accelerated this process of renewal, convincing even the most traditional-style accountants that the time to adapt is now and it is more urgent than ever before.

Head of services at EasyBiz Technologies, Bridget du Toit, has identified several global trends that accountants are talking about. She has compiled these from accountants themselves, as well as from attending a spate of industry-related webinars during the Covid-19 lockdown.

1. Move to the cloud, or move over

Du Toit says cloud-based accounting solutions have gained enormous momentum in recent months. “The concept of using shared resources, including software that runs on a provider’s server, and being able to access that information in the cloud has made accounting more accessible than ever.”

The Covid-19 pandemic and subsequent lockdown have played a significant role in compelling accountants to embrace the cloud.

The cloud also brings virtual platforms that are useful for accountants such as document scanning applications. For example, Receipt Bank allows receipts to be captured using a smart phone. These are then automatically populated into a business’s accounting system, making the previously onerous task of capturing receipts fast and efficient.

Du Toit points out that the move away from buying and paying for software up-front to paying a monthly fee for cloud services is often resisted by many old-school accountants.

“However, once they fully grasp the advantages of the cloud – saving time and money, as well as the ability to operate virtually from anywhere, any time – they don’t need further convincing. The monthly fee also affords them the flexibility to stop the service at any time, whether it is to go back to their old ways of operating or to switch service providers,” she adds.

One of the greatest money saving advantages of cloud-based accounting is that the data disaster recovery plans of the past have become obsolete. “The cloud backs itself up. Accountants do not have to worry about paying service providers to back data up for them or maintain their servers. This is especially useful in a country where the threat of load shedding and power surges are a constant worry,” notes du Toit.

2. Seize outsourcing opportunities

Outsourcing is a growing trend in the accountant’s world. Instead of employing accountants, businesses are enlisting the services of accountants to take care of certain aspects of their finances – and sometimes their entire financial function.

“This trend is not limited to small and medium enterprises,” says du Toit. “Large businesses are outsourcing entire accounting departments so that they can focus on their core business.”
This presents a massive opportunity for accountants to use their resources smartly and efficiently, and to charge the customer a monthly retainer fee. Not only does outsourcing give companies access to experienced and qualified accountants, it ensures their services are scalable and consistent.

“Instead of adding someone to the payroll each time they land a large client or introduce a new product, businesses are passing the additional workload onto their accountants. The accountants, in turn, have to scale their businesses. And, of course the best way to do so is via automation.”

3. Brush up on data analysis skills

Information is key today. Google, Facebook and Instagram have prompted the desire for immediate gratification. Instead of simply presenting financials, accountants are now expected to conduct data analysis that allows the customer to make better financial decisions.

“Accountants generate a lot of information, which becomes a crucial component of any business’s decision-making processes. Analysis of information allows businesses to determine whether they have too many or too few employees or whether they are spending too much money on one thing and not another. It helps them to refine processes and become more efficient and productive.”

4. Embrace social media

In the past, accountants relied largely on recommendations and word of mouth to advertise their services. Today, they are realising the benefits of integrating social media into their business models.

“When companies look for accounting services, the first place they look is online. They look for reviews, likes and recommendations on social media – either from their peers or their customers. This is where the interaction is happening. Accountants who save money by moving to the cloud should consider spending those savings on implementing a comprehensive social media plan,” says du Toit.

5. Keep abreast of accounting standards

Accounting standards are constantly being developed, revised or refined. Before the advent of social media, digital advertising and shared economies, these changes had a significant impact on accounting professionals, who had to wade through big dossiers or attend lectures to keep up.

Now these updates are posted online, giving accountants immediate access to information, peer reviews and related industry insights. Consider the Covid-19 Temporary Employer / Employee Relief Scheme (TERS) Directives – government announced the benefit, which accountants had to then access online and get their heads around while working from home.

As a small business owner, you need to ensure that your company is tax compliant. But with so many other things to focus on, and not being a tax specialist yourself, you may have overlooked something.

If your business isn’t tax compliant, you could land up indebted to SARS or, even worse, you could become liable for penalties. To avoid this, we asked tax specialists for guidelines.

Tip: Taking out a personal loan to help move your business forward is considered good debt.

The importance of tax compliance

According to Johann Benade, associate director of tax at BDO, the importance of tax compliance in small businesses cannot be overemphasized.

“Although many small business owners are aware of this requirement, they are not sure what they should do in order to become tax compliant,” says Benade.

“SARS is aware of this need and has recently issued the latest edition of its Tax Guide for Small Businesses, which sets out the requirements that small business owners should comply with in order to be compliant,” he explains.

He adds that the guide also contains an overview of the various taxes that are applicable to small businesses, and an explanation of the tax rates, rebates, and allowances that may be claimed.

Common tax mistakes you should avoid

According to Nadine Chetty, co-founder at Ecomm Accounting Solutions, small business owners are often bullied by larger corporates into registering for VAT when they do not need to.

“They do this just to get contracts, which is incorrect. Not only does it put a higher admin burden on them but it also imposes a higher accounting burden on them,” says Chetty.

Another common mistake is that some small business owners don’t register for PAYE when they need to. She explains that they often draw salaries without informing their accountants, which leaves huge discrepancies between what their declared salaries are and what was drawn.

According to Sarvesh Chinnapa, financial manager at EasyBiz Technologies, there are three common mistakes that Small to Medium-sized Enterprises (SME) make:

1. Inaccurate accounting information

The accuracy of the underlying accounting information and supporting documentation is directly responsible for the integrity of a taxpayer’s income tax return.

