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Outsourcing human resourcesSamsung Galaxy S4Adapting to changes in the marketPR programmes must have objectivesUsing your employer’s vehicle?Be careful of the tax implicationsConfusion still exists on the need of auditingand reviewing of accounting records

Outsourcing human resourcesIn today’s challenging business environment, many businesses areturning to outsourcing as a way to reduce costs. It is not un-common for firms to outsource functions such as IT, payroll andback office functions. Recently, firms are beginning to considerthe potential of outsourcing human resources (HR) as well.

The benefits of outsourcing are simple: lower operational costsand increased efficiency, as the outsourced provider will generallycommit to a service level agreement (SLA). However, isoutsourcing HR really a viable business solution?

Reduced CostsA business can save money by outsourcing HR: tax contributions,employee benefits and desk space can all be saved as a result ofremoving the need for direct employees. In the quest to securethe best value for money, some businesses outsource their HRfunction to offshore firms that have considerably cheaper labourcosts than South Africa. This saving can then be passed onto the client.

More Efficient ServiceAs for the specialisation of these third-party service providers, thequality of service required by a company can be met consistently.

In an outsourcing scenario, front-line services would still need tobe delivered in South Africa (assuming this is where the business isbased). Customer service and back office functionscan be delivered effeciently from offshore location using high-speed internet connections, phone systems, video conferencingand e-mail.

Just like any other aspect of running a business, outsourcing HRhas its positives and negatives. The positives, as we haveidentified, are the cost savings and increases in efficiency. On thenegative side, outsourced HR people do not know the business aswell as an in-house HR team would. As a consequence, they won’tunderstand the strengths and weaknesses of the firm’s team andmay struggle to deliver real value.

Samsung Galaxy S4

F I N A N C I A L M A N A G E M E N T A C C O U N T I N G

always accountable

V o l u me 13 September 2013

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Samsung's Galaxy S3 was one of the most popular phones oflast year, rivalled only by the iPhone. It played a huge role inestablishing Android devices in the business arena.

Samsung recently unveiled the Galaxy S4, a phone boastingspecifications to make even the most ardent tech loversdraw breath. Its features include a huge 5-inch screenpacking full HD, a powerful quad-core processor, 2GB ofRAM, a host of Samsung software extras, a 13-megapixelcamera and 4G connectivity for super-fast data speeds.

In smartphone Top Trumps, the S4 challenges thecompetition on every level. However, this means that itcomes with a top-end price; a SIM-only handset will cost plusminus R 8,890. Fortunately, the phone is being offered by allmajor networks on a range of plans and most business usersshould be able to get a subsidised handset from theprovider.

With this latest model, Samsung have taken each aspect ofthe already excellent Galaxy S3 and upgraded and improvedit. Its 5-inch, full HD screen is the best in the business and thequad-core processor has been given a makeover to increaseits speed. The device comes complete with a host ofSamsung software, and the built-in camera offers a13-megapixel resolution.

The phone's main weakness is its plastic design, whichhasn't seen much of an update from the S3. It doesn’t boastthe build quality or classy appearance of the iPhone 5 orBlackberry Q10. Moreover, the S4 isn’t as user friendly as aniPhone, and most business people will be more familiar withBlackberry or iPhone devices.

If you want the best-performing phone in your pocket, theGalaxy S4 is probably the device for you. Bear in mind thatsince the S4 is now available, the price of the S3 is likely todrop. Although it doesn't have the outright power of its bigbrother it’s still a fantastic and very similar phone that's wellworth a look if you don't mind having slightly older kit inyour hands.

In conclusion, the Galaxy S4 is a viable alternative to aniPhone 5 or a Blackberry Q10 / Z10.

Due to the turbulence of the current economy, businessestoday have to adapt to constant market shifts. The businessesthat adapt best to this ‘new normal’ will thrive as the marketimproves over the coming years.

Every market changes, but some change faster than others.For example, the iron ore industry moves much slower thanthe high tech or publishing industry. Established franchises candisappear if they fail to see, accept and respond to marketchanges. Microsoft were slow to respond to the rise of tabletcomputing, and cannot compete on price in the cloud sector ofthe market. Many magazines have been slow to respond to theweb and the growing popularity of tablets such as the iPad. It isinteresting that most major IT and technology magazines went100% digital well ahead of other titles.

