If you are a small business owner or entrepreneur, and you don’t know where to start with your business’s taxes, this basic guide will help you get started.
Every person who earns an income needs to be compliant with the South African Revenue Service (SARS) and adhere to their taxation requirements. Companies are no different, and the moment you start trading, you will need to pay taxes. Tax submissions need to be made, just like with an individual. Here are the different types of income taxes you will have to pay.
You are required to submit your annual return (ITR 14) for your relevant financial year (for example, 2020 financial year with a Feb year end - 1 March 2019 - 28 Feb 2020) within 12 months (on or before the last working day of Feb 2021). With this return you declare the total income, expenses, assets, liabilities and equity to SARS and are liable to pay tax on the profit earned. Companies are taxed at 28%, unless the company qualifies as a Small Business Corporation, where different tax rates are applicable according to the company’s taxable income.
All companies are automatically registered as provisional taxpayers. This means you need to declare to SARS the estimated taxable income for that particular financial year. The first return is due 6 months after the start of your financial year. For example, if your financial year started on 1 March, then the provisional return will be due on or before the last working day of August). The second provisional return is due no later than the last day of the relevant financial year. This allows the company to pay tax on taxable income on two separate occasions, thus avoiding a large tax payment once a year.
Capital gains tax (CGT) forms part of income tax. A capital gain arises when you dispose of an asset and the proceeds are more than what you initially paid for the relevant asset. Capital gains are taxed at a lower effective tax rate than ordinary income with the rate for companies fixed at 22.4% since 2017.
The moment you start employing staff to work in your business, there are additional tax registrations required. This is also applicable to directors in the company who receive remuneration or a salary.
An employer is required to register for Pay as You Earn (‘PAYE’), Unemployment Insurance (‘UIF’), Skills Development Levy (‘SDL’) and Compensation for Occupational Injuries and Diseases (‘COID’). The submissions for these occur on a monthly basis. You are also required to provide employees with official payslips and tax certificates. Employers must be compliant with the requirements by SARS and the various labour legislations enforced by the Department of Labour.
This is the income tax deducted from an employee’s taxable salary and is paid to SARS by the employer on behalf of the employees. The amount of tax is calculated according to SARS’s income tax rates for individuals.
The employer and employee each contribute 1% of the employees’s salary to the unemployment insurance fund with a maximum income cap of R14 872. An employee who contributed may submit a claim from the compensation fund for periods of unemployment, maternity leave or parental leave. You need to register with the department of Labour for a UIF reference number in addition to the number obtained from SARS for UIF.
Employers whose annual salary bill is more than R500 000 are required to register for SDL. The amount due by the employer on a monthly basis is calculated at 1% of the total amount paid in salaries to employees. These funds then go to the Sector Education and Training Authority (SETA) who distributes these levies to encourage learning and development in South Africa .
When you are registered as an employer with SARS, PAYE, UIF and SDL are submitted as one return and payment to SARS.
An employer is required to register with the Department of Labour’s compensation fund once the business has employed its first employee. An annual return is due before the end of March every year, when the employer will be required to pay an amount to the fund. The amount owing is calculated according to the relevant industry tariff x total workers pay/100. The aim of the COID Act is to provide for compensation in the case of disability caused by injuries and diseases on the job, sustained or contracted by employees in the course of their employment, or death resulting from such injuries and diseases; and to provide for matters connected therewith.
A business that had a turnover of R50 000 in the past 12 months may register voluntarily for VAT. VAT registration is compulsory for a business if the total value of taxable goods or services exceeds R1 million. VAT returns need to be submitted on a regular basis as determined by SARS depending on the category the business falls under. VAT returns may be due on a bi-monthly, monthly, bi-annually or yearly basis, depending on the type of industry the business operates in or other requirements as determined by SARS. The amount of VAT payable to SARS is calculated on 15% of your taxable supplies made, less VAT paid on bills to your suppliers.
Most companies aim to make a profit. When these profits are distributed to the shareholders (owners), dividend tax may be due. Dividend tax is known as a witholding tax, because, although dividends received by individuals from South African companies are generally exempt from income tax, the entities paying the dividends to the individuals withhold tax at a rate of 20%.
If your business imports goods with the aim of raising revenue from the goods, the business will be liable to pay customs duties to protect the local South-African market. These duties are usually calculated as a percentage of the value of the goods. However, meat, fish, tea, certain textile products and certain firearms attract rates of duty calculated either as a percentage of the value or as cents per unit (for example, per kilogram or per meter). The import of luxury goods such as perfume, motor vehicles, cosmetics and electronic equipment may result in additional excise duties levied.
Here’s what we've been posting lately.