Starting a new business can be an exciting adventure but navigating the complex world of taxes in South Africa can be overwhelming for new business owners. As a business owner, it's important to have a solid understanding of the tax laws and regulations that apply to your business in order to avoid costly mistakes and ensure compliance. In this article, we'll explore 10 key things every new business owner should know about tax in South Africa, from registering for taxes to understanding tax deductions and credits.
1.Register for the necessary taxes
All businesses operating in South Africa must register for tax with the South African Revenue Service (SARS) within 21 days of starting operations. This includes obtaining an Income tax number, registering for Value-Added Tax (VAT) if the annual turnover exceeds R1 million (or voluntary above an annual turnover of R 50,000) and PAYE / UIF if the company employ any staff. When registering a company with CIPC (the registrar of companies), the company will automatically be issued with an income tax number.
Most late submissions and payments on tax to SARS, levies a 10% penalty on late payments (even if this is ONLY ONE DAY). It’s very important to keep all taxes compliant timeously.
To keep taxes compliant, you need to activate the company with its various tax numbers on SARS eFiling. In order to activate the tax numbers on eFiling, the company need to first appoint the public officer (the representative with SARS). This is a process we assist small business owners daily.
2.Keep the TAX COMPLIANCE STATUS PIN (TCS pin) valid
The former name for this was a tax clearance certificate. The TCS pin is a document issued by SARS that confirms that a business has no outstanding tax obligations. It is required when applying for tenders or contracts. Clients can use the TCS PIN to verify that your TAX STATUS is COMPLIANT.
Even though the TCS Pin is valid for 12 months, it is still of utmost importance to keep all the returns and payments of all taxes of the business compliant, in order for the TCS Pin to remain valid.
This is not a once-a-year process. It is a continuous process that requires a reliable accountant that will always keep the company compliant. It also requires you, the business owner, to take absolute personal responsibility to work together with your accountant.
Business owners can claim tax deductions on expenses related to the business, such as rent, salaries, and marketing expenses. However, the expenses must be wholly and exclusively for the purposes of the business.
Every business differs in the approach, structure and potential deductions. Its important to discuss your specific requirements with your accountant, and not your friend around a fire and a beer. We see this type of advice often, which tend to be half facts, and not the correct advice for a specific business.
4.Know your numbers
Our attempt is always to empower clients to make the best of their accounting program. By optimizing your accounting program, you can have the important information available on your fingertips. You can make important financial decisions with live figures of bank balances, accounts receivable, accounts payable and stock on hand. Without those figures, or merely work on a bank balance, you will cripple your budget and planning.
By optimizing the use of a proper and modern cloud-based accounting program, like Sage online accounting, you can decrease your admin by automize a lot of the processes.
These automizes include the following:
5.Employment Tax Incentives
If you start a business, which will require several employees, you need to dial into this point. This might be one of your very first tax hacks to optimize in your business.
One of the very first discussions with a monthly accounting client, is about Employment Tax Incentives (ETI).
ETI is a fantastic tax hack for most small business owners if they employ people under the following requirements:
6.Small Business Corporation (SBC)
This is not a separate company of tax registration, but a specific requirement for a company that can be confirmed on the income tax return for each financial year.
You can save up to about up to roughly R 95,000 per annum on corporate income tax by optimizing this requirement.
The important requirements to note, is the following:
This is a very important idea to brainstorm with your accountant.
7.Solar Tax Incentives
In the current environment, it is important to note that your business can largely benefit from investing in a solar system. Through Section 12B, business owners may deduct an allowance of 125% of the initial costs of a solar renewal system in the year that the cost has incurred.
This effective means your save 27% corporate income tax on 125% of your investment in a solar system. Makes more sense to do, than not.
8.PAYE and UIF
It's very important to note. When you register for PAYE and UIF with SARS, this does not mean your company has been registered for UIF. The UIF number with SARS is merely a Trust account where you submit your returns and make payments. This DOES NOT mean you have registered for UIF or that any of your employees will be able to claim any UIF benefits in the future.
You MUST register for UIF with the Department of Labour. This is something even accountants miss understand.
Once you have been registered for VAT, you need to submit and pay the VAT every 2 months. This is something a lot of business owners struggle with. VAT is a calculation between your income (invoices raised to clients) and your vatable expenses (invoices received from suppliers). For this reason, most businesses will pay an amount to SARS every month.
The goal is to properly manage this money to be able to pay the VAT at the end of the two months.
Here is the plan suggested by us, that has been working for a lot of small business owners.
Open a call account, linked to the business bank account, to start managing the VAT on income received. On a weekly basis pay over the 15% received on payments from clients to this newly created call account. Our clients that follow this method, found that they have massive surplus in their call account within ONLY ONE YEAR. One of my clients paid off his whole bond within a few years, making use of this method.
This is mainly because you still have expenses that you may recover VAT on, but you transferred the full 15% from the payments of clients into the call account.
Now, you may only want to make sure you have enough in the call account to ensure you can make the VAT payment every two months. You can calculate your net VAT percentage after vatable expenses has been deducted, and merely deduct that calculated percentage from the income received weekly.
I would suggest arranging a meeting with your accountant to assist you with this calculation if needed.
10.The braaivleis and brandy conversations
Every business, together with its founder, is different. It’s rare that you find that every single piece of advice will be the same for the next business owner. Yes, you do find some vanilla pieces of advice, but for the most part your business and you are unique.
Whenever I get those Monday calls stating the advice they receive over the weekend, I generally joke and ask if there was brandy or beer in the hand of the so-called expert. I call it the blaaivleis and brandy conversations. Every person tends to be cleverer than the next 😊
In all seriousness, please consult a professional to assist you with your unique needs, that also fits your personal lifestyle. Its important for a professional to understand YOUR business, with the appropriate advice for YOU.
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We have been in public practice, serving small business owners, going into our 3rd decade.
Navigating the world of taxes in South Africa can be challenging, but with the right knowledge and resources, new business owners can avoid costly mistakes and ensure compliance with the tax laws and regulations. By understanding the basics of tax registration, keeping accurate records, and taking advantage of tax deductions and credits, new business owners can set themselves up for success and minimize their tax burden. It's important to consult with a qualified tax professional for personalized advice and guidance on managing taxes for your specific business needs. With these 10 things in mind, new business owners can confidently navigate the complex world of taxes in South Africa and focus on growing their business.