The market is changing and the economy is turbulent. As abusiness owner or manager; what can and what should you bedoing in the current business environment?

Two indicators exist to warn you when a trend is undeniableand will change your industry. The first is simple – good oldfashioned economics. Monitoring supply and demand forproducts or services over time will allow you to spot trends inthe market. If you can adapt in order to create a valueproposition which appeals to the consumers who are drivingthe market trend, you could create a niche for your business.

The second indicator is customer preference. It doesn't matterif the value proposition of one product, is better than acompeting product, if the customer doesn’t want it. A goodexample here is digital music players. There are plenty of musicplayers on the market that are far superior to the iPod. Themajority of customers however prefer the iPod. The latter is notbecause it is cheaper, better or offers great value, but becausethe brand is seen as ‘cool’ and the device benefits fromcustomer preference.

In conclusion, business owners and managers need torecognise changing trends in their respective markets and thenrespond effectively within an appropriate time-frame. The costof adapting your business is a risk, as no market manoeuver isfree. Costs can however be projected and risks can bemanaged. The risk associated with being at the head of thepack is far less than the risk of being left behind if you fail toadapt to market changes at all.

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Adapting to changes inthe market

PR programmes musthave objectivesIn order to maximise return on investment, Public Relations(PR) programmes should serve a strategic purpose. PR for thesake of PR will most likely fail to produce a tangible result.Instead, each PR programme your business undertakes shouldbe in line with at least one strategic objective of yourenterprise. For example your objective could be to target morecustomers in a certain socio-economic group, or to encourage arepeat purchase.

As an industry, PR is packed full of creative people who cangenerate unique ideas to help you. All of this creativity meansvery little unless it is goal driven. The starting point for anycampaign must be to identify what the commercial objectivesof the business are. Business owners should consider ‘whatsuccess looks like’. If everything goes to plan; the businessshould then be able to measure or quantify that success. Onlyat this point should you get creative and come up with the ideasto create the standout PR campaign that the business needs.

An effective PR campaign will capture the attention of themedia, as well as the interest of your clients and prospects.Such a programme should aim to engage with the targetaudience and communicate a ‘call to action’ in order to helpthe business achieve its objectives.

Remember that the profile of your brand is critical to yoursuccess. Increasingly, consumers buy products and servicesfrom companies because they value or respect the brand.Customers tend to look at the detailed features and benefits ofa product or service second. The key, therefore, is to make yourbrand your target customer’s first choice.

Your business must live up to its brand promise and deliverwhat clients expect it to deliver. Your PR programme shouldreinforce this.

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always accountableF I N A N C I A L M A N A G E M E N T A C C O U N T I N G

The potential benefits and pitfalls of structuring a remunerationpackage to include a travel allowance are well known amongstmost taxpayers. During the tax law amendments in 2011, fringebenefits arising from having the right to use an employer’svehicle were amended to be more aligned to those of travelallowances. This apposed to an employee using his/her ownvehicle and receiving a travel allowence. Many taxpayersappear to be unaware of the potential tax implications of afringe benefit arising from such a right to use anemployer’s vehicle.

The South African Revenue Services (SARS) recently issuedInterpretation Note 72, which explains and clarifies the taxconsequences of this fringe benefit. This newsletter highlightssome aspects of the fringe benefit to bear in mind in order notto be caught unaware when you have to complete your taxreturn at the end of the year.

Using your employer’s vehicle?Be careful of the tax implications

If the employer therefore acquired a 2013 BMW 535i at a costof R737 700 including VAT to give to an executive director touse, this would be the determined value for purposes ofcalculating the fringe benefit. The employer wouldconsequently not be able to claim an input tax deduction inrespect of a motor vehicle.

If there was a delay between the time at which the employeracquired the vehicle and when the right to use the vehicle wasgranted to the employee, this value can be reduced by 15% foreach completed 12 month period between the acquisition dateand the date the employee was first given the right to use thevehicle. If the same 2013 BMW 535i was acquired on 1 March2013 but is only given to an employee to use from 1 July 2014,the determined value would be R627 045.

