Looking at SMMEs by size, the outsourcing index is highest for firms with the lowest turnover, and it falls steadily as turnover increases. For all but the largest SMMEs, the largest category is “partial outsourcing” followed by “in house only.” The pattern is even more pronounced gauging firm size by the number of employees. While only 45% of firms with over 100 employees engage in any outsourcing, 67% of firms with three or fewer employees outsource at least some of their tax work, and a majority of them use a mix of outsourcing and in-house resources.

The survey asked about outsourcing of 17 different tax-related activities, from filling out basic tax returns for key taxes to lodging appeals against SARS assessments. As expected, the most routine tasks are most likely to be undertaken in-house, e.g., general bookkeeping and preparing regular tax returns for VAT and payroll taxes, for which twothirds of firms report using in-house resources exclusively. Tasks that are less routine and more complicated are more likely to be outsourced. Reliance on in-house resources drops to 50 – 55% of firms for compilation of annual financial statements, CIT and provisional tax, (as well as filing appeals with SARS).

It is also worth noting that for any individual activity, only a small minority (9 – 13%) of SMMEs report “partial outsourcing” (i.e., a mix of in-house and outsourcing).

A closer examination of SMMEs who “partially outsource” some or all of their tax work (i.e., those who report some outsourcing and some in-house work for their accounting and/or tax compliance tasks) shows that this approach to tax compliance is both quite common in South Africa (46% of all SMMEs, the largest single category) and apparently the most expensive.

If we compare SMMEs who outsource fully (11% of SMMEs) with those who utilize only in-house resources (43% of SMMEs), we see that the largest firms (those over R14 million turnover) find in-house work slightly less expensive than outsourcing. For the smallest firms (those under R300,000 annual turnover, who are less likely to be registered for VAT and probably have smaller/simpler payroll), the cost of in-house vs. outsourcing is almost the same. However, for most SMMEs between R300,000 and R 14 million, full outsourcing appears to be significantly cheaper than full in-house work.

Further, when we compare “full outsourcing” with “partial outsourcing” (among firms who do any outsourcing at all), we see that full outsourcing would be much more costeffective for them. For firms that do any outsourcing, the status quo is (on average) over R19,000 per year. If they fully outsourced all their activities currently done fully inhouse, this figure could be reduced to just over R15,000 per year. Sensitivity analysis on costs of in-house tax compliance work shows the signs of the coefficients are robust.

Thus the survey data suggest that “partial outsourcing” appears to involve a substantial amount of duplicated work. On the basis of interviews with FIAS, several TPs have described many SMME clients who provide them with their bookkeeping and perhaps some initial effort at preparing tax documents. However, before the tax returns (or similar tax-related documents) can be finalized, the TP must, at a minimum, check the quality of 26