IFRS vs IFRS for SMEs

The majority of financial statements in South Africa are arguably compiled by implementing the International Financial Reporting Standards for Small and Medium-sized Entities (IFRS for SMEs) as a financial reporting framework. The International Accounting Standards Board (IASB) published IFRS for SMEs during July 2009. The standard was introduced in order to reduce complexities and the burden associated with applying full IFRS for small and medium-sized entities. The standard was designed in order to fulfil the needs of the users of the financial statements of small and medium-sized entities.
 
In accordance with the Regulations of the Companies Act, the following profit companies are allowed to implement IFRS for SMEs as a financial accounting framework:

  1. Public companies not listed on an exchange, provided that the company meets the scoping requirements for IFRS for SMEs;
  1. Profit companies, other than state-owned or public companies, whose public interest score for the particular financial year is at least 350, provided that the company meets the scoping requirements for IFRS for SMEs;
  1. Profit companies, other than state-owned or public companies:

    • Whose public interest score for the particular financial year is at least 100 but less than 350; or
    • Whose public interest score for the particular financial year is less than 100, and whose statements are independently compiled
  1. Profit companies, other than state-owned or public companies, whose public interest score for the particular financial year is less than 100, and whose statements are internally compiled.
The scoping requirements of IFRS for SMEs state that the following entities are allowed to implement the framework:

  1. IFRS for SMEs is intended for use by small and medium-sized entities. Small and medium-sized entities are entities that:

    • Do not have public accountability; and
    • Publish general purpose financial statements for external users.
The use of IFRS for SMEs ensures the following benefits for the entities that implement the standard as a financial reporting framework[1]:

  1. Some topics in full IFRS Standard are omitted because they are not relevant to typical SMEs;
  1. Some accounting policy options in full IFRS Standards are not allowed because a more simplified method is available to SMEs;
  1. Many of the recognition and measurement principles that are in full IFRS Standards have been simplified;
  1. Substantially fewer disclosures are required; and
  1. The text of full IFS Standards has been redrafted in “plain English” for easier understandability and translation.
[1] In accordance with the IASB website
 
This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted. (E&OE)

Fixed and reimbursive travel allowances

When determining the best remuneration package for travelling employees, South African employers and employees are continuously considering the benefits between a travel allowance, a reimbursive travel allowance or both. For this purpose, the employees’ tax (“PAYE’’) and income tax consequences of these two allowances are set out in more detail below.
 
A travel allowance is an allowance granted by the employer to the employee for the use of his or her private motor vehicle for the employer’s business purposes. This includes any fixed travel allowances, petrol, garage and maintenance cards.
 
A reimbursive travel allowance is any allowance which is based on the actual distance travelled for business purposes and is normally paid by the employer to the employee by multiplying the actual business kilometres travelled by a fixed rate per kilometre.
 
For PAYE purposes, 80% of the fixed travel allowance must be included in the employee’s remuneration. This percentage is reduced to 20% if the employer is satisfied that at least 80% of the use of the motor vehicle for the tax year will be for business purposes. Employees must keep a record of the actual distance travelled during the year for business purposes by way of a logbook. The full amount of the allowance is disclosed in the IRP5 under code 3701.
 
In respect of the reimbursive travel allowance, no PAYE is payable on an allowance paid by an employer to an employee up to the rate of 361 cents per kilometre, regardless of the value of the vehicle. The reimbursement does also not have to be substantiated by a logbook. But is only available to an employee if no other form of an allowance or reimbursement (other than for parking or toll fees) is received from the employer in respect of the vehicle. Any excess reimbursed portion (exceeding 361 cents per kilometre) is, however, subject to PAYE just like a fixed travel allowance. Disclosure of this allowance is under codes 3702, 3722 and 3703 on the IRP5.
 
For income tax purposes, the full (100%) of the fixed travel allowance, as well as the taxable reimbursive travel allowance, will be added together on assessment.
 
The employee will, however, be allowed to claim actual business travel expenses against the travel allowance (subject to certain limits) and the portion exceeding the claim will be taxable on assessment.
 
Where no actual costs are claimed, the South African Revenue Service provides a table which sets out fuel costs (per kilometre), maintenance costs (per kilometre) and a fixed cost which may be claimed against a travel allowance depending on the value of the vehicle. However, no fuel cost or maintenance cost may be claimed in instances where the employee has not borne the full fuel or maintenance cost.
 
This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted. (E&OE)

SARS changes to employer statement of account

The South African Revenue Service (“SARS”) has recently made changes with regards to the management of payroll taxes in order for employers to more effectively manage their own accounts by way of a number of functions and tools.

SARS states that the aim of these changes is to allow employers to ensure that all their necessary payroll filings are correctly reflected, payments have been correctly allocated and that all charges to their accounts such as adjustments, interest and penalties have been correctly calculated and recorded.

The most recent changes include changes to the statement of account (“SOA”) which were introduced on 26 April 2019. These changes followed complaints by employers of errors on these accounts.

The purpose of the SOA is to reflect the balance and detailed transactions for a tax year with regards to Pay-As-You-Earn (“PAYE”), the Skills Development Levy, the Unemployment Insurance Fund and the Employer Tax Incentive (“ETI”) in order to allow for employers to complete their Employer Reconciliation Declaration bi-annually.

In order to make the SOA more clear and comprehensible, SARS made changes to the manner in which financial information is being displayed. In this regard, enhanced descriptions were included for liability and non-liability transactions. Also, all liability transactions are now grouped together and sorted in transaction date order. The exemption to this is any non-financial transactions with a date earlier than the first day of the period under consideration.

In order to identify payments and to better reconcile them with the employer’s bank statements, the SOA now also makes provision for receipt numbers for payments and journals.

Furthermore, ETI transactions (which have no impact on the PAYE account) are now grouped together and reflected at the bottom of the SOA.

In addition to the above, employers previously had to request SARS to make payment reallocations and corrections on their behalf. The monthly employer declaration (“EMP201”) and payment reference number (“PRN”) system was introduced to allow employers to amend their declarations and payments themselves. This tool also allows employers to identify and follow-up on incorrect or missing transactions using the consolidated employer SOA and query function as well as to correct unallocated payments.

Employers also have access to their financial accounts online to view and query transactions processed against their accounts in real-time. SARS also allows for a case management system where employers will be able to log queries, they are unable to resolve themselves and to monitor and track SARS’ progress with regards to the query logged.

With the annual employer reconciliations submission deadline now at 31 May 2019, employers are encouraged to use all these amended functions and tools to submit accurate information and to manage their payroll taxes more effectively in the future.

This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted. (E&OE)