Welcome to the SARS Tax Workshop

Transcription

1 Small Business

2 Welcome to the SARS Tax Workshop The purpose of this presentation is merely to provide information in an easily understandable format and is intended to make the provisions of the legislation more accessible. The information therefore has no binding legal effect and the relevant legislation must be consulted in the event of any doubt as to the meaning or application of any provision.

3 Small Business

4 Points for Discussion Overview Business Types SBC Incentives Example of Income Statement Requirements for VAT Registration Tax clearance process Recordkeeping

5 Overview Why are we paying taxes? Every government is mandated to provide basic services to Basic services include: citizens Education Health Welfare (Child Grants/Old Age Pensions) Policing Every citizen enjoys the benefits of one or other government basic service

6 Overview Why are we paying taxes? Government has a social responsibility towards citizens of this country Social responsibility can only be fulfilled if the necessary taxes have been paid by the people earning taxable income in this country

7 Business Types Individuals: Sole Proprietor Partnership Companies/Close Corporations Trusts

8 Sole Proprietor Single owner Easy to establish Business decision made by owner Owner receives ALL profits Easy to discontinue business

9 Sole Proprietor Limited skill of owner In running business Product knowledge Limited ability to raise capital 2 nd bond on personal property Pension on retirement used as capital Unlimited liability of business debt Private assets at risk

10 Sole Proprietor Business is not seen as a tax entity Business name is not registered with SARS Owner is responsible for tax on profit made

11 Partnership Two or more owners (max 20 partners) Greater financial strength Business decisions are shared based on skills Easy to establish and Easy to discontinue business

12 Partnership Disadvantages Partnership dissolves each time the partners change Not legal entity Lesser degree of business continuity Partners need to be registered individually for tax Each partner is held liable for debt of entire partnership Decision making is shared Business partners are jointly and individually liable for the actions of the other partners Differences of opinion could slow the process down Profit sharing and Tax Partners are responsible for tax on profit made in relation to the profit sharing ratio

13 Partnership Advantages Wider pool of knowledge, skills and contacts Can be cost-effective Benefit from the combination of complimentary skills of two or more people Each partner specializes in certain aspects of their business Raising Capital/funds Two or more partners may be able to contribute more funds because their borrowing capacity may be greater Employee retention Prospective employees may be attracted to the business if given the incentive to become a partner Innovation and support Provide moral support and will allow for more creative brainstorming

14 Company Separate legal entity given juristic personality Exists as a legal entity apart from its members or owners Investors contribute money or other assets to a company Investors hold a share or interest in that company A company s year of assessment is the same as its financial year (not necessarily end Feb)

15 Company Company needs to register as a taxpayer Company responsible to pay tax on profit Directors/mem bers treated as employees for PAYE purposes Company must register for PAYE

16 Company Disadvantages COMPLEX Subject to many legal requirements EXPENSIVE More difficult and expensive to establish and operate

17 Trusts Trust is a legal entity in its own right and pays tax on profits unless distributed Used for Estate planning Inter Vivos Trust (created during your life) Testamentary (created at death)

18 Tax rates ENTITY Companies and Close Corporations Small Business Corporations TAX RATE 28% flat rate Split rate Trusts: Normal trust 41% flat rate Special trust According to tax tables Natural person According to tax tables

19 Individual tax rates

20 Individual tax rebates and thresholds Rebates Thresholds

21 Tax Registration NO tax is paid if business makes a loss Business losses are accumulated until a taxable profit is reflected Tax only paid when a profit is made (known as ring fencing) Year 1 Year 2 Year 3 Year 4 Income Taxable Balance Loss (R ) R 0 (R ) Loss (R ) R 0 (R ) Profit R R 0 (R 3000) Profit R R R 0

22 SBC Requirements SBC is not another type of business entity SBC is a type of tax incentive Not more than 20% of revenue may consist of investment income Not more than 20% income from rendering a Personal Service

23 SBC Requirements Co-Operatives & Private Companies Not applicable to sole proprietors, partnerships, trusts Shareholding held by Natural Persons (Individuals) Shareholding held for the entire year by natural persons Imperative to deregister from other CC s or companies before starting new venture Shareholders to have no interest in other Company Gross Income not exceeding R per year Includes Dormant/ Shelf / Non Trading Companies Excludes listed companies and companies exempt from the payment of Income Tax and some other exceptions Pro Rata amount if trading less than 12 months- Not taxable income, is based on gross income

24 SBC Requirements Dividends Rental from immovable property Interest income Royalties Investment Income

25 SBC Requirements Service is rendered through a CC/ Company Service is performed by Member or Shareholder A person includes a Connected Person Connected person refers to family to the 3 rd degree Personal Service

