“Hello, this is SARS, we’d like to pay you a visit.” If you would prefer avoiding an audit call from the South African Revenue Service, learn about your small business tax obligations with this comprehensive guide.
Content in this guide
- Starting a business: Your tax obligations
- The importance of record keeping
- Income tax
- Provisional tax
- Employee tax
- Turnover tax
- Value-added tax
Every small business needs to be tax compliant, but there still seems to be some doubt as to how to navigate tax-related regulations.
Read through this comprehensive guide on tax for small businesses to ensure your payments, documentation and submissions are correct and on time. It will assist in ensuring you’re not misunderstanding your tax obligations.
Related: Corporate income tax and small business taxes to know
1. Starting a business: Your tax obligations
If you want to start a business you need to be aware of the tax obligations that come with running a business, whether it’s in the form of a legal entity or in your personal capacity.
There are also beneficial options that can assist you in reducing some of your administrative requirements, which will make being tax compliant easier. You could also benefit from various tax incentives and rates that apply in specific situations.
Once you’ve registered with your local SARS office, you’ll receive an income tax reference number. You, as the business’ owner, must register within 21 days of starting business operations by completing an IT77 form, which you can obtain from your local SARS office, or SARS website.
Depending on your turnover, payroll amounts, whether you’re involved in imports and exports; your business could also be accountable to register for other taxes, duties, levies and contributions including:
- VAT (Valued- Added Tax)
- PAYE (Pay as you earn)
- SDL (Skills Development Levy)
- UIF (Unemployment Insurance Fund) contributions.
After you’ve established your business and it’s regarded as a legal entity, you’ll need to register it with the Companies and Intellectual Property Commission (CIPC) in order to receive a business reference number.
Visit the CIPC website at www.cipc.co.za. The following legal entities need to register with the CIPC, and as a taxpayer for corporate income tax purposes:
- Listed public companies
- Unlisted public companies
- Private companies
- Non-profit companies
- State-owned companies
- Collective investment schemes
In the case of starting a business that is not a legal entity, you will be able to register in the following way:
- Sole proprietorship (taxed on profits in an individual capacity)
- Partnership (Taxes apply to each partners share of taxable profits in an individual capacity, as a partnership is not registered separately for income tax purposes)
For close corporations, co-operatives or a private company, you could qualify for specific tax incentives and preferential rates in terms of the small business corporation (SBC) incentive. On the other hand, if you’re a natural person or a company you could meet specific requirements and may qualify for the turnover tax system.
2. The importance of record keeping
You, or your professional accountant, will need to keep records, books of your business’ accounts or relevant documents. By retaining your business’ records you will fulfil the requirements of the Tax Administration Act and to satisfy SARS that you have complied with those requirements.
About the Tax Administration Act
The Tax Administration Act requires the following businesses to keep records:
- A registered business that has filed a return.
- A registered business that has submitted a return but has not yet complied.
- A business that is not required to submit a return, but has during the tax period, received income, had a capital gain or capital loss, or engaged in any activity that is subject to tax.
- A business that would have had to submit a return if not for an exemption or threshold.
How you should preserve compliant and acceptable records
Keep your records in the following ways:
- In its original form.
- In the form, including electronic, prescribed by the Commissioner by public notice.
- In the case of a request by a specific taxpayer to retain records or documents in a different but acceptable form, the form authorised by a senior SARS official.
- In an orderly fashion.
- In a safe place.
- Open for inspection, audit or investigation by SARS.
How long should you keep your records for?
- A business that has submitted a return needs to keep its records for five years: counting from the date of submission of a return, until the last day of the period.
- A business that had to submit a return, but has not complied, needs to keep its records for five years: After the end of the five-year period, indefinitely until submission of the return.
- A business that is not required to submit a return, but has during a tax period, received income, experienced a capital gain or loss or engaged in any other activity that is subject to tax or would be subject to tax but for the application of a threshold or exemption, needs to keep its records for five years or until the conclusion of the audit, whichever occurs first.
- A business that has lodged an objection or appeal against an assessment or decision under the TAA exemption needs to keep its records for five years, or until the disputed assessment or decision becomes final, whichever occurs first.
- A notified business that is aware that its records are subject to an audit or investigation needs to keep its records until the conclusion of the audit or the investigation.
Related: Overview of small business tax
3. Income tax
Once you, as a taxpayer, launch your business, whether as a sole proprietor, a partnership or as a shareholder, you and your business need to register with your local SARS office in order to receive an income tax reference number.
Income tax requires registration with the CIPC. Once you’ve registered for income tax you can then register for VAT or PAYE, without going through a lengthy registration process. Registering for income taxes allows you to access eFiling.
When registering for income tax, PAYE and VAT it will be in real-time, and VAT will possibly require additional review steps.
Corporate income tax
Corporate Income Tax (CIT) is a tax imposed on companies resident in the Republic of South Africa. This means incorporated businesses are under the laws of, or which are effectively managed in, the Republic, and which derive income from within or outside the Republic. Non-resident companies that operate through a branch or that have a permanent establishment within the Republic are also subject to tax on all income from a source within the Republic.
