Tackling Your Burning Tax Questions

By Innovator Trust on 05 Mar 24

Tackling Your Burning Tax Questions

It's long been known that the dynamism of SMMEs and entrepreneurs drives innovation and adaptability in the South African business environment, contributing to a more competitive and resilient economy. Furthermore, SMMEs and entrepreneurs play a crucial role in South Africa's economic landscape by significantly contributing to job creation, helping to reduce unemployment rates and fostering inclusive economic growth.

Part of SMME sustainability is being tax compliant. In our first Conversation to Innovate webinar for 2024, we hosted Dominique Ramos, MD of Stratfinn, who took us through Small Business Tax Essentials. Through her insightful and practical presentation, we also gathered the answers to some burning frequently asked questions concerning all things tax and SARS-related that will help keep you ahead of your business game throughout the year.

FAQ

What are the tax requirements for Sole Proprietors vs companies?

Sole Proprietors:

  • Trade in their personal capacity and need monthly records of income and expenditure.
  • Sole Proprietors have individual eFiling profiles, are automatically registered for an IT and submit x2 provisional tax returns annually.
  • Sole Proprietors need x1 IT12 (Income Tax) and need to be tax-compliant.

Pty (Ltd) Private Company:

  • Companies are registered with The Companies and Intellectual Property Commission (CIPC) and submit an Annual Return (AR) to CIPC annually, along with their beneficial ownership.
  • Companies must appoint a board of directors while submitting beneficial ownership to CIPC.
  • A business eFiling profile needs to be set up and a Public Office (PO) appointed within one month, with monthly bookkeeping records meticulously kept.
  • Two provisional tax returns are submitted per year with X1 IT14 and Audited Financial Statements (AFS).
  • It needs to be CIPC and South African Revenue Service (SARS) compliant.

Remember, Pay As You Earn (PAYE) and Value Added Tax (VAT) apply to both.


When should tax returns be submitted?

Sole Proprietors, Freelancers and Contractors:
You must submit provisional tax returns twice a year, at the end of August and end of February at year end. (the end of the provisional tax year) and between the end of July and January of the following year to submit the IT12.

Pty (Ltd) Private Company:

  • January/February - VAT201 02 due 31 March (This is how it will flow for every 2 month VAT period throughout the 12 month tax year).
  • March/April - VAT201 04 - due 31 May
  • May/June - VAT201 06 - due 31 July
Payroll taxes for those with employees:
Payroll for the current month will be due on the seventh of the following month. i.e.
  • January Payroll EMP201 01 - due 07 February
  • February Payroll EMP201 02 - due 07 March

The Interim EMP501 - due 31 October

Final EMP501 - due 31 May


Do returns need to be submitted by a tax practitioner?

While most people want to work alongside a tax practitioner, if you know what to do as a business owner, you can submit your own returns.


At which point should sole proprietors, freelancers or contractors move to company registration/capacity?

Once you earn in excess of R 370 500.00 annually, it's recommended that you register a private company.


What are some of the rebates that individual taxpayers can receive?

Depending on your age, every individual will receive a primary, secondary, or tertiary rebate deducted from the tax liability. You will receive a medical aid tax credit and a credit for additional medical expenses not covered by your medical aid. Furthermore, you will also receive the benefit of deducting retirement contributions from your taxable income and donations to certain public benefit organisations.


Are Audited Financial Statements (AFS) required for all companies?

Not at all. Typically, if the turnover is less than R2 million, audited financial statements are not required.


Do SMMEs automatically qualify for the Turnover Tax (TOT) or Small Business Corporation (SBC) rates?

Qualifying for TOT is not automatic. A business owner will have to apply with SARS to qualify.

When it comes to the SBC rates, once tested, when you complete your IT14, you will select that you do qualify for SBC rates, and the filing platform will automatically apply those tax rates.


Are there tax incentives or benefits available for qualifying businesses?

Absolutely. Some examples mentioned include the 3% cap for TOT, the sliding scales, and accelerated depreciation for SBC.


If you provide services for a client based in another country, are these services zero-rated?

Yes, they are zero-rated services.


Should VAT or Tax payments be kept in the business account or a separate bank account?

It's recommended to keep the money in a separate account to prevent instances of using the VAT money as cash flow. This helps businesses plan and have the necessary funds available when it is time to pay SARS.


When should you register for PAYE?

The minute you employ someone, and they are on a monthly payroll, you need to register for PAYE. Registration is a simple process on eFiling, and a PAYE number will be generated within minutes.


Are all insurance payments exempt from VAT claims?

Only private insurance payments are exempt, whereas commercial insurance payments are not.


If your business has had no income for a period, do you still need to submit your returns?

Yes, without a doubt. You stipulate that there was no income for whatever period, the nil return needs to be submitted regardless.


Are there penalties for non-compliance?

There are rather heavy penalties for non-compliance, with a significant clampdown since 2023. These include (but are not limited to):

  • Provisional Tax late submission and payment of IPR6 = 10% of tax liability.
  • Income tax non-submission = R250 - R 16 500 (Admin penalty).
  • VAT late submission and payment of IRP6 = 10% of tax liability (Admin penalty may apply).
  • PAYE late submission and payment of IRP6 = 10% of tax liability (Admin penalty may apply).

 

Grasp the pulse of tax compliance to fuel the success of your venture. From Sole Proprietors to Private Companies, understanding the intricacies and seizing tax benefits is paramount. Make compliance a strategic asset, not just a regulatory necessity. With thanks to Dominique Ramos of Stratfinn, you can navigate the tax landscape wisely, submit returns promptly, and allow innovation to propel your business toward resilience and growth.

Be part of this vital Conversation to Innovate and visit our Innovator Trust YouTube account to watch the entire webinar and more. Stay informed, stay compliant, and let your entrepreneurial spirit thrive.

Missed the webinar or want to watch it again, click here.





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