26 Connected Persons Taxpayer`s grand child Parents =nearest common ancestor Related to parents in the 1 st degree Nephew/niece is related through his father to the taxpayer s father Relative includes the spouse and those related to him/ her to the 3 rd degree Total steps: 1 (parent) + 2 (brother + nephew) = 3 Taxpayer`s Aunt Taxpayer Taxpayer`s child Taxpayer`s Sister Taxpayer`s Great Grand Parents Taxpayer`s Grand Parents Taxpayer`s Parents Taxpayer`s brother Taxpayer`s niece/ nephew

27 SBC Requirements Personal Service is an activity specifically listed in the Act: Accounting Actuarial Science Management Surveying Broadcasting Engineering Sport Auditing Education Law Auctioneering Draftsmanship Journalism Veterinary Services Consulting Information Technology Research Architecture Health Translation Valuation Financial Service Broking Real Estate Broking

28 SBC Requirements Personal Service not applicable if: The CC or Company employs 3 or more permanent staff members throughout the year and the service is not performed by any person who holds an interest in the company Employees cannot be connected to Members / Shareholders If Personal Service not applicable then 20 % rule only applies to Investment Income Employees should be permanent and cannot be connected to Members / Shareholders Minimum of 3 employees should at all times be employed, throughout the year

29 SBC Tax rates Reduced tax rate for Close Corporations No need to apply for SBC status indicate on tax return Apply yearly if requirements are met

30 Turnover Tax rates

31 Benefits of SBC Split rate system of taxation Income Sole Proprietor Turnover Tax Partnership (based on 2 partners) Company SBC

32 Benefits of SBC Sole Proprietor Turnover Tax Partnership Company SBC

33 Benefits of SBC Benefits Immediate write off of all plant machinery used in the process of manufacture An accelerated write-off allowance for depreciable assets (other than manufacturing assets) 50% 1 st year 30% 2 nd year 20% 3 rd year

34 Example of an Income Statement What is it? An income statement is also known as the "Income and Expenditure Statement" or the "Profit and Loss Statement". It is a summary of what income your business has earned, and what expenditure you have made, during the last month or year, or whatever period you want to review. Where the Balance Sheet shows the solvency of your business (are your assets more than your liabilities), and the Cash Flow Statement shows the liquidity of your business (do you have enough cash to pay the bills and salaries), the Income Statement shows you how much profit or loss you are making.

35 Example of an Income Statement INCOME STATEMENT Company's name End Period <PERIOD> Revenue: 0.00 Gross Sales 0.00 Less: Sales Returns and Allowances 0.00 Cost of Goods Sold: 0.00 Materials 0.00 Other direct expenses 0.00 Gross Profit (Loss) 0.00 Other Income: 0.00 Discount received 0.00 Rental income 0.00 Gain (Loss) on Sale of Assets 0.00 Interest received 0.00 Gross Income 0.00 Expenses: Financial expenses 0.00

36 Example of an Income Statement Cont.. Bank Charges and commissions 0.00 Interest 0.00 Personnel expenses 0.00 Wages 0.00 Payroll Taxes 0.00 Other Operational Expenses 0.00 Amortization 0.00 Insurance 0.00 Maintenance & Repairs 0.00 Marketing 0.00 Miscellaneous 0.00 Office Expenses 0.00 Permits and Licenses 0.00 Rent 0.00 Telephone 0.00 Travel 0.00 Utilities 0.00 Vehicle Expenses 0.00 Total Operational Expenses 0.00 Net Income (Loss) 0.00

37 Sources for Income Statements for SBC and SSME`s.. nt/en/56681/income-statement-template ets/pages/theincomestatement.aspx

38 Requirements VAT Registration

39 Tax Administration Act Registration Requirements A person obliged to apply to; or who may voluntarily, register with SARS under a tax Act must do so in terms of the requirements of the TAACT Chapter 3 or, if applicable, the relevant tax Act.

40 Tax Administration Act Registration This person must: Requirements (a) apply for registration within the period provided for in a tax Act or, if no such period is provided for, 21 business days of so becoming obliged or within the further period as SARS may approve in the prescribed form and manner; (b) apply for registration for one or more taxes in the prescribed form and manner ; and (c) provide SARS with the further particulars and any documents as SARS may require for the purpose of registering the person for the tax or taxes.

41 Registration Requirements Tax Administration Act A person registered or applying for registration under a tax Act may be required to submit biometric information in the prescribed form and manner if the information is required to ensure (a) proper identification of the person; or (b) counteracting identity theft or fraud.

