Imperial Accountants

24/05/2019

8 lessons on building a company people enjoy working for

03/02/2019

What Smart Businessmen Do:

1. Have a strategic plan that includes risk assessment

This needs to be in place when starting the business. What equipment and assets will you require to achieve the objectives towards your dream? Resources will be required – financial resources, human capital and certain assets depending on the kind of business you are in. When you set up your business, there are certain risks involved with all these aspects, because you will have contractual relationships with the stakeholders – be it employees, the people you are supplying or your suppliers. Map them and find out what legal obligations you have to them, to make sure you fulfill them and avoid financial loss.

2. Insure your business

Certain events can happen suddenly and may put you out of business forever. If the assets you have bought for the business got damaged in any way, you would suffer financial loss, which may affect your progression in business. However, if you incur loss, you can be paid for your machines, your capital and the income you have lost. To prevent this, get an insurance broker to assist you in understanding the ways in which you can protect your business. Let them understand your strategic plan so as to know what types of policies you require according to your business and according to the law. Every time you take loans to fund your business, insure the loan.

3. Keep accurate records and back them up

Keep good records, for example in terms of stock, asset management, staff files with references in them, photographs and identity card numbers. Do proper stock management and properly maintain your books of account. If you needed to make a claim after a fire or theft, and records are there, the claim can be settled very quickly. Keep your records properly, outside the business. In this era of technology, it is easy to back them up elsewhere. You will be able to continue your business even when the physical business goes up in flames, since you already have a relationship with the suppliers and the customers are there. When they call you for orders, you just get the orders directly and deliver. Your return to work is fast tracked. With good records, you will also know for sure if your staff are stealing from you.

4. Keep your ears to the ground and read a lot

The risks that are going to affect you are not only within your company, and not only within your industry. There are other external factors that may affect you. For example, if there are political changes or issues, how will they impact on your business? If there are regulatory and legal changes, whether in your industry or in the country setup, or global, how will they affect you? For example, the issues between the US and China may seem too far off, but they are our trading partners. Some of the tariffs that will be placed will affect us. If the interest rates go up in the US, the dollar will be affected and it may affect your business. Geopolitics is important to your business. Who is aligned to who? Would your business be touched in any way by politics? You might find that you need to take something like terrorism cover because of the people associated with the location you are in.

5. Protect your data

Because of technological innovation, we are highly connected. Does your business rely a lot on technology? Your data can be corrupted and affect your business. Ensure that you have employed enough security measures to prevent cyber theft.

6. Recruitment

Get two to three references for anyone you are employing. Do background checks, which ensure that the person was not a crook wherever they were and you know their background, so that they do not destroy your business, affect its continuity or affect your branding. You also do not want people who will over promise and under deliver, because it will reflect badly on your business.

7. Read the fine print

If you decide to take insurance, there are things written in small print, such as the warranty and scope of cover. For instance, you can decide to get a fire policy or no risk cover but find that it does not cover you because your kind of business uses hazardous goods or flammable items. The normal standard fire policies will exclude certain things, yet you may be in a business where those exclusions are. Sit down with an expert who will tell you what exclusions there are and what to do about it in order to be insured properly and at a fair cost. You need to know how the warranties affect your business. If your business involves a lot of money, how do you transfer your money from the premises to the bank? If you are not careful, you might find a transit warranty put in your policy which states that you cannot carry more than Sh200,000 without an es**rt or security company, yet nowadays people keep such amounts of money in their pockets and move around.

8. Have a proper business structure

Even if it is a small business, your dream will be executed by other people. Be clear on who does what in your business. As your business grows, the structure also grows and that means there may be some operational risks. Supervision will be required for people in your business. Have audit systems within your business and do regular audits. Have good supervision, make sure your employees are well-trained in what they are doing, understand their roles properly, and they are employed according to their strengths. Find out what would happen if certain people got sick or were absent for whatever reason. What would be the impact on your business? You can get compensation from insurance for that to enable you recruit other people.

