Coping with tax
Every entrepreneur or businessmen will deal with tax in their lifetime. It is part and parcel of our economic system. The implications can be severe if there is no adherence to the laws and regulations of SARS.
Competency in keeping all of your records up to date and accurate is absolutely essential. Especially when it comes to the preparation of the correct tax documents.
What can be deducted?
What can be claimed?
– Equipment and Consumables
– Travel Costs
– Depreciation of assets
Costs within the business that aren’t ‘productive’ cannot be deducted.
In order for the expenses to be tax deductible, it had to occur during the year of assessment and be used to provide an income.
Main types of tax (divided into income tax):
- Employee tax
- Dividend tax
- Value Added Tax (VAT)
Points to ponder for small businesses
VAT: VAT as is set at 14%. As previously stated if the business exceeds R1 million then tax is mandatory. It is advisable to register for VAT if the owner of the business thinks that the R1 million threshold will be exceeded.
Make sure of the annual payment dates for VAT.
Provisional tax: An estimate of company tax is made halfway and near the end of the year, and is then paid. Adjustments will be made at the end of financial year.
The business owner that has a higher anticipated amount has seven months to pay the difference or suffer penalty payments.
Removing the business’ money: An owner cannot withdraw money from the business on a whim.
Ways of removing money from a business
- Tax cannot be paid by the owner when withdrawing money, if the money was personally paid into the account.
- The management of tax payments.
- After all the tax has been paid at year-end and the company has earned a profit. These dividends are taxed.
- As a salary, but that is taxed.
Let the Income Tax Act help you!
Certain sections in the Income Tax Act like section 12E, was specifically created to help and to encourage new start-ups and business ventures. This helps tremendously with job creation as people are encouraged by lower taxes for these qualifying small businesses.
The businessman or entrepreneur have to make absolutely sure of all the necessary requirements when applying for these reduced tax benefits.
Services rendered by a professional (personal service) through a business entity does not count.
An overview of tax and private companies
Tax is charged on income and profit acquired by the taxpayer (individuals, trusts and business entities). What most people see as tax is “typical-” or “normal tax”, that is only a part of our tax system, but the Income Tax Act is also the source of a vast tax system that includes taxes like provisional tax and employees’ tax.
The appraisal for taxpayers covers a period of one year (12 months). The assessment for Closed Corporations and Companies will be the relevant financial year.
Income tax returns can be completed and submitted to SARS. This can be done annually after the taxpayer has been assessed.
The private company must be registered as a taxpayer since it’s treated as a separate legal entity. The company name will end with the following suffix “Pty) Ltd”.
The new Companies Act does not require a private company to be audited. The new Act does not limit the number of shareholders in a private company as well.
The tax rate for a private or public Pty is 28% on taxable income for the tax year. A company can be taxed at a different level (lower), if it qualifies as a SBC (Small Business Corporations).
- The change of shareholders will not hinder the life of the business in any way.
- Ownership is easy to transfer
- Management and its efficiency will be preserved
- Very versatile, for either small, medium or large businesses.