Many SMEs face tax-related regulatory burden, and there is little doubt that navigating through all the tax requirements can be a daunting.
Tax in South Africa is levied on income and profit received by a taxpayer, which includes individuals, companies and trusts, and it’s the government’s main source of income.
The three types of taxes that small businesses pay are turnover tax, employee taxes (PAYE, UIF and SDL) and VAT (value-added tax).
We spoke to SARS tax practitioner and chartered accountant, Huib E. Hermus, who gives us an overview of small businesses’ tax obligations, and explains the process and taxation laws.
How do small businesses qualify to pay for taxes in South Africa?
If a small business is trading as a company or close corporation, it must register for at least income tax. If it employs staff it must register for PAYE, UIF and SDL (if total annual payroll exceeds R 500k per annum). If the small business has turnover exceeding R1 million per annum it must also register for VAT.
What is Turnover Tax?
Turnover tax is a simplified system aimed at making it easier for micro businesses to meet their tax obligations. The turnover tax system replaces Income Tax, VAT, Provisional Tax, Capital Gains Tax and Dividends Tax for micro businesses with a qualifying annual turnover of R 1 million or less. A micro business that is registered for turnover tax can, however, elect to remain in the VAT system (from 1 March 2012).
How do small businesses register for turnover tax?
Small businesses or individuals will need to completed a short test to see if they quality for turnover tax, which is available on the SARS website. If they qualify for turnover tax, they will need to complete a TT01 form thereafter. The application should be sent before the beginning of a year of assessment, which runs from 1 March to 28 February.
Should a new micro business start trading during a year of assessment and wishes to register for turnover tax, an application must be sent within two months from the date that the business started. Existing micro businesses can register for, or switch to turnover tax before the start of a new tax year.
How do small businesses account for VAT?
In accordance with the VAT Act, if registered for VAT, small businesses have to issue proper tax invoices and charge their customers VAT at 14%, and pay this over to SARS on a monthly or bi-monthly basis. This payment can be reduced by the input VAT that the small business is being charged by their suppliers.
What kinds of records should small business owners keep for tax purposes?
If you’re a small to medium sized business owner, it’s up to you to maintain records of all documents pertaining to your tax return, such as bank statements, sales invoices, credit notes, suppliers invoices and payroll records. These records should not only be kept during the course of the tax year for filing purposes, but you are also required to keep these records. Hanging on to your records and information will improve your accuracy when submitting your tax returns and also assist with forecasting should you need to issue a payment to SARS.
What are the consequences of not complying?
Interest on unpaid taxes and severe penalties, an Administrative Non-Compliance Penalty (Admin Penalty) is a penalty a taxpayer must pay for non-compliance with various requirements. An admin penalty comprises of fixed amount penalties as well as percentage based penalties. The penalty amount that will be charged depends on a taxpayer’s taxable income and can range from R250 up to R16 000 a month, for each month that the non-compliance continues.
Currently the penalty is only collected for the late or non-submissions of returns. Any taxpayer who doesn’t submit their return will be charged this penalty and has to pay the penalty to SARS.
Top Tip: Regardless of whether you agree or disagree with the admin penalty it is advisable to submit the outstanding return to stop further admin penalties. The penalty will reoccur for every month the return(s) remains outstanding.
Why is the tax process for small businesses still so complicated?
There are far too many regulations and statutory requirements. The registration system for VAT and payroll taxes is very involved and can be lengthy. Small businesses have to acquire the services of an accountant or tax practitioner to assist them in this process, driving up the costs for the small business owner.
Has SARS made it easier for small business owners to register and pay for taxes independently, or are they still reliant on tax practitioners?
It is still far too complicated and involved to register for taxes. E-filing has again made things easier to process and pay taxes, however this system is complicated in certain areas forcing small businesses to make use of tax practitioners, or go to a SARS office for help and waste valuable time that should be spend on their business matters.
What more can be done to provide tax-related relief to SMEs?
The introduction of special tax tables for small businesses has brought a lot of relief to small businesses, which has helped. However a lot more can be done to make registration and the completion of the number of returns on a monthly, bi-monthly and annual basis easier.