9. Have good risk-mitigation systems

Operate as if you are not insured, because the main aim is to progress in a certain direction of value-creation to the customers and to the people you have employed. Whatever you can do without using money or additional expenditure, do it. This is such as ensuring your structures are well-done, the feedback system is good and customers are satisfied. This is because when your brand name is affected, your business is affected. Business continuity will be affected, because even if insurance pays you for loss, your customers already left and went to the competition.

Via The Standard

16/01/2019

Why Kenyans should embrace paying taxes

The wide gap between the actual tax-paying population and the total population has been a worrying trend in most countries over the years. Studies across board indicate that in most countries, especially in Africa, only a small portion of a given country’s population pays taxes.

In 2017, for instance, BusinessTech reported that only 13 percent of the then 56 million population paid income taxes in South Africa.

The BusinessTech, which was making reference to a study conducted by Jayson Coomer, further reported that though the remaining 87 percent was contributing through Value Added Tax (VAT), that portion of the population was not contributing anything more. This trend has not been any different in the Kenyan scenario.

Data released by the Kenya Revenue Authority (KRA) last year indicated that the number of taxpayers who filed the annual income tax returns for the 2017 year of income stood at 3.2 million. Working with a population size of 46 million Kenyans, the number of those who filed tax returns represents a partly 6.9 percent of the population. This trend can only point to one thing; the country’s economy is being driven by a very small portion of the country’s total population.

The recently introduced presumptive tax for small scale and medium-sized enterprises, for instance, is without a doubt an apt platform to give Kenyans outside the tax bracket an opportunity to contribute to the national kitty.

The tax, charged at a moderate rate of 15 percent of the business permit or trade license fees, is a significant strategy to expand the country’s tax base. Despite its implementation on January 1, 2019 eliciting mixed reactions, presumptive tax is one of the easiest tax heads to comply with ever introduced in Kenya.

The target market should fully embrace the tax and take it as opportunity to play the civic duty of tax payment. From an economic perspective, Kenya has a substantial potential to sustain herself as well as emancipate herself from the burden of debts.

The government should keep up the spirit of exploring more tax-base expansion strategies without necessarily imposing additional taxes to the already taxed sectors of the economy.

That way, a substantial size of the population will have an opportunity to contribute to the national kitty.

News analysis and comment from the Business Daily, Africa’s leading business publication

19/12/2018

28/08/2018

Every business requires strategic plan to succeed

When forming a business, it is important to also draw up a strategy that includes the vision, mission and values.
Some businesses overlook this very important step. A strategic plan provides your business direction and it is important for all stakeholders such as employees, suppliers and clients because it outlines your goals.
When drawing up a strategic plan have a clear sense of the business goals and objectives. Experts advise businesses to have realistic goals and go beyond “making profits”.
Setting out goals in writing helps all stakeholders adhere to them. A strategic plan gives your business a sort of identity and keeps the staff motivated.
The mission sets out why you exist — the purpose of the business. A purpose-driven business is more likely to succeed than one without a strategic plan.
Values are the third part of the strategic plan and in it, the founder states the type of values one wants the business to adopt. While the values are mostly standard, there is nothing wrong with having unique values as these shape the identity of your business and office culture.
Businesses with strong values perform well. Some values include providing quality services, being customer conscious and going green. If the business adheres to these values then they will reflect in the performance.
Other things that go into strategic planning are the SWOT test (analysis of strengths, weaknesses, opportunities and threats) and also a competition analysis where the business owner carries out a study on rivals with a view to establishing an edge over them.
A competitive advantage is a core strength that a business has over its rivals.
Once that is identified, then a business will be able to remain relevant.
Strategic planning is the main duty of the founder and the board of directors whose role is to steer the business growth and development.
The staff and in some cases, stakeholders have a role in the development of a strategic plan as they have to own it for it to be successful.
A strategic plan must be well understood and communicated to all staff for it to succeed. It is important to have constant monitoring of its progress.
A good plan should have timelines and goals to be achieved within a specified period. It is, therefore, important to have a monitoring and evaluation tool for the performance of the strategic plan.
Some businesses have a strategic department whose main mandate is to oversee the performance of the plan.
Strategic plans fail due to a number of reasons.
A lack of clarity and ambiguity can cause a strategic plan to fail. Poor communication of the plan to key persons involved can cause it to fail.
Setting unrealistic goals causes many startups to fail and is a source of demotivation when those goals are not achieved.
A lack of proper resource allocation may also be a cause of failure. For example, where the goals are good but the budgetary or staff allocation is not sufficient.
It may be important to hire an expert to help in drafting the strategic plan.
It may not be enforceable as a legal document, but aspects of them can be domesticated into other policies and documents. For example, an employment contract. Strategic goals can be a term of the contract and staff failing to observe them would be in breach of contract.

