lockdown Archives

How Chaos Sparks Business Innovation

08/09/2020 14/05/2021

The greatest innovation is created in times of chaos, when opportunity abounds. Many successful business stories began during times of recession, depression, chaos and crisis, such as Uber, Airbnb, WhatsApp, Slack, Pinterest, Square, Disney, Sony and iPod.

In the midst of the unprecedented chaos created by COVID-19 on a global scale, we have witnessed great and inspiring innovation, as local and global businesses innovate ways to stay relevant in industries completely disrupted, if not shut down, by the pandemic and the lockdown.

Find out how you can innovate in your business and industry with a simple three-step system that can transform a time of chaos into a catapult for creation and innovation...

“All great changes are preceded by chaos. The disruption we see in the world is the prelude to emergence.” (Deepak Chopra)

The greatest innovation is created in times of chaos. Many successful business stories began during times of recession, depression, chaos and crisis. Not paralysed by uncertainty or frightened into inaction, these business leaders and companies used chaos as a catapult for creation and innovation.

This was the message from actuary and innovator Dean Furman at SAICA’s recent complimentary virtual leadership series Leadership in a time of crisis.

Chaos creates opportunity

In a crisis situation such as COVID-19, people and companies’ needs have changed significantly. “Priorities have shifted and the way people and businesses operate on a daily basis has changed, creating endless opportunities for individuals and companies to cater to new needs with new services and solutions, or existing solutions offered in different ways,” says Furman. “And that is precisely why there is always so much opportunity where there is chaos and crisis.”

“In the midst of chaos, there is also opportunity” (Sun Tzu)

Business innovation in a time of chaos

Just some examples of innovations born in times of chaos or depression include Uber and Airbnb, WhatsApp, Slack, Pinterest and Square.

“While Uber and Airbnb, for example, did not necessarily plan on being founded during the Great Recession of 2007/2008, the timing worked in their favour. With so many people looking for extra revenue, it suddenly made sense to turn your car into a taxi, or to rent out your spare room – ideas that may have seemed crazy just a few months or years before.” Other examples of companies or products born in times of chaos include Disney, Sony and iPod.

In the last few months, in the midst of the unprecedented chaos created by COVID-19 on a global scale, we have also witnessed great innovation.

COVID-19-driven innovation

Harvard Business School Working Knowledge provides some recent examples of innovation driven by the pandemic: grocery stores installing plexiglass shields at checkouts, restaurants and groceries expanding to takeout and deliveries; video conferences replacing face-to-face meetings and professional consultations; and employee monitoring software ensuring productivity among teams working from home.

The need to mitigate contagion risk has also driven new products and processes, such as robots that deliver medicines and meals and collect bed sheets and rubbish in hospitals; electronic pre-booking to control customer flow for on-premises businesses; a drone program to drop parcels and spray disinfectant developed by e-commerce giant JD; and “Smart” helmets can identify anyone with fever within a five-meter radius.

Even in industries where digital and automation technologies were uncommon, the crisis led to drastic innovations. Teachers from pre-schools to universities digitised content and delivered it online or via phones. Retailers adopted Amazon’s Just Walk Out technology to eliminate the need for checkout. Galleries, cinemas, concert halls, independent musicians and artists found ways to create, perform and connect with their audiences through online platforms.

And out of Africa…

“There is always something new out of Africa” (Pliny the Elder)

Innovations by African businesses and individuals also abound. Earlier this year, the World Health Organisation (WHO) in the African Region hosted the first in a series of virtual sessions for innovators across the region to showcase home-grown creative solutions aimed at addressing critical gaps in the response to COVID-19. Eight innovators from Ghana, South Africa, Nigeria, Guinea and Kenya presented their pioneering solutions, all of which have already been implemented in their respective countries, with significant potential to be scaled up further across the region. The innovations ranged from interactive public transport contact tracing apps and dynamic data analytics systems to rapid diagnostic testing kits, mobile testing booths and low-cost critical care beds.

Locally, a Vodacom and Discovery partnership has made free COVID-19 Online Doctor Consultations available to all South Africans. To meet the demand for alcohol-based sanitiser, South African Breweries (SAB) adapted its operations; Sasol developed a new unique blend of alcohol-based chemicals to be used in manufacturing of hand sanitisers; and L’Oréal South Africa began producing hand sanitisers under its natural beauty brand Garnier.

