Management Accounting Best Practices

Management accounting is a specialised type of accounting in which accounting firms focus on the requirements and use of accounting information to managers within companies. This information helps to provide managers with data and advice that allows them to make informed business decisions, while also improving management and control functions. Compared to financial accounting, management accounting differs in that it is forward-looking rather than historical, model based rather than case based, intended for managers rather than stakeholders or clients, confidential instead of publically reported and focused on the needs of managers rather than general accounting standards.

The industry has changed greatly as business trends have changed, with many changes in the best practices of management accounting. Professional accountants who specialise in management accounting need to realise that both traditional practices and innovative practices play a role in ensuring the best practices overall.

Some of the more essential core practices include the following:

1. Determine user needs

While financial accounting has set guidelines and practices, management accounting focuses on specific needs of the user. Every business is different, and every management requirement is also different, therefore accountants need to spend time identifying the exact needs in order to develop a strategy. Users request different reports and analyses depending on their objective, with anything from employee overtime hours to expenses and other areas to be considered.

2. Determine specific information required

Companies retain a wide range of information that pertains to the management of the business, from production costs to payroll information, expense information and other financial data. Professional accountants handling the management accounting for the company therefore need to understand exactly what information is required by managers to reach their specific goals and also determine which information is relevant to these goals.

3. Understanding the role of internal customers

For management accountants, managers and employees take the role of internal customers. Each person’s role within the company is different, and accountants need to understand each of these roles in order to accurately identify tasks and assist properly. The accountant can then deliver reports and analysis that target these specific needs within the company, in order to assist all internal customers in reaching their business goals.

4. Communicate effectively with all role players

Communication plays a vital role in management accountant, and professional accountants working within the management sphere need to be able to effectively listen, process information and report back to managers at all times. In the accounting world, jargon is used on a regular basis. For most businesses who do not work within financial industries however, many of these terms are not understood. Being able to effectively communicate concepts and strategies is crucial, so that all parties are able to understand the accounting processes at all times.

5. Strategic, performance and risk management

A final essential practice within management accounting is the ability to develop and implement strategic, performance and risk management approaches within the company. As this type of accounting is forward-thinking rather than historical and partners with management areas, professional accountants working with management need to be able to understand the importance of these approaches in order to best serve the needs of companies.

Need and Accountant? Contact us.

SARS Is Strict About Record-Keeping

Get it wrong and you could face massive penalties! …of up to 200%. By LAW,  taxpayers (Companies and Individuals) are required to keep certain tax records for 5 years, however SARS urges us – as consultants, to keep records for 7 years. If you don’t know which documents and records SARS requires you to keep, then you will find yourself facing penalties. A single item of which you don’t have proof will cause the SARS to doubt the validity of all your other deductions claimed or disclosures of income received. This could lead to additional assessments and additional tax of up to 200%.

The words tax, tax man, Receiver and SARS are known to strike fear into the hearts of many an entrepreneur. This is not only because it implies that you have to part with your money, but because the tax process can be a daunting one. A good place to start when getting your taxes in order is by keeping accurate records. You may choose your own system of record keeping that suits the purpose and nature of your business, but your records must always establish your income and expenses. You need to keep permanent books of account as well as any other information to support these records, such as invoices, cheque stubs, paid accounts, and bank statements. The Income Tax Act and the Value-Added Tax Act specify certain records that you are required to keep. These records include:

  • ledgers
  • cash books
  • journals
  • cheque books
  • bank statements
  • deposit slips
  • paid cheques
  • invoices
  • stock lists and
  •  other books of account

Recent changes to the Act now include any data created by means of a computer, including data in the electronic form in which it was originally created or in which it is stored for back-up purposes. As a business-owner, it’s crucial that you keep records that will help you to prepare complete and accurate tax returns. It’s up to you to choose an accounting or bookkeeping system suited to your business and that complies with regulations.

If your company’s financial administration is in arrears or it’s just not your area of expertise, it’s probably better to get a professional tax consultant to get you up to date and to make sure all your taxes are paid up. It’s worth spending the extra money.

