Relevant documents and sites:
Other terminology of importance
Income Tax, VAT, Provisional Tax, Capital Gains Tax, Dividends Tax, Corporate Income Tax (CIT), Pay-As-You-Earn (PAYE), Turnover Tax, Employer Reconciliation, Skills Development Levy (SDL) and Unemployment Insurance Fund (UIF).
This article discusses the basic requirements from a tax perspective for Small, Micro and Medium Enterprises (SMMEs) and their tax obligations relating to tax registration, filing, and payment with the South African Revenue Service (SARS).
As your business grows, you need to obtain SARS tax clearance certificates.
Responsibility of a business owner
Business owners are responsible for filing and making payment to SARS accurately and on time. This is regardless of whether you have a Tax Practitioner or someone else handling your tax matters. Whether as a self-employed individual or business, you are required to register your business with SARS, file your tax returns and pay the required taxes on time.
Tax payments can be made using eFiling or direct bank transfer. Payments must be made on time to avoid interest and penalties. SARS no longer accept cheque payments.
Good record keeping helps you explain what is declared on your income tax return in the event that SARS has questions regarding information declared on your return. Keeping supporting documents such as sales slips, invoices, receipts, bank deposit slips and other documentation will help you manage your tax matters better and ensure that you remain tax compliant.
Once you have registered your company with the Company and Intellectual Property Commission (CIPC), formerly called CIPRO, on www.cipc.org.za, SARS will automatically generate a Company Income Tax (CIT) reference number for you. The company representative must then register on SARS eFiling to update information, and transact electronically with SARS. Self Employed/Sole Trader or persons in Partnerships need to register for Personal Income Tax (PIT) directly with SARS via SARS eFiling.
Special taxes applicable to small businesses
There are a number of tax incentives available to qualifying small businesses like the Turnover Tax (TOT), Small Business Corporation Taxes (SBC) and Employment Tax Incentive (ETI).
- Turnover Tax (TOT)
Turnover Tax aims at reducing and simplifying tax compliance and the administrative burden on small businesses with an annual turnover of R1 million or less. The Turnover Tax system is a single tax system and replaces Income Tax, VAT, Provisional Tax, Capital Gains Tax and Dividends Tax. Qualifying businesses will declare and pay one (1) tax (unless with a VAT or PAYE option) and only start paying tax when their annual turnover exceeds R335 000.
A small business that is registered for Turnover Tax can choose to register for VAT as well.
- Small Business Corporation (SBC)
Small businesses with an annual turnover of up to R20 million may qualify to pay Income Tax at a reduced tax rate. If you indicate that you are a small business on your Income Tax Return (ITR14), and meet all the requirements, the reduced rates will be applied automatically. There is no need to apply for the reduced rates because your SBC status will be determined using information on your ITR14.
Types of business and tax responsibilities
Value-Added Tax (VAT)
Compulsory registration: Businesses with estimated or actual turnover of more than one R1 million are required to register and to charge 15% VAT on the taxable supplies of goods and services.
Voluntary registration: You can apply for voluntary registration even if your sales, are less than R1 million. The requirement is that the sale made must already have exceeded the minimum threshold of R50 000, or is likely to exceed R50 000 in a 12 month period. Registration for VAT using SARS eFiling is quick and convenient.
An employer who is registered or required to register with SARS for PAYE will also be required to register and pay over the Skills Development Levy (SDL) and Unemployment Insurance Fund (UIF) contributions to SARS.
Make sure you register with SARS within 21 business days after becoming an employer, deduct PAYE and UIF from your employees’ salaries or wages and pay it over to SARS on a monthly basis. These payments must be made within seven (7) days after the end of the month. Where employees’ salaries are below the set thresholds, currently R83 100 per year, no PAYE is payable.
All companies are automatically registered for Provisional Tax upon registration for Company Income Tax. Individuals that have a small business and earn an income from this business, other than a salary, must register for Provisional Tax. You must complete and submit a Return for Payment of Provisional Tax (IRP6) twice a year and make payment of your estimated income. This return can be filed via SARS eFiling. If however you are registered for Turnover Tax, you do not need to submit an IRP6.
Corporate Income Tax (CIT)
Companies must declare their income annually by submitting a Company Income Tax Return (ITR14) once their registration has been finalised. The declaration must be accurate, stating all income and expenses so that over or under tax assessment is avoided. Companies and close corporations pay an annual flat tax rate of 28%.
Dividends tax is required by SARS if your small business has shareholders that earn dividends. The tax is payable by the beneficial owner of the shares. The owner does nothing as the tax is deducted from the dividend payment and paid over by the withholding agent (in this case the company) to SARS.
When the shareholder/s submit their tax returns, the dividends tax paid during the year on their behalf by the agent/company will be taken into account to calculate their taxes (this is important if the share owner qualifies for a reduced tax or full exemption on their dividend receipt).
Your business needs to pay the tax withheld to SARS within a month of the dividend being paid, using a DTR01/02 return form. SARS may charge interest if your dividends tax payment or submission is late.
Tax Return submission periods per tax type
Of particular importance to small businesses is Section 12E “Deductions in respect of small business corporations” of the income Tax Act. Business owners should read this clause and seek advice from Professional Tax Practitioners.
A typical example is: Section 12E allows for a 100% write off of the cost of plant and machinery brought into use by a small business corporation in certain circumstances.
In the case of non-manufacturing assets acquired by a small business corporation, the personal liability company; entity or corporation may elect to write off the asset in terms of
a. section 11(e), or
b. section 12E(1A) – 50% of the cost of the asset in the year during which the asset was brought into use for the first time, 30% of the cost in the second year and 20% of the cost in the third year (50/30/20).
Author Craig Tonkin