In the case of SMEs, this integrity is often queried as a result of a lean accounting function and confusion in distinguishing between the financial affairs of the business owner and the business.

SARS tax auditors are first and foremost focused on testing the reliability of accounting books and records. For example, they review cash accounting records for unusually large or ad hoc payments, on the basis that these often represent private expenses which have been processed as business expenses and claimed for tax purposes.

2. Not taking ownership of tax

Business owners often leave tax to their accountant. It’s important for business owners to be aware of tax submission deadlines and to ensure that tax is paid within these prescribed deadlines. The cost of these mistakes can be high, especially for elements such as the late submission and payment of provisional income tax payments or the submission and payment of monthly PAYE.

When business cash flows are under pressure, tax payments are often the first to be “put on hold” with direct business operating expenses taking precedence. If this persists, expensive non-deductible late payment penalties and interest accumulate quickly until the outstanding tax capital amount is paid.

3. Missing the SME tax detail

There are a number of less obvious tax regulations that SMEs operating in a close corporation or private company structure typically fail to apply. Most of these relate to fringe benefits arising from business expenses and transactions paid by the employer company, such as:

• Quantification and reporting of taxable fringe benefits provided to employees or directors. An example here includes the use of company-owned cars, the use of assets, low or no-interest loans and the payment of employee debts. These cash-free benefits require monthly PAYE withholding tax as well as monthly or annual tax reporting to SARS. The failure to attend to these brings substantial penalties and interest arrears upon a business.
• Low-interest loans or even “no interest” lending advanced by a company to shareholders or related parties may attract secondary tax of 10% on companies, or a withholding of dividends tax of 10%.

Which taxes should you pay attention to?

Chinnapa says that complying with your tax obligations as a small business has been made a lot easier over the past few years.

“If you’re starting out and need to register as a company, you will have to contact the Company and Intellectual Property Commission (CIPC). Once a business has been registered with CIPC, SARS will automatically generate an Income Tax reference number,” says Chinnapa.

She outlines the following taxes that are relevant to SMEs:

1. Turnover tax

Turnover tax is a simplified tax system for small businesses with a qualifying turnover of not more than R1 million per annum. It is based on the taxable turnover of a business and is available to sole proprietors (individuals), partnerships, close corporations, companies, and co-operatives.

Turnover tax takes the place of VAT (in the instance that you have decided not to elect into the VAT system), provisional tax, income tax, capital gains tax, secondary tax on companies, and dividends tax. Qualifying businesses pay a single tax instead of various other taxes. It’s also elective, which means that you choose whether to participate.

2. Value Added Tax (VAT)

It is mandatory for any business to register for VAT if the income earned in any consecutive 12-month period exceeded or is likely to exceed R1 million. Any business may choose to register voluntarily if the income earned in the past 12-month period exceeded R50,000.

A small business that is registered as a micro-business under the Sixth Schedule of the Income Tax Act may also register for VAT and may elect to submit returns and payments every four months, ending on the last day of June, October, and February.

3. Pay-As-You-Earn (PAYE)

According to law, an employer must register with SARS within 21 business days after becoming an employer, unless none of the employees are liable for normal tax.

4. Unemployment Insurance Fund (UIF)

This gives short-term relief to workers when they become unemployed or are unable to work because of maternity leave, adoption leave, or illness. It also provides relief to the dependents of a deceased contributor. All employees, as well as their employers, are responsible for contributions to the UIF.

5. Skills Development Levy (SDL)

This is a levy imposed to encourage learning and development in South Africa and is determined by an employer’s salary bill. The funds are to be used to develop and improve the skills of employees.

Chetty recommends that small business owners invest in cloud accounting software with an accountant who understands cloud accounting, where you should be able to manage your cash flow and taxes daily. Have a look at this article to find out how to choose a tax practitioner that’s right for you.

“Paying Tax in South Africa is not a choice. It is a legal requirement,” says Chetty.

Have you tried our income tax calculator? Find out how much tax you’ll pay on your ideal salary.

This is the primary reason why you have to hire a professional accountant to look after everything that surrounds the business’ financial environment – accounts, ledgers, the cash-books, daily transactions, and expenses. Having a professional account to manage your finances also reduces the potential for your business to be at risk financially, because it removes the possibility of inaccuracies occurring.

Managing accounts is not an easy task. At the initial stages, it might be simple, but as the business grows, it gets complicated. Paying suppliers, remunerating employees, and managing everyday expenses efficiently are only possible with the services of a qualified accountant.

Once your business is off the ground, there are some specific actions an accountant can take including explaining to you the financial statements and inflows and outflows of cash and other financial assets and liabilities of the business.

A professional accountant will also help you in overseeing the process of payroll and other payment processes of the business. In addition, the accountant will advise on tax-related issues and payment procedures.

When you are ready to expand your business, a professional and experienced accountant can help you with tips and advice to assist with the process of expansion. These tips and tricks include providing you with a comprehensive insight into the existing cash flow trends, management of inventory, pricing of products, and determining if the business is ready for an expansion.

Furthermore, a competent accountant can assist you with financial forecasts that will help you with making necessary decisions regarding the future of your business.

The accountant will not only manage an efficient bookkeeping service for your business, but will also close out the books or journals and complete the financial reports at the end of each financial year. Maintaining accurate records of financial inflows and outflows will help you avoid being audited by the South African Revenue Service (SARS). In addition to completing your tax returns for you, an accountant can monitor your tax affairs and advise you on any tax-related matters or decisions.

Hiring a qualified professional to focus on your accounts and financial needs enables you to focus your time on growing and tending to your business and helps you avoid any major financial crises.