Tuesday 5th of April 2022
Small businesses aim to achieve their goals through dedication and high levels of efficiency. How
...ever, success cannot be accomplished with determin...
Small businesses aim to achieve their goals through dedication and high levels of efficiency. However, success cannot be accomplished with determination and focus alone. The recipe for victory requires several ingredients that add the right flavours and textures to the dish. One such key element is effective tax planning, which helps save a lot of money and ensures compliance with the South African Revenue Service (SARS).
Most small business owners dread the tax season or try to evade filing taxes because of a lack of financial literacy. However, the wrong approach can lead to penalties from SARS and legal ramifications. Here are a few tax-saving tips for small businesses that can help reduce tax bills and leverage benefits. These must be adopted by entrepreneurs to manage finances effectively and grow appropriately.
Small businesses must register with SARS and the Company and Intellectual Property Commission. Filing taxes requires using the Company Income Tax reference number, which is issued after registration. The entrepreneur also needs to maintain records of every transaction to file taxes accurately. They must keep copies of tax-compliant invoices, bank statements, supplier bills, etc.
Organising financial information saves you from stress during the tax season. It makes calculations a cakewalk and helps claim deductions with ease. Reconciling bank statements ensures that you have accurate records and no discrepancies. Entrepreneurs need financial records to generate reports and determine the health of the entity. This is why a new entrepreneur looking for a business for sale South Africa reviews the financial records to ascertain its viability.
Companies and close corporations have to file their income taxes within a year of the date on which their financial year ends. The annual income tax return must include financial statements. The payments can be done directly through the bank or eFiling by the due date to prevent the additional expense of interest and penalties. Sole traders and partnerships can find their payment deadline on the Notice of Assessment (ITA34).
Businesses with a turnover above R1 million must register for Value-Added Tax (VAT) and charge it for taxable goods and services. SARS can enquire about the legitimacy of the financial information the business provides. It can be verified with the help of financial records preserved by the entity to ensure compliance.
Micro businesses can enjoy exemptions with the help of turnover tax, designed to simplify tax obligations. It applies to businesses with annual turnover lower than or equal to R1 million. It involves applying a tax rate to the taxable turnover of the entity. The tax rate has different slabs, such as 0% for turnover between R0 and R335,000 and R6,650 + 3% of the amount above R750,000 for businesses with a turnover of R750,001 and above.
It can be leveraged by sole proprietors, partnerships, close corporations, companies and co-operatives that fall in the micro business category. These entrepreneurs must register for turnover tax. Individuals who plan to buy businesses for sale in South Africa must check their eligibility to use this easier tax system.
Business tax deductions can help reduce tax bills and save a lot of money. It is vital to identify the deductible business expenses. These include daily expenses such as office supplies, equipment costs, phone expenses, legal fees, insurance payments, etc. Other deductible expenses include capital expenses such as renovation costs, new equipment purchases, computers, etc.
Expenses incurred for employee education, client entertainment, and starting up are also deductible. Other business costs that can be deducted include contributions made towards retirement funds and donations offered to charities with a Public Benefit Organisation number.
If you have acquired a South African business for sale that has employees, you must know about Pay As You Earn (PAYE). It requires the business owner to deduct taxes from employees’ salaries every month based on the tax regulations and pay them to SARS. Business owners have to report the PAYE deductions to SARS before the payday.
Payslips help workers understand the taxes they pay, and employers maintain accurate records. Also, employees do not have to make provisions for paying taxes since their employers automatically deduct them. The taxes withheld from the salaries of employees must be duly paid to SARS to avoid penalties for any lapse.
A small business corporation (SBC) with an annual turnover below R20 million can enjoy a reduced tax rate compared to companies with a 27% tax rate. Businesses with an income less than R91,250 have a 0% tax rate. Besides income, small businesses investing in renewable energy are eligible for a 125% tax deduction on assets used for generating renewable energy.
In addition, businesses can leverage the Employment Tax Incentive (ETI) that allows sharing the cost of hiring young employees with the government. The incentive was implemented in 2014 and will continue up to February 2029.
Tax planning is beneficial not only for filing taxes correctly but also for evaluating the business’s performance. It helps the entrepreneur look at the financial statements and assess whether the targets for the year were achieved. It allows them to identify the weak areas that need improvement for better cash flow in the next financial year.
However, all this planning, organising and calculation is time-consuming and labour-intensive. Thus, entrepreneurs who purchase a business for sale in South Africa must hire a qualified accountant to complete these tasks. In addition, they must use accounting software to automate repetitive activities and increase efficiency. It eliminates the risk of human error and increases the speed of work.
Wrapping Up
Business taxes do not have to be troubling. They help in the country’s development and the economy’s stability. It can become easy to manage when the financial documents are organised and maintained effectively with the help of a professional and the right tools.
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