The 9 Hats of an Entrepreneur – Parent
Any business owner who has children will know the challenges that arise. To be honest, working from my home office, even though it is separate it still presents huge issues when the kids are home and want to play with Dad. As a parent business owner you are faced with two decisions: Do you want your kids to inherit your business? Do you want your kids to learn about business from you? Each ‘Yes’ answer will require a huge amount of time investment in exposing them to the various aspects of the business. Often family-owned businesses are never passed down successfully because the children have seen their parents struggle and moan all their lives and they are expected the arrive at work with a smile on their face and do the same thing. Secondly, if you allow your children to participate in your business, are they going to learn good practices or will they see how badly you run things and how your cheat your customers and never pay suppliers. What message are you sending out to your family? Take a moment to consider how your kids see you in the parent business owner hat. Ouch!
Pay AS You Earn (PAYE)
Pay As You Earn (PAYE) is employees tax that all income earners are by law supposed to pay. The South African Revenue Service (SARS) has a threshold income for PAYE which is reviewed every tax year.
According to law, an employer must register with the SARS within 21 business days after becoming an employer, unless none of the employees is liable for the normal tax. An employer who has registered for PAYE should also register for Skills Development Levy (SDL) unless they are exempt from registering for SDL (visit the SARS website for more information). An employer can also register for Unemployment Insurance Fund (UIF) (visit the SARS website for more information). Once the employer registers for PAYE he has to ensure that every month all tax due to SARS is deducted from the employees’ income and paid over to SARS before the deadline. This employee tax is calculated in accordance with tax tables that are prepared and reviewed by SARS every tax year. Calculations can be done manually if the employer does not have a payroll system in place or they can be done using software that has building table and all the employer has to do is capture the salary information for an individual and the payroll system will automatically calculate the PAYE to be deducted from the individual’s income.
Once all the calculations have been done for all employees and the total amounts have been gathered, and EMP201 is generated from SARS efiling, completed and submitted to SARS. Payment will have to be made to SARS before the due date as well.
Six months into the tax year a reconciliation is done and submitted to SARS. At the end of the tax year an annual reconciliation (EMP501) will have to be done (more info on the SARS website).
Part2: Bitcoin- the tax effect
We continue our discussion concerning the digital financial revolution headlined by emergence of Bitcoin as a medium of exchange. Today we look at the tax implications of trading with and in Bitcoin, and buying or selling cryptocurrencies.
On 6 April SARS issued a media release elaborating on its stance on Bitcoin and other cryptocurrencies and the tax effect. In the statement SARS reiterated that they will ‘’continue to apply the existing income tax rules to cryptocurrencies’’ and they expect taxpayers to declare cryptocurrency gains and losses as part of taxable income. Like with any other income, the responsibility lies with the tax payer to declare their income; the consequence of non-compliance is penalties and interest.
SARS felt it is not necessary to introduce new guidelines regarding cryptocurrencies and the consequent tax effect as current legislation can be used to enforce tax compliance. The South African Income Tax Act does not define what ‘’currency’’ is. Although cryptocurrencies like bitcoin are forms of digital currency and can be used as currency or a medium of exchange; they are not legal tender in South Africa. Thus SARS says it does not regard them as a currency for income tax purposes or Capital Gains Tax. Instead SARS considers cryptocurrencies as intangible assets, the same way shares, unit trusts etc. are regarded under the Income Tax Act. You own the asset, and have proof of ownership but it cannot be physically encountered by our natural senses.
So what happens when you produce and or sale goods in exchange for Bitcoin? Well the Income Tax definition of gross income is cash or otherwise, received by or accrued during the period of assessment; excluding amounts of a capital nature. Thus if you do use Bitcoin as a medium exchange in your trade, you will be required to declare this income; as income can take any form. For instance, living in a company house, or getting a car as a service award are all instances of receiving income payable under Income Tax regulations; thus surely Bitcoin is no different. Thus it is a matter of ascertaining market value of these receipts in local currency at for income tax reporting purposes. This also means that taxpayers can claim expenses associated with Bitcoin accruals or receipts as long as this expenditure is in the production of taxpayer’s income or for the purposes of trade. This means that if you also spent Bitcoin in production of Bitcoin income, you can also claim these expenses on your tax return.
There are instances where cryptocurrencies can be taxed under Capital Gains Tax, it is a matter of determining; using current legislation whether an accrual or receipt is revenue or capital. An example is if you gain bitcoin through mining or exchanging normal currencies for these; with the intention of holding the currency in anticipation of an appreciation of value. This results in a capital gain or loss if when you sell the Bitcoin, you gain more currency or less than when you initially bought the cryptocurrencies. This obviously works the same way as other assets like shares or unit trusts. On the other hand if you are a Bitcoin trader, then Bitcoin becomes your stock and income earned is of a revenue nature.
Financial management – The cost of running the business
In this series on the elements of your financial statements we’ve looked at the income, cost of sales and gross profit, all parts of the selling aspect of your business. Today, we’re going to look at the operational side – the costs associated with the infrastructure that enables you to sell your product.
In the olden days, the travelling salesman’s operating costs consisted of his mode of transport and his suitcase full of products. Nowadays, the costs of running a business are much greater, and grow as your business grows, to support the increased sales volume. Operating costs can fall into one of the following categories:
- Physical infrastructure – costs relating to the office, the warehouse or the shop, costs relating to vehicles and other assets, as well as the costs associated with running the machines and equipment used to produce your product or service
- Human infrastructure – the people costs, not just salaries, but welfare and development as well
- Protection of the infrastructure and assets – such as insurance, security, data storage, liability cover
- Compliance requirements – the cost of complying with accounting requirements, labour laws and SARS legislation, as well as governance rules
- General running costs – the cost of items consumed by the process of running the business, such as telephone, data, stationery, food, amongst a host of others
- Growth activities – costs associated with plans to grow sales and the business could include marketing, consulting, and anything else that the strategy requires
Operating costs are the first area to come under the microscope when the business profits need improvement. While there are sometimes a number of areas that can be reduced, there are also some critical elements. It is short-sighted to skimp on the maintenance of the equipment to save on costs when replacing the equipment is a much higher cost, for example.
Do you know what it really costs you to run your business? Do you know what the monthly operating costs are that need to be covered without fail? If you’d like a better insight into your business give us a call to walk you through the information available.
The 9 Hats of an Entrepreneur – Spouse
When I wear my husband hat and then work in my business, I have a huge responsibility to my wife. Having the Spouse hat requires us to communicate openly to our other halves as if they actually are our other half. We like to go out on dates and just chat about the business and all the challenges and opportunities. I cannot expect my wife to understand all the technical stuff I talk about but she does appreciate the communication and openness. I always tell her about any new client we get and she pops her head in at workshops to say ‘Hi’. My role is to not only talk but to listen as well. So often when I am facing a huge decision about a new venture or partner programme, I will bounce it off my wife to get her opinion on not only the idea but the person. Women have this 6th sense thing that will often detect issues that I am blind to and if undetected could lead to disaster further down the line. I have also agreed to open up completely to my wife about any dealings with other women I have. Often as a coach, our conversations could get personal and lead to that place where information is shared and doors could be opened that lead to dark places. I have a rule on this, always meet in public places and always tell my wife about any female clients, and keep that channel open at all stages. Men are weak and need the support of our Spouses. We can only get that if we share and talk to them.