Via Business Daily

13/08/2018

Value of loving customers more than their money

Psychology is a discipline that deals with human mind and behaviour. Since the business of buying and selling has a lot to do with human mind and behaviour, savvy entrepreneurs borrow heavily from psychology in advancing entrepreneurial ventures.

One of the most commonly used principles of psychology either by design or default is the law of reciprocity. If you have ever felt a strong persuasion to help someone who has helped you before, sometimes going out of your way or even at the expense of others who deserve your help better, then you have been influenced by this law.

Basically, the law of reciprocity says that when someone does something nice for you, you will have a deep-rooted psychological urge to do the same.

As a matter of fact, you feel obliged to do to the person better than they did to you. Thus from an entrepreneurial point of view, doing good to others is a form of investment where you get more than you input.

There are two types of reciprocation: material/ financial and emotional reciprocation.

Most people focus on the former and ignore the latter which is even more powerful and easy to execute in business.

Material or financial reciprocation is when you do something physical such as helping a person in need, giving a person a gift, a sample of your product, free lunch or money.

Emotional reciprocation is where you make people feel good through exceptional service, showing value and appreciation or simply making the other person feel important and genuinely loved.

The law of reciprocation is so powerful that if used well, can turn round even an ailing business. It is a powerful unique selling proposition on its own right.

Develop a strategy of treating your customers and prospect well. Value your customers more than their money and they will release their purse to you.

Take time to stay in touch always, not only when interested in their order or cheque. Drop them an email or Whatsapp message, call to find out how they are doing, contribute or attend their functions and they will feel oblidged to reciprocate.

Remember the law of reciprocity is deeply rooted in the psychological need to be even with others.

If you mistreat others they will do the same to you and get alternatives.

Via The Founder Magazine

19/07/2018

How small businesses can tap knowledge for growth

As small businesses endeavour to distinguish themselves from their competitors, it proves imperative that they both identify ways of capturing knowledge that is distinctive to the firm and also explores ways of being innovative in how they capture and deliver value to their clients.
Entrepreneurs must ascertain how to best develop learning organisations. There exist a number of ways in which entrepreneurs can capture organisational knowledge
In this day and age, entrepreneurs need more than just technical know-how in building up a wealth of knowledge that is unique to them.
Firms that have been in existence for long usually have uncovered the art of developing the capacity to learn and utilise knowledge as a matter of survival.
An organisation’s knowledge architecture comprises shared understanding, internal systems, quality control measures, operating procedures and routines.
Employee skills, competencies and capabilities should be harnessed such that even by the time they leave an organisation their unique contributions will still be useful. It becomes knowledge that is specific and applicable to that organisation.
Through the practice of cross-functional cooperation and sharing of knowledge, crucial firm-specific information can be built up to advance organisational objectives.
Improving the use and re-usability of tacit and explicit knowledge is key to the creation and retention of knowledge unique to a firm. Companies should take copious notes, document learning, create a database and make it accessible across the organisation. According to researcher Chris Argyris, in order to avoid the risk of losing the benefits of experience, a firm must engage in double loop learning as opposed to single loop learning. Single loop learning involves the adoption of a whole new set of structures to improve productivity and quality.
Double loop learning, however, occurs when those set of structures are continually altered, questioned and updated in line with experience gained and the ever-evolving business environment. This will also foster bottom-up inquiry, not just top-down orders.
An often overlooked point, proper knowledge management involves identifying informative patterns in the data a firm holds and converting that data into useful insights critical for decision making.
Knowledge must be viewed as an asset rather than a burden. Data turns into knowledge as something to be exploited and utilised to generate value.
When an organisation is able to harness knowledge that is imperfectly imitable, non-substitutable, rare and valuable, then it proves possible to
After-action reviews, learning reviews and frequent brainstorming sessions are some of the ways in which an entrepreneur might want to capture new knowledge from the team. Another way is by forming communities of practice which could enhance cohesiveness and team spirit among employees.
One could also ask “what areas of knowledge if well harnessed now, would really propel us forward in the next five years and enable us to achieve our goals?“.
Capturing key data about existing clients and potential ones represents often the most important. This brings in the angle of incorporating customer profiling in the business so as to better understand its clientele.
In summary, the organisational knowledge base plays a critical role in its ability to be innovative and also survive in the long run. It is therefore imperative that firms learn how to generate new knowledge, capture existing knowledge and use it to uniquely position themselves from their competitors.