The CIT was recently modernised, offering you a new Income Tax Return for Companies (ITR14), which aims to improve efficiency and compliance. To find out more about the new enhanced IRT14 and what you must do, click here.
Who is impacted by CIT?
CIT is applicable, but not limited to the following companies:
- Listed public companies
- Unlisted public companies
- Private Companies
- Close Corporations
- Collective Investment Schemes
- Small Business Corporation (s12E)
- Body Corporates
- Share Block Companies
- Dormant Companies
- Public Benefit Companies.
These types of businesses are liable under the Income Tax Act (1962), for the payment of tax on all income received by or accrued to them during a financial year.
3 Steps you should take
1. Register as a tax payer
Every business is liable for taxation and must register with SARS as a taxpayer.
2. Submit annual tax returns
Every taxpayer must submit a return of income, twelve months after the end of the financial year. You can submit your returns electronically, via e-filing or manually at the SARS branch where you have registered.
3. Submit provisional tax returns
In addition to your annual returns, your company has to submit provisional tax returns. You need to submit your first provisional tax return six months from the start of the year, and the second at the end of the year. Provisional tax returns need to contain an estimate of the total taxable income earned for that period as well as payment of the tax. You can make a third payment six months after year-end.
SARS eFiling is a free online platform that allows you to submit your tax-related documentation, including returns and declarations. This service allows taxpayers, tax practitioners and businesses to register free of charge, as well as perform actions including submitting returns and declarations, and to make payment to SARS in a secure online environment.
By registering for eFiling, you can engage with SARS online for submissions of returns, declarations, payments, duties, levies and contributions. SARS has ensured that the eFiling service is of international quality, being on par with comparable services offered in the United States, Australia, Singapore, Ireland, Chile and France.
Related: How to reduce your taxable income
7 Benefits of using eFiling
- The largest benefit is that eFiling offers you the option to interact with SARS from the comfort and convenience of your home or office. Since this is an online platform, you can connect from anywhere using any device, making it more convenient and accessible to business owners and taxpayers.
- As a result of being able to conveniently access SARS from any web-enabled device, you will no longer have to worry about waiting in queues, finding parking or worry about trying to fit your visit to SARS into office hours.
- Once you’ve registered as an eFiler, you can submit returns, view your tax status and make electronic payments to SARS 24-hours a day.
- eFilers receive the added benefit of having more time to make submissions and payment. If your business is paying VAT, by registering with eFiling you qualify for the added benefit of only having to pay on the last business day of the month, as opposed to the 25th of the month for manual filers.
- When using the eFiling system, you will be able to access your company’s full history of all submissions, payments and electronic correspondence. These will all be available to you in one place, should you need to refer to them or use them in future.
- eFilers can opt to receive reminders and notifications via SMS and email, to keep you up-to-date with your submissions. This will ensure you’re always on top of your business’ submissions and never miss a deadline.
- The simplification of eFiling has resulted in fewer errors and creates a quicker processing cycle for you and your business.
What services are available on eFiling?
eFiling offers you the facilities to submit a variety of tax returns including VAT, PAYE, SDL, UIF, Income Tax, Secondary Tax on Companies (STC) as well as Provisional Tax.
Its current services, that are available to you, include:
- PAYE (EMP201 return)
- SDL (included on the EMP201 and EMP501 return)
- UIF (included on the EMP201 and EMP501 return) (Please note: File Unemployment Insurance Fund (UIF) separately on www.ufiling.gov.za. You can submit your UIF declarations and pay your contributions through this free service.
- VAT (VAT201)
- Provisional Tax (IRP6)
- STC (IT56)
- Personal Income Tax (ITR12)
- Trusts (IT12TR)
- Advanced Tax Ruling (ATR)
- Change of Personal Details (IT77/RFC)
- Additional Payments
- Request for Tax Clearance Certificate
- Request for Tax Directive
- Transfer Duty
- Stamp Duty
- Security Transfer Tax (STT)
- Tax Practitioner Registration
- VAT Vendor Search
- Notification Tool
- Tax Calculators
- Complete history of eFiling usage
- Customs payments
- Air Passenger Tax payments
- Withholding Tax on Interest.
5. Provisional tax
Provisional tax is not a separate type of tax, but a method of paying tax that is due. This ensures that your business, as the taxpayer, doesn’t pay large amounts on assessment, as the calculation divides your tax liability over the relevant year of assessment.
Provisional tax requires you to pay two amounts in advance. These payments occur during the year of assessment and use the estimated taxable income to determine the amount.
There is also a third optional payment after the end of the tax year, but before the issuing of the assessment’s final liability. However, the assessment determines the payments and will be off-set against the liability for normal tax for the year of assessment.
Provisional tax is for any person or business that receives income, or accrues income that isn’t a salary. Parties excluded from provisional tax include:
- Approved public benefit organisations or recreational clubs;
- Body corporates, share block companies or certain associations of persons; and
- Persons who are exempt from paying provisional tax, namely:
- Non-resident owners or charterers of ships or aircraft;
- Any natural person who does not earn any income from carrying on any business – provided that person’s taxable income will not be more than the tax threshold (for 2017 tax year: for taxpayers below age of 65 - R75 000; age 65 to below 75 - R116 150 and age 75 and over - R129 850); or the taxable income of that person (earned from interest, foreign dividends and rental from letting of fixed property) will not be more than R30 000.
