Tax for small businesses in South Africa
For many entrepreneurs, tax is not at the top of the to do list. Deadlines may seem like a long way off, and there are plenty of other things that demand attention – like growing the business, talking to customers, or developing new products.
Yet paying tax accurately and on time remains a vital part of every healthy business – both large and small.
In South Africa, the type of tax a company is registered for will determine its tax filing requirements.
For example, companies registered for small business tax, turnover tax, provisional tax, or VAT all have different filing requirements. The requirements differ both in terms of frequency (how often returns are required and tax is paid) and type (what tax is paid for).
Making sure you’re prepared for tax time
To make sure you’re fully prepared for tax time, here are some helpful hints.
Note down your tax deadlines
The type of tax your company is registered for – as well as your company’s financial year end – will determine when your company needs to submit tax returns and pay taxes due.
If you’re unsure, head over to the SARS website to read up more. Alternatively, get in touch with an accountant, who can help guide you.
As a guideline, companies that pay small business tax need to submit one tax return annually, in addition to two provisional returns, which are used to estimate tax for the year ahead.
Companies registered for Turnover tax have simplified requirements and only need to submit one return annually.
Companies registered for VAT, PAYE and other tax types will have their own specific requirements.
Make sure your books are in order, right from the beginning
Without correct up-to-date books, you can’t file your taxes.
As a first step, make sure that you keep all receipts/financial records related to business transactions when you make a purchase or a sale. This will avoid any mad scramble to find records at the last minute.
As a next step, record all of your business transactions as you go, categorising each transaction as accurately and consistently as you can.
You can do this manually. However, tools like Quickbooks make recording all your financial transactions right throughout the year quick and easy. Better yet, with Quickbooks, your books are automatically created for you, with no need to hire an accountant (although you may still choose to).
Make sure your books are balanced
If you use a manual double-entry accounting system, take time to check that your books are balanced. In other words, that the sum of all the credits is equal to the sum of all debits.
If you’re using a program like Quickbooks, you can skip this step, as the program will do it automatically for you.
Reconcile your bank accounts
When you reconcile your bank accounts, you basically make sure that your bank records match up with your own internal financial records.
Any issues – such as missed payments or double payments – will become clear very soon. And you’ll have an accurate picture of your actual financials.
Keep separate personal and business expenses
If you’re new to the entrepreneurship world, make a point to keep your personal and business expenses separate throughout the year. Not doing so can lead to a big headache come tax time.
Understand Sales Tax, or VAT
In South Africa, sales tax is called VAT – “value-added tax”. It is only mandatory to register for VAT once your business revenue exceeds R1 million per year. However, some companies may choose to voluntarily register for VAT before reaching that milestone.
VAT entails additional tax reporting requirements, so you may wish to seek the advice of an accountant to help guide you when it comes to filing.
For companies registered under the Turnover Tax system, VAT reporting requirements may differ slightly. So make sure you’re certain about the specifics of what applies to your business.
Claim all your deductions
As a small business owner, you are entitled to a number of tax deductions – items that can help you reduce your tax bill, and keep as much of your money inside your business (and your pocket) as possible.
Make sure you consider all the deductions that you’re likely to be eligible for. And know that if you work from home, you’ll be eligible for even more.
Here are some of the top deductibles you should consider, come tax time:
Many small businesses use a car, truck or van in the line of business, and you’re entitled to deduct the cost of petrol and car maintenance paid out in the line of business. If you use the same vehicle for both personal and business purposes, know that you can only claim the business-related portion. If in doubt, chat to your accountant about how to calculate this.
Salaries and wages
Payments to employees are deductible against tax.
Many small businesses use freelancers or independent contractors over the course of the year. All of their costs – whether for marketing, sales or anything else – are deductible against tax.
This is an allowance for the reduction in certain business assets’ value over time, such as computers and cars.
Rent on business property
You are entitled to fully deduct the cost of renting space – an office, boutique, storefront, factory, or other type of facility – against tax.
Utilities, taxes and repairs
Electricity, water and property taxes are all deductible against tax. So are property repairs. As before, if you use your home as a place of work, you may want to chat to your accountant about dividing up the costs accurately.
Put the right person in charge of your books
If you’ve got a great head for numbers – or run a business with fairly simple finances – you may feel confident preparing your tax return yourself.
If not, hire an accountant to help you out.
If you’ve prepared your books with a tool like Quickbooks, you’re already well positioned, and can share your financial info quickly and easily with your tax professional. Having everything ready to go can also help reduce your tax preparation bill.