10/07/2018

Six ways to minimise your tax burden Legally

Ogden Nashhe late American poet said in his One From One Leaves Two poem: “The more you pay, the more they need. The more you earn, the less you keep. And now I lay me down to sleep. I pray the Lord my soul to take, if the tax collector hasn’t got it before I wake.”

However, there are legal methods of minimising your taxable income and eventually your tax liability without getting into the bad books of the taxman (Kenya Revenue Authority). Call it tax planning or simply making use of all beneficial provisions in the law to your benefit. Here’s how.

1. Contributions to a registered Home Ownership Savings Plan (HOSP)

The government wants you to have your own shelter. And so it has a way of encouraging the many taxpayers who still shelter under somebody else’s roof - including that of the landlord - can do so.

Committing part of your salary to save in a registered HOSP is advantageous, you will eventually have your own roof and you will have reduced your tax burden. The Income Tax Act provides that contributions up to Sh48,000 a year be exempted from tax.

In addition, interest earned on deposits of up to Sh3 million in such a scheme are tax free. In short, for someone saving Sh4,000 in HOSP, it will take you at least 63 years to accumulate an amount of money that KRA will be interested in taxing.

2. Take mortgage for your residential premises as opposed to ordinary loan

If you have a dream of purchasing a home or improving the premises you occupy for residential purposes, you are eligible to enjoy mortgage interest deduction.

Interest incurred on personal mortgages is deductible from gross income before arriving at taxable income, subject to a maximum of Sh150,000 per year.

So if you are incurring at least Sh12,500 per month as interest repayment for an ordinary loan you took to construct a residential house, your workmate who took a mortgage for the same project is paying a lower tax than you.

3. Take that insurance cover

A life insurance plan is a financial product where the insured makes regular payments (called premiums) to the insurer to offer financial protection and compensation in the event of death, permanent or total disability or critical illness.

Individuals are entitled to a tax relief of up to Sh5,000 per month for premiums paid on life insurance policies, education (with a maturity of at least 10 years) or health policies taken out for oneself or for one’s spouse or child. This combined relief is subject to a maximum of Sh60,000 per year.

In addition, all future pay-outs on the policy and any bonuses are not liable to any form of capital gains tax. So if you are saving Sh60,000 in your ordinary bank account for education or health, you are better off taking an insurance cover.

4. Invest in retirement benefit schemes, old age is real

Beyond the mandatory contribution to National Social Security Fund (NSSF), save monthly with a registered pension scheme. These contributions will achieve the twin aims of saving for retirement as well as reducing taxes paid. The law provides that savings to such schemes of up to Sh240,000 per year (Sh20,000 per month) are tax allowable, meaning that they attract zero per cent Pay As You Earn.

This means that a person who saves Sh240,000 in a bank account is worse off than the one saving the equal amount in pension schemes.

Let KRA tax what is left after you save instead of you saving what is left after taxes. That’s the difference between saving in pension schemes and saving in your ordinary bank.