It is important from this example to note that there is no limiton the determined value for fringe benefit purposes, unlike thelimit of R480 000 on the cost of the vehicle for determining thereduction of the travel allowance.

RateThe monthly rate at which the fringe benefit arising from theprivate use of the vehicle is valued for tax purposes is 3.5% ofthe determined value. If the vehicle is however subject to amaintenance plan at the time the employer acquired it, this rateis reduced to 3.25% per month. In the case of the 2013 BMW535i, the monthly value of private use for tax purposes,assuming that the vehicle is acquired with a maintenance plan,will at this point be R23 975. If the executive director is taxed at40% and enjoys the right to use this vehicle, the monthly tax onthe fringe benefit will be R9 590.

Reduction in the private use value of the fringe benefitFortunately, the Act allows for the value of private use of thefringe benefit to be reduced. In the first instance, the value ofprivate use can be reduced to the extent that the vehicle isused for business purposes. This is done by applying the rate ofprivate use to the value as determined up to this point in thecalculation. Assuming that the executive director travelled30 000 kilometers using the vehicle of which 10 000 was forbusiness purposes during the 2014 year of assessment, thevalue of private use for the year will be R191 802 (R737 700 x3.25% x 12 x 20 000km / 30 000km). This is however subject tothe fact that the executive director must provide satisfactoryproof and accurate records of distances travelled for businesspurpose (see on next page).

Basics of tax on fringe benefitAs with all fringe benefits, the right to use a vehicle will onlyconstitute a fringe benefit if granted to a person by reason ofemployment or the holding of an office (such as being adirector of a company). If a person uses a company’s vehiclefor some other reason, for example being the shareholder ofthat company this will not constitute a fringe benefit. In thecase of a shareholder, this may then constitute a dividend.

The fringe benefit is taxed on the cash equivalent value ofprivate use of the vehicle, which is determined by applying amonthly rate to the determined value of the vehicle if theemployer owns or leases the vehicle (other than a short-termoperating lease). This value is reduced by any considerationpaid in respect of the right of use by the employee. Each ofthese aspects will now beconsidered briefly.

Determined valueThe determined value of the vehicle acquired by the employerin terms of a sale or exchange will be equal to the original costthereof to the employer. If the employer leases the vehicle interms of a lease other than a short-term operating lease, oracquired the vehicle at the end of such a lease, the determinedvalue will be the retail market value when the employer firstobtained the right to use the vehicle. In the case of a finance

In addition, the private use value can be further reduced if theemployee bears the full cost of licensing, insurance ormaintenance of the vehicle, or the full cost of fuel for privatepurposes. The reduction for licensing, insurance ormaintenance is based on the amount of expenditure incurredby the employee for the specific purpose apportioned to theprivate use of the vehicle. If for example the full cost ofinsuring the BMW 535i is borne by the executive director andinsurance premiums amounting to R40 000 was paid during theyear, the value of private use is further reduced by R26 667(R40 000 x 20 000km / 30 000km). If the executive directorbears the cost of fuel for private use, the value thereof canfurther be reduced by the rate of fuel (as per the Gazette issuedin respect of deemed fuel cost for purposes of determining thetaxable travel allowance).

If these reductions are taken into account, the taxable value ofthe fringe benefit can be reduced significantly. Failure to claimthese reductions or failure to keep the necessarydocumentation to claim (which is more likely to be the case)can be a cardinal mistake from a taxpayer’s perspective.

The documentation required to claim these reductionsis considered next.

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From this requirement it is clear that no detailed information isrequired about distances travelled for private purposes. It isfurthermore evident that it is not necessary to keep odometerreadings on a daily basis.

As detailed information is required to be kept on distancestravelled for business purposes, it is important to determinewhat constitutes distances travelled for business purposes.The Act clearly states that travel between an employee’s placeof residence and his/her place of employment constitutes travelfor private purposes.

Interpretation Note 14, which deals with travel allowances,gives some examples of distances travelled for businesspurposes. These include travel from the place of employmentto another place for a purpose related to the business that theemployee is involved in, travel between the place of normalemployment and any other place that the employee has totravel to for a business purpose. The purpose of travel couldhowever be a complicated question and many cases dealingwith this have been heard by the courts.

