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income tax
Without a strong financial background, handling your business’s income tax can be one of the most complicated processes you must handle for your business. Furthermore, there is an added strain of potential fines for non-compliance, should these taxes not be handled correctly.

As leading tax consultants, the experts at MMS Group have outlined the tax facts every business owner should know:

  1. Sole Proprietor Income Tax

If you are a sole proprietor, all the income and expenses of your business are attached to you. This requires your business and personal tax to be combined when filing returns. SARS requires you to provide your business income within your personal tax return and uses this information to determine your tax bracket.

Tax Tip: Business owners should remember that they are required to submit their provisional tax return payments twice within a financial year.
  1. SARS Company Registration

When you register your company through the CIPC, it is automatically registered with SARS, and your business is allocated a tax registration number. This allows your business to be treated as a separate legal entity and requires taxes to be handled separately from your personal tax returns. Business owners are hence responsible for their personal and business tax returns separately, as one does not eliminate the other.

  1. Turnover Tax for Small Businesses

Meeting various tax obligations can be an overwhelming task for small business owners. Through tax turnover, owners are offered a simplified route that replaces standard tax categories and offers lower rates. Small businesses only qualify for turnover tax if their annual turnover does not exceed R1 million.

This turnover is calculated as a percentage of your business’s turnover, which mitigates the need to record all business expenses. Instead, small business owners are only required to record their income and assets and liabilities over R10 000.

  1. Improved Rates for Small Business Corporations

Companies are required to pay a 28% income tax rate.  As a small business corporation, you can enjoy a reduced rate on taxable income up to R550 000. To qualify, your business needs to meet the following criteria:

  • An annual turnover below R20 million.
  • Shareholders must be natural persons, not trusts or companies.
  • Directors and shareholders should not hold shares in another private company.
  • Your small business must be registered as a legal entity.
  • Turnover from investment income may not exceed 20%.
  • No personal service providers.
  1. Mandatory VAT Registrations

Did you know that your business is only required to register for VAT if its annual turnover exceeds R1 million?  If your business turnover is below this threshold, mandatory VAT registration is avoided, meaning that you do not need to charge VAT on supplies made. 

  1. Registering for PAYE & SDL

Businesses with employees who earn a minimum of R40 000 per year must register their company for Pay As You Earn tax. This tax is deducted monthly from employee salaries and paid to SARS. If your payroll amounts to R500 000 or more per month, your business must also register for the Skills Development Levy.

Tax Tip: Businesses are required to issue their employees with IRP5 certificates at the end of each tax period to summarise their income and deductions.
  1. Registering for UIF

Employers are required to register employees for the Unemployment Insurance Fund if they work for more than 24 hours of the month. They are also required to contribute 2% of their employee’s total salary to this fund monthly. 1% is deducted from the employee’s salary, while the business is liable for the other 1%.

  1. Expenses & Tax Liability

Taxable income is calculated by subtracting qualifying deductions from the business’s gross income. However, it is essential to remember that your business’s expenses may not offset its tax liability.

Your business may qualify for some of the following tax deductions:

  • Equipment repair costs
  • Employee costs
  • Administration costs
  • Rent or mortgage
  • Business/office rental costs
  • Office supplies
  • Uniform costs
  • Telephone costs
  • Travel and transport
  • Wholesale purchase costs for goods resold
  • Financial charges
  • Legal fees
  • Insurance fees
  • Marketing, advertising and promotion cosst
  • Utilities
  • Rates and taxes
  • Cleaning costs
  • Education and training expenses
  • Client entertainment expenses
  • Net operating losses carried forward from prior tax years
  1. Maintaining Tax Compliance

There are various compliance structures to understand and implement for your business’s income tax. As a result, it is essential for business owners who choose to handle their tax matters to stay aware of all relevant requirements to prevent non-compliance.

Tax Tip: For business owners who do not wish to risk the penalties imposed for non-compliance are welcome to seek professional assistance from the tax consultants at MMS Group.
  1. Professional Assistance

The resources available to small to medium business owners may be efficient enough for some to handle their taxation. However, these resources will seem utterly foreign for most individuals who are not versed in financial jargon. Seeking the assistance of a professional tax consultant, such as those available at MMS Group, will help ensure the accuracy of your business’s tax submissions and provide peace of mind for SARS compliance.

For more information regarding our income tax consultancy services, whether for your personal or business returns, please reach out to our team.

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