Further local innovations range from virtual wine tastings and game drives, and restaurants that deliver all the ingredients so customers can make their favourite cuisine at home, to local craft markets gone virtual and digital yoga, dance and art lessons.

How to innovate – a three-step system

It is inspiring to read how businesses are innovating ways to stay relevant in industries completely disrupted, if not shut down, by the pandemic and lockdown.

But how do you innovate in your business and industry? Furman provides a three-step system to innovation –

Focus on your clients – meet their changed needs, make their lives better and listen to them.
Challenge the way you do things – develop new products or services, and offer existing services in new ways
Explore the world around you for new possibilities – including the many new enabling technologies that can digitally update old ways of doing things and even extend your client-base globally.

As countless companies have proven before, the chaos of a crisis such as COVID-19 can be a catapult for creation and innovation.

“Just like a catapult, the more you get pulled back, the further and faster you can go forward,” says Furman. “When chaos happens, spend time thinking how it can be used as an opportunity for growth and innovation. This is your time to move forward.”

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)

Giving is Good – Just Know Who You are Giving To

07/07/2020 14/05/2021

There are many worthy causes trying to help vulnerable South Africans in this time of national crisis. Supporting these initiatives is of course absolutely the right thing to do, and the only note of caution to be sounded before you make a donation is this – if you are approached by an organisation claiming to be a genuine NPO (Non-Profit Organisation) or PBO (Public Benefit Organisation), undertake some due diligence before committing to anything.

We show you how to check that anyone soliciting donations is on the level, we discuss the question of tax-deductibility (with a special mention of The Solidarity Fund’s enhanced PBO status), and we share some thoughts on creating a formal “giving policy”.

There is usually an upsurge in giving when there is a severe crisis. COVID-19 is no exception – witness the outpouring of help for vulnerable people who face lockdown without income or food.

This reaction is to be admired as it affirms our humanity, but it is worth doing some due diligence on who you are giving to, especially considering the sudden spate of NPOs (Non-Profit Organisations) and people soliciting donations and assuring you that whatever you give is either tax exempt or tax–deductible as they are a PBO (Public Benefit Organisation).

It is easy to verify these claims

Although it is not mandatory to register as an NPO, virtually all non-profit organisations do so as it shows a commitment to the spirit of altruism and good governance required of such organisations. NPOs are under the jurisdiction of the Department of Social Development (DSD) and it is a quick process to check if an NPO is registered here by typing in the box the name of the NPO.

Many of these NPOs are also PBOs which are usually registered with SARS to enable you as donor to claim the tax allowances available, and can be verified on the SARS website.

Other due diligence

Ask the NPO to give you proof that the money you are giving is going to where the NPO promises. This is a standard requirement – Foundations that give to NPOs require that they report back verifying not only that the money was correctly spent, but also showing the impact this giving has had on the targeted individuals and communities.

When you make a donation to a section 18A registered PBO, they must issue you with a prescribed certificate that SARS will require you to submit when you claim the deduction in your tax return. The certificate also verifies that the donation will only be used for certain purposes as prescribed by law and approved by SARS.

Formalise your giving

Instead of donating to causes on an ad-hoc basis, why not have a “giving policy”? Establish how much you are prepared to donate and the causes you want to support. Many companies are now encouraging their staff to donate to good causes.

To do this, an understanding of tax legislation is important –

Donations tax

A company will not incur donations tax for the first R10 000 per annum in donations and an individual R100 000 per annum – any amounts over the company or individual limit are taxed at 20%.

Note that you cannot claim a tax deduction for any donations tax you pay in this regard.

PBOs

Over and above this, SARS allows both registered and non-registered NPOs that meet the legal criteria in the Income Tax Act to register as a PBO. One advantage of being a PBO is that individuals or companies will not be subject to donations tax on their donations to the PBO even for amounts over the limits set out above.

To also get a tax deduction, check that the PBO is registered in terms of section 18A of the Income Tax Act – only those PBOs which are additionally approved by SARS in terms of section 18A can also issue donation tax receipts for donations received. Donors can then deduct up to 10% of their taxable income (for individuals, adjusted for retirement lump sums and severance pay) from donations to PBOs on assessment of their taxes. Note that SARS will require presentation of a valid donations tax receipt from the donor to claim the deduction. Should the individual or company have given more than 10% of their taxable income in one year, then the excess over 10% can be carried over to the next year. Thus, you get favourable tax treatment by donating to PBOs.