To sweeten it up, private pensions offer competitive returns of four to seven per cent per year on your savings. Robert Allen, the author of Multiple Streams of Income poses: How many millionaires do you know who have become wealthy by investing in savings accounts? I rest my case.

5. Register your ‘hustle’ as a business entity

That side hustle of selling kukus or delivering clothes and watches to your friends at work is generating income. But you are also incurring expenses, say bus fare to order and deliver the goods.

If you are not declaring this income and paying taxes, KRA is after you. And if you are paying taxes, you probably end up paying higher than you should.

Get smart. All expenses legitimately incurred in the production of this income are tax deductible but it is hard to distinguish personal and business expenses if you have not registered it as corporate entity. Register the business and you will be well placed to reduce taxable income by charging gross income from your hustle with those expenses you are incurring but probably fail to deduct since there is no boundary between you and your business.

So next time you take a taxi to deliver 10 kukus and tomatoes to your colleague’s birthday bash, charge the bill on your business, not yourself. If the ride is Sh300 and you don’t record it, you have inflated your taxes.

6. If disabled, apply for disability certificate

KRA gives Sh12,500 per month income tax exemptions to persons with physical disabilities. But one must get a tax exemption certificate, usually valid for five years subject to renewal.

First, you get a letter from the National Council for Persons with Disabilities. One has to be examined by a doctor in a government hospital and issued with a letter confirming the disability. So if you are physically disabled and in business or employment yet you have not applied for this certificate, you are paying more taxes than you should.

23/06/2018

Penalties for failing to file tax returns

With the June 30 deadline looming for individual income tax returns, Kenyan businesses can play an invaluable role in educating employees about the importance of filing their returns in time to comply with tax regulations and avoid penalties.

That’s according to Nikki Summers, Regional Director for Sage in East Africa. She says individuals who have a personal identification number (PIN) registered with the Kenya Revenue Authority (KRA) must submit a tax return, even if their employer withholds income tax on their behalf or even if their revenue for the year is nil.

The reason for this is that taxpayers may need to report income they have earned on top of their salaries from their formal employment, as well as various taxable deductions to the KRA.

“This also enables KRA to reconcile individual tax returns with employer submissions,” adds Summers. Summers notes that many people wait until the last minute to file their tax returns. Though the introduction of the iTax online filing system has made it easier than ever to send in your returns, it is wise to gather your supporting documents and file long before the deadline, she adds.

Filing on time enables you to avoid stringent fines and penalties from the KRA.

The penalty to employees for failing to file a tax return is between 5 per cent of the tax due or Sh20,000, while the penalty to employers for late submission of Pay As You Earn (PAYE) returns is the higher between 25per cent of the tax due or Sh10,000.

“Much the same as other tax authorities in East Africa, the KRA is clamping down on non-compliance among business and individual taxpayers,” says Summers.

“Employers should help to drive awareness of the risks of non-compliance in the workforce, and of course, deliver the P9-A forms required to file in a timely manner.”

Kenyan businesses should ensure that they declare the correct earnings for all employees and that they include the right taxes and statutory deductions in payroll calculations.

“Though some businesses still use manual methods like spreadsheets to do their calculations and file returns, automated solutions can take the pain out of keeping reliable records and performing accurate payroll calculations,” says Summers.

“Automated solutions can automatically calculate the deduction and generate compliance reports. That makes it easier to perform accurate calculations, file submissions on time and generate reports and electronic payslips.”

Automation also makes it simpler to keep track of changes to tax regulations that impact on payroll tax calculations and various changes in legislation.

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14/06/2018

The good, bad and ugly in changing tax landscape

With a firm and final nudge from its development partners, the government finally released for stakeholder comment the first public draft of the income tax bill. The oft-promised draft income tax bill is more overdue than timely since it is seeking to overhaul a four-decade old income tax.

When the final version of the income tax bill is enacted as an act, after the completion of the required legislative processes, it will mark the culmination of a deliberate effort to both supplant and introduce new tax laws. The quest for the modernisation and simplification of our archaic tax laws has been a critical part of the tax reform agenda that the government has been pushing. This has seen the recent overhaul of the Value Added Tax Act, the hiving of the Excise Duty Act from the now redundant Customs and Excise Act, which in turn had been replaced by the East African Community Customs Management Act.

