I am going to write a series on small businesses; the How, the When and the What on topics like tax and registering for tax; partnerships; CC’s; buying and selling agreements and key man cover. I hope to simplify the information and offer you some tips and helpful insights.
Today’s topic is Tax; a 3-letter word that often scares people. Nobody wants to pay SARS too much or too little – afraid they might get that dreaded phone call asking for arrear payments or being the one paying in their profits to SARS.
The Government is in favour of small businesses and are looking for ways to ease up administration and streamline processes. SARS wants you to pay what is owing, not too much or too little but the right amount. As a business they allow all costs incurred in the production of income as a tax deduction, so gross income less all expenses and depreciation = net income from which tax is calculated and paid.
If you have a business of any kind, regardless of the income you receive, I recommend you register with SARS either as a provisional tax payer or for turnover tax. If you are not formally employed or receive an income from multiple sources, you have to register as a tax payer.
Income from more than one source include rental income; interest; dividends and payments from different clients for goods and services rendered. If you are formally employed with a company who are paying your PAYE on your behalf yet also run your own business, you have to register as a provisional tax payer as you have more than one income stream.
You can either go to the SARS offices or register online www.sars.gov.za. SARS has an online “small business kit” where they assist small businesses in all things related to tax and registration. Completing your online annual assessment can be a minefield. If you are not familiar with the process I recommend you use the services of a register tax practitioner. A tax practitioner is a person registered with SARS to assist individuals and businesses with their tax queries, online assessments and anything related to tax. They usually charge a fee for this service, which is worth the advice one gets.
If your business has a turnover of less than R1 000 000 per annum, you can register for turnover tax. You are taxed on the turnover you had, for example R0 – R150 000 = 0% tax payable and R300 001 – R500 000 = R1500 + 2% of taxable turnover above R300 000. The amounts are much lower and like provisional tax payers, two payments are payable. Unlike provisional tax payers, tax is calculated on the turnover whereas with a provisional tax payer, the tax is calculated on the net income.
If you are making regular consistent profits you can start investing in fixed savings vehicles, such as unit trusts and retirement annuities.
If your business has a turnover of less than R1 000 000 per annum, you can register for turnover tax. You are taxed on the turnover you had, for example R0 – R150 000 = 0% tax payable and R300 001 – R500 000 = R1500 + 2% of taxable turnover above R300 000. The amounts are much lower and like provisional tax payers, two payments are payable. Unlike provisional tax payers, tax is calculated on the turnover whereas with a provisional tax payer, the tax is calculated on the net income.
If you are making regular consistent profits you can start investing in fixed savings vehicles, such as unit trusts and retirement annuities.
Why is it important to draw up monthly income and expense statements? To see if you have made a profit or a loss; and to make sure you are charging correctly for your goods and services. Unless you know your expenses you will not know if you have made a profit.
You might want to pay yourself first i.e. to save is crucial to build up a long term asset base; build up assets that will last longer than the day-to-day; build up assets that will last into your future; build up assets for your children; but not sure where to start?
Please drop me an email at sigrid@sigridmadonko.com to take your business to the next level.
Sigrid Madonko
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