Small business owners may find themselves at a loss when it comes to tax, especially the when and – most importantly – how much. Here’s a simplified guide.
Stiaan Klue, Chief Executive of the South African Institute of Tax Professionals, agrees that paying tax can be a baffling matter. “Often, business owners aren’t aware of the laws, or they don’t understand them,” he says. “ They may also be unsure of the types of tax they should be pay.” Making the situation more complicated are the varying time scales for different types of tax, with SMEs required to submit returns monthly, bimonthly and annually. Acknowledging these difficulties, SARS established specialist desks to assist SMEs. Klue says these structures help SMEs ensure tax compliance, and because they have specific knowledge and experience in the small business arena, they are able to educate and empower business owners appropriately. Madelein van der Watt, Development Manager at Sage Pastel Payroll & HR, agrees that these desks are a valuable resource for business owners who are unable to afford an in-house tax practitioner, or even a professional who can give regular assistance.
What are the basics an SME owner needs to know about paying tax? For a start, Van der Watt explains that different tax brackets may apply to small businesses. “If your business has a turnover of less than R1 million per annum, you should register for turnover tax with SARS. In this case, the first R335 000 of your annual turnover will be tax exempt, and thereafter you can expect to pay 3% of your annual turnover in tax, instead of having to administer multiple tax obligations like VAT, income tax, provisional tax or capital gains tax,” she explains. On the other hand, if your business is classified as a small business corporation (SBC), clearing a maximum turnover of R14-million per annum, you should expect to pay 28% of taxable earnings. But the first R73 650 of your earnings will be tax free. It’s therefore important that SME owners investigate the types of tax they are required to pay. Unless they qualify for turnover tax, as Van der Watt suggests, they will have to comply with several other tax types, depending on the type of business they own. These tax types range from VAT (because if a business owner’s company delivers goods and services at an annual turnover of at least R1 million, he or she will have to comply with periodic reporting requirements) to PAYE, UIF and SDL. These latter three tax types are paid by people with employees who earn above the annual tax threshold – and this is where things start to get complicated. PAYE must be deducted, reported and paid on a monthly basis, and annual and biannual reconciliations must be submitted to SARS. Meanwhile, UIF and SDL contributions are made at monthly Small business owners may find themselves at a loss when it comes to tax, especially the when and – most importantly – how much. Here’s a simplified guide. By Lisa Witepski Small business tax: what you need to know intervals.
If a company has shareholders that earn dividends, it will also be required to withhold an amount for dividends tax, which will be paid over to SARS. And, if a business operates in the import/export space, it will need to comply with customs and excise regulations. Transfer duties must be paid by companies that acquire or dispose of properties. Finally, a company may also be liable to pay income tax. Although these may seem like an onerous burden for a small business to bear, Van der Watt notes that small businesses are given some relief. “Where companies with large turnovers have to pay a flat rate of 28% of their taxable earnings in income tax, SARS has provided a different tax scale for SMEs,” she explains. Turnover tax is another solution offering SMEs relief. As Van der Watt points out, it enables business owners to pay a low rate calculated on annual turnover, instead of paying many different types of taxes – plus, rates are more favourable in order to accommodate a lower annual turnover.