The Tax Procedures Act and the Tax Appeals Tribunal Act have also been introduced to ease the administration of taxes and streamline the tax dispute resolution process. The mandatory requirement for stakeholder participation in the run up to the introduction of the new acts and the overhaul of the existing acts was met through a modicum of stakeholder involvement organized in various fora.

Against this backdrop there have been concerted efforts by the Kenya Revenue Authority (KRA) to increase taxpayer education on key tax matters at a general level and from a sectorial standpoint. KRA has also sought to automate its internal processes and taxpayer interfaces so as to smoothen the overall tax compliance processes and user experience.

A key feature of this automation has been the phased launch of the interactive iTax system that covers the key tax heads that has gradually taken root.

It is obvious that, with the ongoing refinement of the various acts, some key features of the tax legislative arena are now more clearly defined and there is less ambiguity, more certainty and greater uniformity and consistency in the tax laws. To the extent that some of the changes reflect best practice or are in line with general trends in taxation this is welcome. It is also clear that some of the recent developments highlighted above are having an impact, both positive and negative, on the aesthetic appeal of the changing tax landscape.

In recent years, Kenya has experienced a lot of self-inflicted budgetary pressures arising from expansionary expenditure demands that cannot be funded fully by the attendant tax revenues. This has seen an ever increasing budget deficit year on year. It is therefore not surprising that the tax legislative changes both for the enacted acts and the published and draft tax bills are all geared towards increasing tax inflows for the government.

The current VAT Act enacted in 2013 significantly reduced the number and extent of VAT exemptions. The Excise Duty Act has been used regularly to increase the quantum of the duties payable on excisable goods and services. The Betting and Gaming Act has seen astronomical increases in the magnitude of the taxes due from that industry. Finally, the draft income tax bill seeks to significantly increase the marginal rates of tax for ‘highly’ paid employees and to ramp up the taxes for high turnover businesses. The Tax Laws (Amendment) 2018 Bill seeks to further reduce the number of products and services that are currently zero rated — all in a push to increase revenue collections.

However, it is not clear to a discerning observer the direction of travel from a tax policy point of view. Given that tax policy is an integral component of fiscal policy, there is also a lack of clarity on the direction of fiscal policy. A clear tax policy should be spelt out and answer questions such as, Is there an intention to shift taxation to consumption from income or not? If yes, then the proposed changes to the income tax act notching up tax rates does not seem to bear this out. If not, why? Income tax, which is tax on earnings for both corporates and individuals, has always been the major contributor to government revenues in part because the taxpayer can be held captive once snared in the tax net. Income tax is easy to track down and collect, particularly as compared to VAT.

However, with increasing digitization of economies it might be more efficient to collect transactional data from a VAT perspective and reconcile this with electronic VAT returns and then process the data to confirm the completeness of VAT filings for several taxpayers at a go. With proper digital tools the impact on corporate filings can also be ascertained. Where is Kenya on the journey towards digital taxation? The income tax bill makes a passing reference to the introduction of regulations to deal with the taxation of the digital economy. However, the actual draft regulations did not accompany the bill. Hopefully, when the rehashed bill is released again, it will have the regulations in tow.

How successful have the KRA’s efforts been to recruit new taxpayers, whether manually or digitally? As already stated, there are innovative ways that KRA can use to recruit new taxpayers using technology and digital tools that are readily available.

Many registered taxpayers would swear that the quest for incremental tax revenues seems to be focused only on existing taxpayers. Their view would be that the tax base is merely being deepened as opposed to being broadened. It would therefore be a case of double jeopardy for a good number of taxpayers if the draft income tax bill in its current form passes, since they would end up paying even higher amounts of income tax.

The general thrust of the recent changes to revenue generating tax laws has been to extract more taxes from taxpayers. The draft income tax bill, for instance, proposes to introduce a two-tier corporate tax rate of 30 and 35 per cent.