Staff can also get tax relief on their PAYE through “payroll giving” whereby the employer donates on their behalf up to 5% of the employee’s remuneration (adjusted for pension and RAF contributions) to qualifying section 18A PBOs. The donation will then be reflected on the employee’s IRP5 at the end of the year and the PBO will issue a section 18A receipt to the employer as proof.

Having a company–wide giving campaign will forge closer links with employees, as this is something all the staff can be involved in and buy into.

There are intricacies to this aspect of tax, so consult your accountant.

The Solidarity Fund

This fund has been set up as a COVID-19 relief fund and has PBO and section 18A status which has been enhanced to allow taxpayers donating to it to claim 20% of their taxable income as a deduction. There will thus be a limit of 10% for any qualifying donations (including donations to the Solidarity Fund in excess of its specific limit) and an additional 10% for donations to the Solidarity Fund. Where staff elect to do “payroll giving”, employers can deduct up to either 33% for 3 months during 1 April to 1 July 2020 or 16,6% over 6 months during 1 April to 1 September 2020 for the 2021 tax year, of employees’ remuneration, when staff donate to the Solidarity Fund. The same rules apply in terms of section 18A certificates as covered above – make sure that you will get a section 18A receipt.

Having a policy of giving leads to more consistent and larger flows of funds to non-profit entities. Not only does this help the less fortunate communities, but it makes our society (and therefore our businesses) more sustainable.

Tax Freedom Day: How Many Days Did You Work for The Taxman in 2020?

09/06/2020 14/05/2021

“Tax Freedom Day” is a concept telling us taxpayers just how long we have to work every year to pay the Taxman his share before we start earning for ourselves.

Normally our “Freedom Day” gets later and later every year in line with the general trend towards more and more taxation, but 2020 as it turns out has been an exception. In fact this year it arrived signifcantly earlier than it did in 2019.

Why is this, and why is it bad news for us all? We discuss the answers to those questions in the context of the pandemic, the lockdown and the resulting economic crisis, with some (as you’d expect, rather gloomy) pointers to the future trajectory of our embattled economy.

“I Have Bad News and – No, Actually I Just Have Bad News” (Rick Riordan)

In the current year it has taken the average South African 126 days to pay off their taxes and only from the next day did the taxpayer then work for him or herself. This date fell on 6 May this year and is globally known as Tax Freedom Day (TFD).

So, what does this tell us?

This should be good news as last year TFD took 11 days longer to achieve than in 2020. However, this 11 day drop reflects the calamitous fall–off in the economy due to the COVID-19 crisis. Peoples’ incomes are dropping in 2020 which means less tax will be paid – this is the main reason for the 11 day improvement over last year.

This is not good news as the impact of lower taxes on government finances will push South Africa into a worse debt crisis. Some economists are predicting that our budget deficit to GDP will be 17% versus the 6.8% in the Budget presented by the Finance Minister in February – this shows just how fast our economy is tumbling. At least we are in good company – the USA shed 36 million jobs in the first seven weeks of their lockdown. Across the world, virtually every economy has slipped into recession.

The problem is it will take, depending on how long the pandemic lasts, some years for South Africa and the global economy to recover. This will not be good news for TFD, as taxpayers will probably be required to shoulder a higher burden of taxes to pay off the debt incurred due to the pandemic.

COVID-19 and Directors: Your Duties and Liabilities in the Coronavirus Crisis

21/05/2020 14/05/2021

Your focus as a director right now will no doubt be on keeping your business afloat through these trying times.

Don’t lose sight however of the fact that the onerous obligations and duties placed on all directors by the Companies Act still apply. Failure to live up to the required standards exposes you not only to a significant risk of personal liability for company debt, but also to criminal prosecution.

We recap in summary what the Act requires of you, we discuss the impact of King IV on your risk profile, and we end off with a caution on the extent to which you can rely on indemnity insurance for cover.

There are significant obligations placed on directors by the Companies Act and personal and criminal liabilities if they fail to meet these obligations.

