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SARS And Your New Business
With retrenchments unfortunately becoming part of our daily SA life, more and more people are looking at starting their own business to survive. Once you look into the process of getting your company registered though, the information available seems absolutely overwhelming and tiring. By law, any business - irrespective the type of entity - has to be registered with SARS within 21 business days from starting the company.
The internet is full of companies offering to register your business on your behalf at a ridiculous cost, but the easiest and more economical way is to do it yourself. Go online to the Company and Intellectual Property Commission (CIPC). You create your own, free, password-protected account, make the required deposit (between R125 to R475 depending on your type of business) and reserve your company name. Your business will be registered within ten working days plus they automatically register your new company with SARS. After a few days, the CIPC will email you all the legal documents you require to start trading as a legitimate concern. All you need to do is sign your printed copies to prove ownership, open a business bank account and start trading. The beauty of this online system is your ability to later add partners, change your company details and file your annual returns.
As soon as you commence business, you will become a provisional taxpayer and will have to declare your business turnover. Provisional tax is intended to assist you as business owner in meeting your normal tax liabilities. This is done by paying two instalments in respect of your estimated taxable income during the relevant tax year. Your first provisional tax payment need to be made within six months after the start of the tax year and your second payment not later than the last day of the tax year.
One of the most crucial parts of running your business properly will be your ability to keep effective records in order to complete an accurate tax return. The manner you keep records can be as simple as an Excel workbook, free accounting software, invest in a proper accounting package or sign up with a registered accountant to do all the necessary work for you. Nonetheless the type of bookkeeping system you choose, keep payment slips for everything and make a clear distinction between your private and business expenses. Remember that all these documents will have to be easily accessible to you for a period of between five to fifteen years and longer dependent on the type of document (a full list PDF file can be downloaded from SARS website).
Other than the provisional tax your business will be liable for; as soon as you employ any person at your company, you are responsible for deducting their employee’s tax (PAYE) from their earnings and pay it over to SARS on a monthly basis. The Law states that it is your responsibility as business owner to register your employees with SARS and your responsibility to deduct PAYE prior to paying them. This process is also fairly easily done via SARS efiling or direct EFT payments from you. Business owners and directors will also pay their own PAYE from salaries paid by the company regardless of the type of business including individuals in CC’s performing similar functions. Owner/Director salaries are often determined late in the tax year and in this circumstance they finance their living from loan accounts from the company. A formula is then used to determine the tax that the company must deduct.
Determining how much tax to pay; you will need to understand the basics in determining your business’s profit and loss. Net profit or loss is determined as Income – Expenses = Profit (Loss). Income tax (normal tax) is levied at progressive rates ranging from 18% to 40%. Unlike individuals, a company or CC pays 28% income tax on its taxable income for the tax year and 10% secondary tax on companies (STC) on the net amount of dividends declared.
Obviously the complexities of business tax is way more than reflected here and as your business grows you can educate yourself on the SARS website. SARS has made an effort to ease the administrative burden of small businesses by introducing a single tax system. This tool, known as Turnover Tax will help companies to streamline their tax obligations. It involves a simplified system for turnover of up to R1 million per year and available for use by sole proprietors, partnerships, CC’s, private companies and co-operatives. With Turnover Tax, businesses pay a single tax instead of the five other taxes like VAT, Provisional Tax, Income Tax, Capital Gains Tax and Secondary Tax. It’s also up to you as business owner to opt whether to use this simplified version or not.
Your company’s bookkeeping need to be as simplified as possible and you as business owner have to review your books regularly. You need to have a good understanding of your cash flow and have an overall view on the health of your business at all times. Many startup companies fail due to cash flow problems and/or because their books were in control of someone outside the business. If you do want to use an outside bookkeeping firm, you need to be assured that they will be as passionate about your business as you are. Be careful of expensive software programs when store bought bookkeeping forms does the job just as good. If you do want to appoint an outside bookkeeper, get referrals and check them out. You need to know where your money is.
Starting your own business is an exciting adventure! It has been said that the most difficult boss to work for, is you. Have fun and build your company into a giant!
Company and Intellectual Property Commission (CIPC) http://eservices.cipc.co.za/