Your financial records.

To put it simply, your financial records reflect your company’s income, expenses, financial position and cash flow. Together with these records, you must also keep all other documentation (such as receipts, invoices, cancelled cheques, deposit slips, etc.) that support the entries in your records and tax returns. These “supporting documents” are very important, so file them in a logical order and store them in a safe place.

You’ll need the following records:

Those showing the assets, liabilities, undrawn profits, revaluation of fixed assets and various loans A register of fixed assets Detailed daily records of cash receipts and payments reflecting the nature of transactions and names of the parties involved (except for cash sales) Detailed records of credit purchases (goods and services) and sales reflecting the nature of transactions and the names of the parties involved

Statements of annual stocktaking and supporting vouchers

NB: If you’re operating both your personal and business banking from the same account, it’s best to open a separate account for your business, to enable proper record-keeping and tax filing. Keeping accurate and up to date records are essential for keeping track of money coming in and money going out of your business. At tax time, they are also important to: Identify nature of receipt – to show whether anything you received of a revenue nature or capital nature Avoid omitting deductible expenses – by recording your expenses as soon as they are incurred, you won’t forget to include them in your tax return

Establish amounts paid out as salaries or wages – Under normal circumstances amounts paid to employees for services rendered are taxable in the hands of the employees. In these cases employees’ tax must be deducted from salaries or wages by the person paying such salaries or wages. Explain items reported – If your income tax return is examined by SARS, you may be asked to explain certain items, which will be simple if you’ve kept complete records and their supporting documents.

 Get a professional

A company is required by law to appoint an auditor/independent reviewer, if it is owner managed (New Companies Act), who will audit and sign an audit report relating to its financial statements. A CC must appoint an accounting officer. Normally, the auditor or accounting officer will help to determine the taxable income and the amount of tax to be paid. In the end, it’s also a lot easier for a professional to do it.

Keeping all your documents

You are required to keep your books and records, as SARS can ask to examine them at any time, should something not add up or seem suspicious. Retention periods in terms of the Companies Act and the Close Corporation Act are:

For Closed Corporations (CCs)

DOCUMENT – RETENTION PERIOD

1. Founding statement (form CK1) – Indefinite

2. Amended founding statement (forms CK2 and CK2A) – Indefinite

3. Minute book as well as resolutions passed at meetings – Indefinite

4. Annual financial statements including annual accounts and the accounting officer’s report – 15 years

5. Accounting records, including supporting schedules to accounting records and ancillary accounting records – 15 years

6. The microfilm image of any original record reproduced directly by the camera – the “camera master” – Indefinite

 For Companies

DOCUMENT – RETENTION PERIOD

1. Certificate of incorporation – Indefinite

2. Certificate of change of name (if any) – Indefinite

3. Memorandum and articles of association/Memorandum of Incorporation (New Companies Act) – Indefinite

4. Certificate to commence business (if any) – Indefinite

5. Minute book, CM25, CM26 and resolutions passed at general/class meetings – Indefinite

6. Proxy forms – 3 years

7. Proxy forms used at Court convened meetings 3 years – 3 years

8. Register of allotments after a person ceased to be a member (section 111) – 15 years

9. Registration of members – 15 years

10. Index of members – 15 years

11. Registers of mortgages, debentures and fixed assets – 15 years

12. Register of directors’ shareholdings – 15 years

13. Register of directors and certain officers – 15 years

14. Directors attendance register – 15 years

15. Branch register – 15 years

16. Annual financial statements including annual accounts, Directors’ report and an Auditors’ report – 15 years

17. Books of account recording information required by the Act – 15 years

18. Supporting schedules to books of account and ancillary books of account – 15 years

Record keeping for Income Tax or Capital Gains Tax purposes

As a taxpayer, you are required to keep records such as ledgers, cash books, data in electronic form, all supporting documents and any records relating to capital gains or capital losses for a period of five years from the date on which the tax assessment for that year was received by SARS. However, if objections and appeals have been lodged against assessments, you should keep all relevant records and information until the objection or appeal has been finalised, even if it takes longer than five years to sort out.

