Article authored by listed Accountant - Claire McTaggart
Although paying tax is a blessing since one is making a profit when a lot of others are just surviving, tax efficiency and managing tax expenses are essential to healthy cashflow, budgeting and good business sense so it is best that it is managed properly.
Three areas that we have come across where unknowingly and unintentionally tax money is seeping away in quite a few companies are highlighted below. Have a look into /at your own processes and ensure that this is not the same for your business.
The first area that without a doubt saves companies and individuals a lot of money is being organised, accurate, having a proper up to date accounting system and dedicated accountant so that your returns and payments are submitted on time every time. So many people are paying unnecessary and non deductable penalties and interest on late payments (one day late is still late and incurs 10% or more penalties) which also cause stress and pressure when applying for tenders, supplier and customer requests in respect of tax clearance certificates as well as the unnecessary monies spent on penalties. We regularly do ‘health checks’ for clients to ensure that SARS’s view of their accounts are the same as ours so ensure your accountant does the same.
The second area that we have recently discovered is occurring in many companies is the timing of VAT input claims. On the accrual basis (which 90% of taxpayers are on) output VAT is raised and payable as soon as invoices are raised. Invoices get raised in the debtors’ book and you may, if you have terms for your debtors, end up paying the output VAT over up to 2 months before the debtor settles the monies with you. This is not where the problem lies. The problem arises on the other side - with the suppliers. Often suppliers are not raised as creditors in the books and records but rather just paid out of the cashbook when the account is due (depending on the size of the business). In this case the company may miss the opportunity to claim the input VAT back and potentially receive the input monies back before they have to settle this with the supplier or shortly thereafter, instead of waiting up to two months to claim back the input monies paid over. We suggest you review your systems and process supplier invoices as soon as you receive them especially, those with lag times, to ensure you are taking advantage of this. Another business management plus of handling all suppliers through your creditor control accounts is that you can generate better data to track your spending with each supplier and how often you buy from them, which assists with the business management aspect of your business.
The third area that we find companies lose tax monies and something that is often forgotten about, is VAT input claims on bad debts written off and debtors discounts. Often write-offs and discounts are processed as a debtor’s journal or through the cash book and the VAT portion is forgotten about. Be sure that your processes include this check as it ensures you get back the VAT you paid over on behalf of a non-paying client.
So go back to your accountants or bookkeepers and ensure that you your internal processes and procedures take care of the areas above to ensure more effective and efficient tax management.
Claire McTaggart CA(SA)RA
RECRO BUSINESS CONSULTING