As a director you will no doubt be focusing on critical issues like keeping your business afloat and solvent (the CIPC has waived its right to intervene when a company becomes temporarily insolvent due to the lockdown and other restrictions imposed. This concession will be withdrawn 60 days after the lifting of the National Disaster regulations), don’t forget that the Companies Act is still in force.

The coronavirus has created an unprecedented situation which demands swift, decisive action by directors – for example, the President only gave the country 72 hours’ notice before the lockdown came into effect, which gave little time for directors to react to the new reality.

No change in your duties or liabilities

Despite the coronavirus there is no change to the duties or liabilities of directors. They must perform their role:

“in good faith…,

in the best interests of the company

with the degree of care, skill and diligence that may reasonably be expected of a person –

(i) carrying out the same functions in relation to the company as those carried out by that director; and

(ii) having the general knowledge, skill and experience of that director.”

“Good faith”, “best interests” and “care, skill and diligence” are onerous terms. For a director to be protected against falling foul of these provisions that director needs to show that he/she took diligent steps to be informed of the issue and made a rational decision in the best interests of the company. This is known as the Business Judgment Rule and courts look to this when considering a director’s personal liability.

The impact of the King IV Report

When considering the Business Judgment Rule, the courts have relied on whether a director followed the King IV Code of Good Governance when reaching their decision.

One issue that will arise with the coronavirus is that King IV mandates that a company be a good corporate citizen and part of this is to look after the health and safety of employees (following the requirements of the Occupational Health and Safety Act and now government’s Disaster Management Act Regulations) – for example, were adequate steps taken in terms of the National State of Disaster declared by the President such as social distancing (working from home where feasible) and ensuring employees had access to masks, hand sanitisers and so on at work?

Failure to comply with King IV in this scenario means directors will not be able to rely on the Business Judgment Rule and can be held personally liable for losses incurred.

Will your indemnity insurance cover you?

Directors can take out indemnity insurance, covering claims awarded, in their personal capacity, when they commit “wrongful acts”. However, the insurance will not apply if there is “wilful misconduct or wilful breach of trust” by the director (check your policy’s exact wording). An example might be the director being convicted under the Occupational Health and Safety Act.

As a director you could find yourself being held personally liable for your decisions and being denied access to your indemnity insurance cover.

Dealing with the pandemic increases the pressure on directors but doesn’t absolve them of their liabilities.

COVID-19 Lockdown: Relief Programs for Businesses and SMMEs

17/04/2020 14/05/2021

The National Lockdown, due to end on 16 April, presents businesses of all sizes with an unprecedented set of existential challenges.

Of course sooner or later this crisis will end, but for now it is a case of survival for many businesses, and particularly for those smaller enterprises forced now to close for 21 days.

Don’t despair, help is at hand! We list the various relief initiatives announced to date. The list will change, as will the details of and processes for accessing each initiative, but be aware of, and take advantage of, the assistance that is out there – or will be out there shortly.

The President, telling the nation that “We will prioritise the lives and livelihoods of our people above all else, and will use all of the measures that are within our power to protect them from the economic consequences of this pandemic”, has announced a variety of initiatives to assist SMMEs (Small, Medium and Micro-Enterprises) that will need assistance in surviving the three week lockdown and economic disruptions flowing from the COVID-19 coronavirus.

Please note these are new initiatives, so expect delays, changes to schemes, new proposals and differing interpretations. Everyone’s patience will be tested!

Some of the announced measures discussed below still need to be enacted and may be different when they are finalized. Expect ongoing changes and keep Googling for ongoing lists of proposed and implemented avenues of business relief.

1^st: UIF Money

The UIF has an estimated surplus of R180 billion and this is the logical first port of call when looking at incentives, especially as money given by the UIF is not a loan, and thus doesn’t have to be repaid. There are two routes to access this money – using the traditional UIF method (National Disaster Benefit) or making use of the new Temporary Employer/Employee Relief Scheme (TERS) which is discussed below.

For either method, the employer must be registered with the UIF and be making monthly contributions. If you are behind on contributions, you can pay in any backlog you have.