Top tip: Companies are automatically provisional taxpayers. You don’t need to register or deregister to be a provisional taxpayer. If your business is liable for provisional tax, you need to request and submit an IRP6 return via eFiling.
How to work out the amount due
Using the estimated taxable income for your specific year of assessment, you can determine the amount of provisional tax payable.
- The First Period:
- Half of the total estimated tax for the full year;
- Less the employees tax for this period (6 months);
- Less any allowable foreign tax credits for this period (6 months).
- The Second Period:
- The total estimated tax for the full year;
- Less the employees tax paid for the full year;
- Less any allowable foreign tax credits for the full year;
- Less the amount paid for the first provisional period.
- The Third Period (voluntary):
- The total tax estimated payable for the full year;
- Less the employees tax paid for the full year;
- Less any allowable foreign tax credits for the full year;
- Less the amount paid for the 1st and 2nd provisional tax periods.
For more information on how to work out the amounts due, click here.
Related: SA’s tax system is efficient
6. Employee tax
You, as an employer, play an important role in the South African tax system. When you submit payroll data during your business’ annual reconciliation, you’re allowing SARS to complete your employee’s Income Tax Return (ITR12) with the correct information.
This enables your employees to simply compare their documents to SARS, and if it’s correct, then they can easily submit. Using this method allows your employees to effortlessly submit their tax returns.
Deductions withheld from an employee’s salary, and amounts payable by employers comprises payroll taxes. Employers must pay all payroll taxes to SARS:
- Employees’ Tax (PAYE) – withheld from employee’s salary
- SDL – payable by employer; and/or
- UIF – withheld from employee’s salary and payable by employer in equal shares.
Small business relief
There is various tax incentives specifically designed for small businesses. Small businesses that qualify need to be a small business corporation (SBC), which pays no income tax on the first R75 000 taxable income.
Taxable income (R) Rate of tax(R)
0 – 75 000 0% of taxable income
75 001 – 365 000 7% of taxable income above 75 000
365 001 – 550 000 20 300 + 21% of taxable income above 365 000
550 001 and above 59 150 + 28% of taxable income above 550 000
Micro businesses, that qualify, should also consider registering for Turnover Tax as this can reduce and simplify your tax compliance and administrative procedures.
7. Turnover tax
Turnover tax for micro businesses is for businesses with a qualifying turnover of less than R1 million per annum. It assists your micro businesses by reducing tax loads associated with other types of tax. If your micro business qualifies, you can then decide between turnover tax and normal income tax, whichever will be more beneficial to your business.
What is turnover tax?
Turnover tax is a streamlined system, which aims to enable your micro business to meet its tax obligations. Turnover tax replaces income tax, Value-Added Tax (VAT), provisional tax, capital gains tax and dividends tax for qualifying micro businesses.
What are the benefits of turnover tax?
The largest benefit for micro businesses, under the turnover tax system, is that it reduces administrative and compliance burdens along with dipping tax rates. The reduced tax rates depend on taxable turnover instead of taxable income.
To do a quick test to see if you qualify for turnover tax, click here.
For more information on turnover tax, click here.
Related: Value-Added Tax: What you need to know
8. Value-added tax
Value-Added Tax (VAT) is an indirect tax, based on consumption of goods and services in the economy. Registered businesses collect VAT and charge VAT on all its goods and services.
Self- assessment determines the mechanism of charging, collecting and paying VAT. This allows your business to determine its liability or refund of tax.
It adopts a credit input method which allows businesses (vendors) to deduct the VAT incurred on business expenses (input tax) from the VAT collected on the supplies made by the business (output tax). In other words, the burden of the VAT is on the final consumer while maintaining neutrality in the business chain.
Who should register as a VAT vendor?
A business can register for VAT, either under the compulsory registration category or the voluntary registration category:
You will be liable to register for VAT if your businesses income earned from selling goods, or fees earned from services supplied, is more than R1 million in any consecutive period of 12 months, or will exceed that amount in terms of a contractual obligation in writing.
Non-resident suppliers of certain electronic services are also liable to register for VAT, if the fees earned from these electronic services exceeds R50 000.
You can apply for voluntary registration even though your income earned from selling goods or fees earned from services supplied is less that R1 million. There is, however, a requirement that the income earned from selling goods, or fees earned from services supplied, must have already exceeded the minimum quantity of R50 000 in the past 12-month period.
Remember, if you choose to register for VAT, you will have to carry out all the duties of a VAT vendor. For example, you will have to charge VAT, submit VAT returns, make VAT payments to SARS on time and keep sound records of all sales and expenses sustained by your business.
Every small business needs to know about tax and SARS regulations in order to be tax compliant and ensure their payments and documentation are on time. For more information, you can visit a SARS branch, or browse the SARS website or phone the SARS contact centre 0800 00 7277.