In addition to keeping accurate records of distances travelledfor business purposes, the employee should keep evidenceshowing that he/she bore the full cost of licensing, insurance ormaintenance, or the cost of fuel for private purposes. In thecase of fuel, it is submitted that this could include instanceswhere the employee uses the employer’s fuel card but has toreimburse the employer for fuel used for private purposes.

These reductions are only made at the time of assessment.On a monthly basis, for employees’ tax purposes, 80% of thevalue of private use before any reduction is used to determinethe employees’ tax (PAYE) to be deducted from the employees’remuneration. This can be reduced to 20% if the employer issatisfied that at least 80% of the use of the vehicle will be forbusiness purposes. In this regard, Interpretation Note 72 statesthat employers can satisfy themselves of this fact (and therebyprotect themselves against claims arising from anunderpayment of employees’ tax) by regularly reviewing theemployee’s logbook as well as by considering the functions androle of the specific employee in question.

Concluding thoughtsIt is common for employees to be entitled to use an employer’svehicle as part of the employee’s remuneration package. Thediscussion in this newsletter briefly considered how this fringebenefit will be taxed. It also highlighted some aspects toconsider, which, if ignored, can be extremely costly to anemployee. As with most tax-related matters, it would pay tobe prepared when you enjoy the right to use anemployer’s vehicle.

Aspects to consider in preparing for taxon fringe benefitsThe first aspect, and probably the most important, is that thereduction in respect of business use will only be available if thetaxpayer (employee) can prove that he/she has kept accuraterecords of distances travelled for business purposes to thesatisfaction of the Commissioner. The Income Tax Act does notstate what these accurate records should comprise.

Interpretation Note 72 states that the above include a logbookas an example. The interpretation note does not go as far asrequiring the taxpayer to hold a logbook, but it is submittedthat it would be foolish not to follow the recommendationsmade by SARS in the interpretation note. The note providesthat a logbook should, at a minimum, include thefollowing information:

Odometer reading on the first day of the year; Odometer reading on the last day of the year; Detailed information (date, distance and reason) of

all business travels.

Deadlines looming30 September 2013:

Manual personal income tax returns(handed in by hand and not

through e-filing)

31 October 2013:Interim employer reconciliations for 2014

22 November 2013:All non-provisional tax payers’ returns that

file tax returns via e-filing

B u s i n e s s c a n b e t a x i n g

Chartered Accountants SA

1st Floor, Randpark Building20 Dover Street,Randburg

PO Box 2444,Randburg,2125

Tel: +27 (0) 11 789-1011Fax: +27 (0) 11 789-1012E-mail: info@wallrich.co.zaWeb: www.wallrich.co.za

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Focusing on the small (PI score below 100), owner managedcompanies:The majority of directors are aware of the fact that their companydo not need a full compliant audit anymore under the newCompanies Act. (Review the flow diagram on our website todetermine if your company qualifies – under downloads:www.wallrich.co.za). However, some of the companies neveramended their Memorandum of Incorporation (MOI) in the twoyear grace period up until May 2013 and are therefore still obligedto have a compulsory audit done. It is also quite disappointing tothem when they realise that they can’t backdate their specialresolution to change the MOI to voluntary audits and are therefore‘stuck’ with the normal compulsory audit.

Directors and shareholders should take note of the following(Accounting SA, June issue 2013):“Where a company amends its MOI, it has to file a Notice ofAmendment (CoR15.2) within 10 business days after suchamendment (section 16(7) read with Regulation 15(3)). Where acompany amends its MOI by means of a special resolution ofshareholders (as provided for in section 16(1)(c)), the amendmentwill not be effective immediately. This constitutes the one instancewhere the Act delays the effectiveness of a special resolution of

shareholders. Under other circumstances, a special resolution willtake effect as soon as the required number of votes is obtained.However, where a special resolution is obtained to amend the MOI,the amendment to a company’s Memorandum of Incorporationtakes effect on the date of filing the Notice of Amendment, or thedate, if any, set out in the Notice of Amendment (section 16(9)),whichever is later.” For more information visit:www.accountancysa.org.za.

IF you haven’t amended your company’s MOI yet, youneed to do so ASAP to benefit from the new legislation.

Confusion still exists on the need of auditing and reviewingof accounting records