Appoint a Representative Taxpayer

Every Company/Close Corporation which conducts business or has an office in South Africa must, within one month of commencing operations or buying an office, for the purposes of section 101 of the Income Tax Act, appoint a representative as the Public Officer of the Company/CC. The name of the representative and his position must be given for approval to the SARS office for the district in which the Company/Close Corporation has its registered office.

The representative must be a responsible officer of the Company/Close Corporation (for example, director, manager, senior member, secretary, etc.) and such position must constantly be kept filled by the Company/Close Corporation. Accurate and up to date record-keeping is not only about making life easier when you file your taxes. It can also protect your business’s cash flow and enable to run a tight ship. Failure to pay your taxes is not only illegal, but it can lead to the closure of your business.

Get PATC to help with your record keeping, contact us today.

Do You Qualify As A Small Business Corporation?

Small businesses that wish to register their business will benefit hugely from business tax services, which assist in all areas of business tax, including registration of Small Business Corporation. Your accountant or business tax services consultant will be able to register on your behalf, and assist with all requirements that may be needed. Companies that meet all of the following requirements will be able to qualify as a Small Business Corporation:

  1. All shareholders or members are natural persons.
  2. All shareholders hold no shares in any other private company.
  3. All members hold no members’ interest in any other Close Corporation.
  4. Gross income for the year of assessment does not exceed R14 million.
  5. Not more than 20% of the gross income and all the capital gains consist collectively of investment income and income rendering a personal service.
  • Investment Income includes any annuity, rental income, royalty or any income from investment or trading in financial instruments, marketable securities or immovable property.
  • Personal Service includes any service in the field of accounting, actuarial science, architecture, auctioneering, auditing, broadcasting, consulting, draughtsmanship, education, engineering, financial service broking, health, information technology, journalism, law, management, real estate broking, research, sport, surveying, translation, valuation or veterinary science, which is performed personally by any person who holds an interest in the company or Close Corporation, except where such small business corporation employs three or more unconnected full-time employees for core operations.

 Small Business Corporation Benefits

Business tax services offer the most effective way to register as a Small Business Corporation. The benefits that can be enjoyed from a tax point of view include the following:

    1. For the year ending 31 March 2011:
      • Taxable Income less than R57 000 attracts NIL tax
      • Taxable Income greater than R57 001 up to R300 000 attracts 10% tax
      • Taxable Income greater than R300 001 attracts 28% tax (+R2 4300)
    2. For the year ending 31 March 2012:
      • Taxable Income less than R59 750 attracts NIL tax
      • Taxable Income greater than R59 751 up to R300 000 attracts 10% tax
      • Taxable Income greater than R300 001 attracts 28% tax (+R24 025)
    3. Investment Incentive:
      • The full cost of any asset used in a process of manufacture and brought into use for the first time on or after 1 April 2001, may be deducted in the tax year in which the asset is brought into use. As from 1 April 2005, all other depreciable assets are written off on a 50:30:20 bases.

To register as a Small Business Corporation, contact PATC today for further business tax services advice relating to small business taxes.

What Is A Subsistence Allowance?

A subsistence allowance is where an employer may pay an employee a daily allowance for accommodation and meals during a period while the employee is out of town on business. The subsistence allowance to be included in taxable income of an employee is calculated as follows:

  • Subsistence allowance received less portion spent for business purposes equals the taxable allowance to be included in the employee’s taxable income.

The Act prescribes standard amounts which an employee is automatically entitled to deduct. If an employee wishes to claim more than these standard amounts, he/she must keep all relevant documentation as proof of expenses actually incurred. The deduction may never exceed the allowance received.

The deductible expenses are based on the standard amounts as per the Act or on actual expenses incurred. The portion of the allowance which was not spent is included in gross income.

For the purposes of determining the taxable portion of the allowance, the employee has the option to use the following as the portion expended for business purposes:

  • Actual Figures: The amount actually incurred in respect of accommodation, meals and other incidental costs if proved by the commissioner.
  • Deemed Figures: Where an employee has not provided proof of actual expenditure, the exclusion for each day or part of a day that the employee is away from his usual place of residence is an amount per day in respect of meals and other incidental costs, or incidental costs only as determined by the commissioner for a country or region by way of notice in the Government Gazette.