National Disaster Benefit

Temporary shut down
If the employer temporarily shuts down the business, then the UIF will pay out R3 500 per employee per month for up to three months.
- Requirements:
  - A letter from the employer confirming the operation is temporarily closing down due to the coronavirus
  - A copy of the employee’s ID
- Forms to be Completed:
  - UI19 and UI12.7 (employer to complete)
  - 1 – application form
  - 8 – Confirmation of bank account

Reduced work time
The payout is the difference between what the employer pays and UIF benefits.
- Forms to be Completed:
  - UI19 and UI2.7 (completed by Employer)
  - UI 2.1 (application)
  - UI 2.8 (bank form completed by the bank)
  - A letter from the Employer confirming Reduced Work Time is due to the coronavirus
  - Copy of ID document

Quarantine and illness
In cases where employees are put in isolation for 14 days or more.
- Requirements:
  - Letters from the employer and employee that the person is in quarantine. No medical certificate is needed
  - If the quarantine is longer than 14 days, a certificate is required from the employee’s doctor, along with the form UI3
- Forms to be Completed:
  - UI19 and UI2.7 (completed by Employer)
  - 2 (a portion of which is completed by the Doctor)
  - UI 2.8 (bank form completed by the bank)
  - Copy of ID document

Death benefits
If the employee dies, the UIF will pay the funds to beneficiaries.
- Forms to be Completed:
  - UI19 and UI 53 (completed by the Employer)
  - UI 2.5 or UI2.6 (deceased application)
  - Death Certificate
  - ID of deceased and applicant
  - UI 2.8 (bank form completed by the bank)
  - Copy of ID document

You can also download the UIF’s “Easy-Aid Guide for Employers” here.

Temporary Employee/Employer Relief Scheme (TERS)

This applies to businesses who temporarily shut down – a three-month period is envisioned but this could be extended. The UIF then pays salaries to all staff, based on the current UIF pay outs – a maximum of R6 731 p.m. for staff earning R17 162 or more down to the minimum wage of R3 500.

There is quite a bit of documentation here – send an email to Covid19ters@labour.gov.za and you will get the forms to be completed and other requirements needed.

A Memorandum of Agreement is signed and the employer submits (in the required format) a spreadsheet of employee details and salary, proof of payment of the last 3 months’ salaries, bank confirmation of the applicable bank account.

You will need to open a separate bank account for this and prove each month that all staff have been paid.

There is quite a bit of work here and getting the forms accurate will prevent delays in payment.

Which of the two schemes to choose from depends on your business – there is some crossover, for example, quarantined employees can claim under the National Disaster Benefit (see Quarantine and Illness). On the face of it, TERS looks more lucrative but it is very admin intensive in setting up, and as a new scheme it may be subject to teething problems. Ask your accountant for advice in doubt.

2^nd: The Department of Small Business Development (DSBD)

R500 million has been set aside to help SMMEs due to the impact of the coronavirus. The money will be in the form of loans at prime less 5%. Assistance falls into two categories:

Business Growth/ Resilience Facility: This applies to businesses whose products are aligned to helping to combat the pandemic. Examples are making hand sanitisers, medical protective clothing, medical supplies etc. SMME logistics companies may also apply for funding.Funding will cover bridging finance, asset finance, stock and working capital needs.
Debt Relief Fund: Companies will need to show how the coronavirus has impacted on their business. The relief focuses on purchase of stock and other operating needs. Funds will be released based on the company’s cash flow requirements.

The starting point is to register on the DSBD’s portal (www.smmesa.gov.za) – the registration entails staff breakdown between males and females, the number of youth employees and racial classification of staff. There is also a section on who owns the business and annual turnover. The business needs to be 100% South African owned and the work force is to be 70% local.

The DSBD is setting up an SMME database which will be used in future interventions.

Once registered follow the application process which opens on 2 April. How much each business gets is still unclear.

Call the DSBD’s hotline 0860 663 7867 or email info@dsbd.gov.za to check what kind of government support you qualify for.

3^rd: Department of Trade and Industry

R3 billion assistance has been set aside with a main focus on providing funding to “vulnerable” businesses and to provide financing help to companies involved in the battle to roll back the coronavirus. It’s not that dissimilar to the DSBD’s approach but it serves all business, not just SMMEs. Of the R3 billion, R500 million will be for importing needed medical products and R700 million will be for financing equipment and working capital requirements. Guidelines as to how to apply are forthcoming.