42 Registration Requirements Tax Administration Act A person who applies for registration in terms of this Chapter and has not provided all particulars and documents required by SARS, may be regarded not to have applied for registration until all the particulars and documents have been provided to SARS. Where a taxpayer that is obliged to register with SARS under a tax Act fails to do so, SARS may register the taxpayer for one or more tax types as is appropriate under the circumstances.

43 Requirements for Compulsory registration Who Qualifies? Any person who carries on a business and whose annual turnover (for any 12 month period) exceeds the compulsory threshold of R1 million is liable to register for VAT

44 Requirements for Voluntary registration Who Qualifies? A person carrying on any enterprise whose annual total value of taxable supplies made exceeded R A person carrying on any enterprise whose annual total value of taxable supplies to be made has not exceeded R50 000, but- Who is reasonably expected to exceed R within 12 months from the date of registration Must provide in addition to the information required in terms of Chapter 3 of the Tax Administration Act, the Commissioner with proof that any or more of the following circumstances applies:

45 Requirements for Voluntary registration Who Qualifies? Taxable supplies made for more than two months Proof that the average value of the taxable supplies made in the preceding months prior to the date of application of registration, exceeded R4200 per month For the purposes of determining the average of taxable supplies, use the value of taxable supplies made for a minimum of 2 and a maximum of 11 months immediately preceding the date of application

46 Requirements for Voluntary registration Who Qualifies? Taxable supplies made for one month: In the case where taxable supplies were made for one month preceding the date of application for registration, proof that the total value of taxable supplies made in that month has exceeded R4200

47 Requirements for Voluntary registration Who Qualifies? Written Contracts: In terms of a contractual obligation in writing, required to make taxable supplies in excess of R in the 12 months following the date of registration.

48 Requirements for Voluntary registration Who Qualifies? Finance Agreements: A copy of the relevant agreement where the person has entered into- A financial agreement with a bank registered in terms of the Banks Act A credit agreement with a credit provider as defined in the National Credit Act An agreement with a designated entity, public authority or any other person who continuously or regularly provides finance

49 Requirements for Voluntary registration Who Qualifies? Finance Agreements: A copy of the relevant agreement where the person has entered into- A financial agreement with a person that is not a resident of the republic where it is agreed that: the expenses incurred or to be incurred in the commencement or furtherance of the enterprise the total repayments in terms of the financial, credit or other agreement; will in the 12 months following the date of application for registration exceed R

50 Requirements for Voluntary registration Who Qualifies? Expenditure: Proof of: Expenditure incurred or to be incurred in connection with the commencement or furtherance of the enterprise, as set out in any written agreement entered into Capital goods acquired in connection with the commencement of the enterprise

51 Requirements for Voluntary registration Who Qualifies? Proof of payment or any extended payment agreement entered into in respect of expenditure incurred and capital goods acquired where applicable evidencing that payment in respect of the following items: As at the date of application for registration has exceeded R Will in any consecutive 12 months period commencing before and ending after the date of application for registration exceed R Will in the 12 months following the date of application for registration exceed R50 00

52 Tax Clearance To certify that a taxpayer complies with the rules prescribed in different tax laws All relevant returns should be submitted All payments must have been made or arrangements made for deferred payment via the SARS Collections Department Personal and Enterprise particulars have to be updated with SARS

53 Tax Clearance: Procedure Capture results On application Manual feedback to taxpayer No Receive Application (Hard Copy) Manually Verify Successful Yes Capture results on application Print SARS Employee TCC Database

54 Tax clearance certificates General application valid for 12 months Can be revoked if there is noncompliance. Communication issued Not application specific If successful, cannot reapply within 11 months; can only reapply within two weeks prior to Tax Clearance expiring

55 Tax Clearance for a tender VAT registration may only be applied for in respect of a tender once the tender has been awarded

56 Recordkeeping It is advisable to open a separate bank account so that you do not mix private and business expenses You may choose a system of record keeping that is suited to the purpose and nature of your business Records must clearly reflect your income and expenditure

57 Recordkeeping The records should include: records showing assets, liabilities, various loans register of fixed assets sales slips, invoices, receipts, bank deposit slips records of credit purchases and sales statements of annual stocktaking supporting vouchers All source documents must be available for examination by SARS and must be kept for 5 years

58 Thank you SARS Contact Centre SARS (7277) Visit your nearest SARS branch (to locate a branch visit Open: Monday, Tuesday, Thursday & Friday 08:00 to 16:00; Wednesday 09:00 to 16:00 Find us on Facebook