The amounts in respect of travelling abroad will only apply in respect of continuous periods spent outside the republic not exceeding six weeks.

An employer must pay a subsistence allowance to an employee over and above the normal remuneration payable to the employee and cannot reduce the cash portion an employee’s salary with a subsistence allowance.

Contacts us if you have any questions about how a subsistence allowance is calculated or applied.

What is Income Tax?

Income tax is the tax levied on income and profit received by a taxpayer (which includes individuals, companies and trusts). It is the national government’s main source of income and is imposed by the Income Tax Act No. 58 of 1962.

The form of tax that people generally associate with the concept of income tax is “normal” income tax. But the Income Tax Act is also a source of a number of other taxes that, although they have their own particular names, still forms part of the income tax system. A few taxes which may affect the taxpayers are capital gains tax and donations tax. The Act also establishes a way of paying tax which is PAYE or provisional tax The Income Tax Act No. 58 of 1962 sets out a series of steps to be followed in calculating a taxpayer’s “taxable income”. This forms the foundation on which tax liability is calculated.

When calculating your tax, we determine the gross income, deduct the exempt income, deduct the allowable taxable deductions, multiply the taxable income by the applicable tax rate and then subtract the rebates and any other tax already paid.

So stay ahead of the Taxman, have an idea how much income tax you are exposed to well before the Taxman hits with a bill. Contact us with your income tax questions.

Tax Refund – Are You Entitled?

It is a legal requirement to submit tax returns to the South African Revenue Services. This includes Income Tax returns and VAT returns. Upon submission of these returns SARS will do an assessment to determine how much is payable to SARS or how much is refundable to the taxpayer. The SARS assessment is often accurate but since it is a computer generated assessment, it does happen that their assessment is incorrect and from experience you will find that in such cases more often than not, their system errors result in the taxpayer paying more than they should even if they were actually due a refund.

In the case of Income Tax refunds, the amount of tax payable to SARS or refundable to the taxpayer is dependent on the total tax paid to SARS in that particular tax period as well as the allowable deductions incurred in that period. Such deductible expenses include medical aid deductions and travel allowance deductions. Please note it is important to make sure that your deductible expenses can be supported by verifiable and authentic documents.

VAT refunds are incurred when the total Input VAT exceeds the total Output VAT with regard to standard rated supplies made and purchases made. In order to submit the VAT returns correctly and determines the correct tax amount payable or refundable you need to know which items are subjected to VAT and at what rate.

Tax consultants can easily identify errors on SARS’ system and also compute the correct tax amount payable or refundable at SARS. These are part of the services which are offered at PATC so contact us today if you have a tax refund query.

Fringe Benefits Made Easy

A fringe benefit is the cash equivalent of taxable benefits that are given to employees by their employer. Fringe benefits are taxable, and can be challenging to calculate without the help of an accountant or tax expert.

 Types of Fringe Benefits

Fringe benefits are calculated by professional accountants, and can be offered through a number of different ways. Some of the most common examples of fringe benefits include the following:

  • Employee use of company owned vehicle.
  • Medical aid contributions made by an employer.
  • Holiday accommodation provided to employees.
  • Long service and bravery awards.
  • Employee use of business cell phones and computers.
  • Low interest or interest-free loans.
  • Subsistence allowances.
  • Residential accommodation supplied by employer.

Tax on a fringe benefit is calculated by using a determined value of the benefit that is received. It is essential for employees to submit a tax return to ensure that the tax amounts that were paid are correctly calculated.

Need an accountant to assist with fringe benefits and other tax services? PATC provide a wide range of tax solutions to help you simplify your accounting processes and effectively manage all of your tax requirements.

What Is Donations Tax?

One of the many benefits that PATC offer taxpayers is assistance with donations tax. Donations tax is payable at a rate of 20% on the value of any property disposed of by a South African resident (natural person, corporate entity or trust), according to the following terms:

  • Excluding donations exempt from the tax (see exclusions below)
  • Provided that the tax is paid within three months of the donation taking effect.