4^th: The Solidarity Fund

This has been set up with R150 million from the government (www.solidarityfund.co.za) and it is designed to help stop and detect the virus, look after the people with it, plus help those people who are vulnerable as a result of the coronavirus. Mary Oppenheimer has pledged R1 billion to this fund and Naspers has committed R500 million.

You may wish to donate to the fund or apply for help for struggling staff members.

5^th: Private and Corporate Funds

The Rupert and Oppenheimer families and the Motsepe Foundation, have each pledged R1 billion. Motsepe’s money will go towards helping poor communities fight the coronavirus by supplying them with hand sanitisers etc. The Ruperts’ and Oppenheimers’ funds will be to help struggling small businesses and employees, as a result of the coronavirus. In addition, Naspers has pledged R1.5 billion (in addition to the R500 million to the Solidarity Fund) to source medical supplies and protective equipment, from China, for health care workers. .

The Rupert funds will be disbursed by Business Partners and application forms will soon be released – although details are not yet available, the money will be a loan.

The Oppenheimer money will be paid out from the “South Africa Future Trust” through the major four banks in the form of a five-year interest free loan – for details see SAFT’s website. SMMEs will apply to their bank which will then pay salaries directly into employees’ bank accounts. No liability will be incurred by employees – the business will be liable for repayment. Speak to your bank manager for how to apply – the system begins operating on 3 April.

Details on the Motsepe and Naspers disbursements are still outstanding.

6^th: SARS Relief Measures

The Employment Tax Incentive (ETI) has been extended to include all staff earning less than R6 500 per month from ages 18 to 65 – they will qualify for an additional R500 per month which can be claimed via the monthly PAYE return.

All staff members currently receiving ETI benefits will get an additional R500 per month.

These measures will apply for four months from April to July this year. The ETI has been paying out twice a year but this will now be monthly.

Tax compliant companies with turnover of less than R50 million will be able to hold back 20% of their PAYE payments and a portion of their provisional tax payments, as follows:
- The business must be tax compliant and using eFiling.
- PAYE returns due May 7, June 7, July 7 and August 7, you only pay 80% of your PAYE liability
- From September 7 and for the next five PAYE returns, the 20% reduction is to be paid back in equal amounts e.g. if you received a R30 000 reduction in PAYE for the months April to July, then you will repay an additional R5 000 each month on your PAYE return.
- Provisional Tax payments due from April 1 to September 30:
  - The first payment at 15% of the estimated tax liability
  - The second payment at 65% of estimated tax liability (i.e. 50% is due on the second payment)
  - In your top up payment you will be required to pay your full tax liability.

Note: the above applies to companies – measures for individuals will be announced later.

7^th: Competition Act amendments re banks and retail tenants

The Competition Act has been amended to allow banks to work together to come up with solutions to help indebted companies and people. The major banks have announced cash flow relief measures – these will have to be repaid. Speak to your bank for more details and see a summary of bank-by-bank relief as announced to date here.

The Competition Act has also been relaxed to allow retail tenants to get together and present a unified negotiating position to landlords in the areas of evictions, rental discounts and rental “holidays”. This is already happening with “active” negotiation and demands between retail landlords and tenants.

8^th: Tourism sector relief

A R200 million fund has been set up to help SMMEs in the tourism sector (Read “COVID-19 interventions for the tourism sector” here).

It applies to SMMEs with R2.5 Million or less. 70% of pay outs will be to Black owned Businesses with a bias towards rural areas.

9^th: Other

The CIPC have extended the deadline for submission of the Annual Return, if you are required to submit during the lockdown process to April 30.

Government is considering suspending employers and employees UIF contributions and employer payments to the Skills Development Fund.

To date most businesses are reportedly finding that Business Interruption Insurance claims are not being considered by insurance companies.

Expect more initiatives to emerge as we move deeper into the coronavirus crisis. How much these measures will cushion the shock to the economy is unknown. They are, considering how little fiscal space there is, a creative and welcome attempt to help business and people affected by the lockdown and other restrictions. Nevertheless, the economy is virtually certain to enter a deep recession, particularly following the downgrade by Moody’s on March 27.

Remember we are facing desperate times and the nation, led by President Ramaphosa, has shown courage and determination in facing down the coronavirus.