 What do Exempt Donations Include?

PATC will be able to assist taxpayers in determining whether their donation is except from tax or not. The following should be considered in regards to exemptions:

  • Donations by natural persons up to R100, 000 per year.
  • Donations by corporate entities not considered to be public companies up to R10 000 per year
  • Donations between spouses not separated
  • Bona fide maintenance payments
  • Donations to Public Benefit Organisations and qualifying traditional councils and communities
  • Donations where the donee will not benefit until the death of the donor
  • Donations made by companies which are recognised as public companies for tax purposes
  • Donations cancelled within six months of the effective date
  • Property disposed of under and in pursuance of any trust
  • Donation of property or a right in property situated outside South Africa if acquired by the donor:
  • Before becoming resident in South Africa for the first time, or
  • By inheritance or donation from a non-resident
  • Donations between companies forming part of the same group of companies.

For further assistance on including donations in tax returns, contact us today

Capital Gains Tax on Land

When it comes to determining Capital Gains Tax on land that you plan to dispose, PATC will be able to assist you throughout every step of the process. Capital Gains Tax (CGT) is a tax that is given on any capital gain, when certain assets such as investments or property are sold, destroyed or disposed of in any way. While residences meeting certain criteria may not be excluded, other assets may not be included. These include the following:

  • A primary owner-occupied residence up to a maximum of R1 million, including up to two hectares of adjacent vacant land.
  • All private motor vehicles, as well as personal belongings and other items.
  • Retirement benefits, selected first hand policies such as long-term insurance plus endowments and retirement annuities.

While you will not be charged on the above mentioned two hectares of adjacent land, you will be taxed on the actual land that you plan to use for property development. To determine whether your land will be taxed, your professional accountant will be able to assist to find out whether your land is liable for CGT. Inclusions for CGT include investments such as shares and unit trusts, second hand policies, any profit resulting from the sale of property not used as a primary residence, coins, certain aircraft and boats, plus land.

To learn more about the Capital Gains Tax and other services offered by the leading accountant South Africa services company, contact PATC today.

Capital Gains Tax on Real Estate

For homeowners concerned about their liability of Capital Gains Tax (CGT), PATC offers professional accountant services to assist with all aspects of this real estate tax. Capital Gains Tax is payable on the sale of real estate in South Africa. This tax is therefore something that affects every South African who is planning to sell property. Liability for CGT varies depending on whether the property seller falls into one of the following groups:

  • They are a resident selling their primary residence
  • They are a resident selling property that is not their primary residence
  • They are a non-resident
  • They are a non-natural person such as a company, close corporation or trust

Your liability will differ according to the group that you fall under, with different percentages of CGT owned for each type of homeowner. CGT is only applied to the profit that is made on a property when it is sold, but is not applied to the entire value of the property. Assisting you in determining your liability is one of the first steps that PATC will take when assessing your CGT requirements. Other things to keep in mind regarding CGT include the following:

  • Residents are liable for the payment of Capital Gains Tax on the disposal of any asset, subject to certain limited exceptions, whether the property is a primary or non-primary residence.
  • Non-residents are only liable to pay CGT on the disposal of the following:
  • Immovable property situated within the country, including any right or interest in immovable property, plus an interest of at least 20% in a company where 80% or more of the net assets value of the company is attributable, directly or indirectly, to immovable property in South Africa.
  • Assets of a permanent establishment of a non-resident in the case of a sale that is conducted in South Africa.
  • For natural persons the maximum rate of CGT is 10%, while for non-natural persons such as companies and close corporations, the rate is 15% and for trusts 25%.
  • South African residents do not pay Capital Gains Tax on the first R1 million in profits made on the sale of their primary residence. Non-residents do not qualify for this exemption if their primary residence is not in South Africa.

To learn more about Capital Gains Tax and how it affects you directly as a homeowner, contact PATC to make an appointment with a helpful and knowledgeable accountant in South Africa.