The Easy2Understand Tax Guidebook for SMEs

Transcription

1 The Easy2Understand Tax Guidebook for SMEs

2 TABLE of contents Introduction OnE: Types of Tax as they relate to SMEs What is VAT? What is PAYE, UIF, SDL? What is Dividends Tax? What is Customs and Excise? What are Transfer Duties? What is Company Income Tax? What is Turnover Tax? Two: SME Tax Incentives and Relief Brackets Three: SARS Helpdesk for SMEs Four: Tax Challenges for SMEs Conclusion * Information provided is to the best of our knowledge accurate as at October 2015.

3 Introduction Starting a business is one of the most exciting times on any entrepreneur s path. A world of opportunities is hidden within strategically made decisions, which when they come to fruition lead to company growth and more exciting opportunities. However, if there s one part of owning and running a small to medium enterprise (SME) that really puts a dampener on entrepreneurial ambition, it s having to ensure that the company is compliant with tax laws. Every private company that does business for revenue and profit must pay a whole spectrum of taxes; business owners have tax duties and obligations that they are responsible for fulfilling under their company name. Depending on the nature of their business, staying compliant with the tax laws that apply to them can be a tricky process. Depending on the nature of their business, staying compliant with the tax laws that apply to them can be a tricky process. While some business owners employ professionals to take care of their books and their tax obligations, many would prefer to gain a comprehensive understanding of SME tax and retain control over their financial affairs. If you re the latter business owner (or the latter business owner s bookkeeper or accountant), then this ebook is for you! We ve compiled this handy guide to help you when it comes to fulfilling SMEs tax obligations. In it, you ll find accessible and easy-to-understand information regarding the what, why, when and how much of tax for SMEs. We answer the questions: What types of tax must SMEs pay? What are the tax brackets for SMEs? What tax incentives and relief brackets are available for SMEs? What service does the SARS Helpdesk provide for SMEs? What tax challenges do SMEs face? How can SME tax challenges be effectively addressed? After thoroughly perusing this ebook, you should be comfortable enough to either tackle your tax obligations on your own, or to at least competently talk to a SARS consultant about SME tax. #1

4 One Types of tax as they relate to SMEs

5 One Types of Tax as they relate to SMEs Company tax can be a complicated affair, especially when SMEs begin to take on permanent employees or hire contractors, offer company medical aid and pension funds, and offer allowances. What your expenditure is, how net profits are allocated, salaries paid, and income is distributed will all determine your tax obligations. The following taxes may apply to SMEs, depending on the type of business you operate: What is VAT? Value Added Tax (VAT) is one of the significant ways in which the government raises money to perform its civil duties. It s an indirect tax of 14% that s raised when people consume goods and services in the economy. SARS says, The mechanism of charging, collecting and paying VAT to government is based on self-assessment, which allows the business to determine its liability or refund of tax....each business that s registered for VAT (called a VAT vendor) is required to perform periodic reporting to show how much VAT was charged... In plain language, each business that s registered for VAT (called a VAT vendor) is required to perform periodic reporting to show how much VAT was charged, collected and paid, and to either pay in the VAT they owe to SARS or to get VAT that s due to them, refunded. To comply with VAT regulations, vendors are required to keep extensive records of all sales and the expenses incurred by your business. If your annual turnover is R1 million or more, you are required to register for VAT and comply with the periodic reporting requirements. SARS has a useful whitepaper available for download, to help you understand how VAT works and how businesses should register for it, which can be found here: SARS VAT Whitepaper #3

6 One Types of Tax as they relate to SMEs What is PAYE, UIF, SDL? Pay As You Earn (PAYE) tax is levied against each of your employees if they earn above the annual tax threshold. For individuals, the annual tax threshold is R73 650, so employees earning more than R per month will need to have PAYE levied from their salaries. Unemployment Insurance Fund (UIF) contributions are paid monthly by employers. Each employee contributes 1% of their salary to the UIF while you, the employer, also pay 1% of their remuneration below a certain amount. UIF contributions mean that if your employee finds themselves unemployed, they will be able to claim an amount from the UIF while they look for a new job. Skills Development Levy (SDL) contributions are made by employers who are paying a total annual employee remuneration amount of R They need to pay 1% of their total remuneration expense to the SDL. If you are still in the early stages of growing your business and only have a few entry level to mid-level employees, for instance, and your remuneration expenses are below R , you are exempt from paying towards the SDL. What is Dividends Tax? If you have shareholders in your company and they earn dividends when your company performs well, you are required to withhold the dividends tax and pay it to SARS. Dividends are taxed at a rate of 15% (but dividends are tax-exempt under certain circumstances). What are Customs and Excise? PAYE is levied against each of your employees if they earn above the annual tax threshold. If your SME is an import and export company, SARS requires you to comply with specific customs and excise regulations based on the products that you ship across borders. What are Transfer Duties? If you buy or sell any property in your business s name, you will need to pay the transfer duty a tax payable when a property is transferred from one owner to another. If the property is sold for R or less, you are exempt from transfer duty, which increases incrementally based on how much the property costs. #4

7 One Types of Tax as they relate to SMEs What is Company Income Tax? Company income tax is tax raised as a percentage of the business s annual taxable earnings. This tax is paid across three provisional payments, or paid as a once-off after your tax assessment. This year s income tax rate for companies is 28%. Small Business Corporations (SBCs) are exempt from paying income tax if their annual income is R or less, while tax rates increase depending on how much money the company earned in a year. Companies that have a maximum turnover of R14 million per annum are categorised as SBCs if this describes your business, you can expect to pay up to 28% of taxable earnings to SARS, but the first R will be tax-exempt. BUT WAIT, WHAT IS TURNOVER TAX? SARS offers turnover tax for micro businesses, which makes it easier for these SMEs to meet their tax obligations. If you qualify for turnover tax, you ll only need to pay the relevant percentage of your annual turnover to SARS, which replaces income tax, VAT, provisional tax, and dividends tax, where relevant. Who qualifies? If your business earns less than R1 million annual turnover, you may register with SARS for turnover tax. The following tax rates apply for turnover taxpayers: Taxable turnover (R) Rate of tax (R) % of taxable turnover % of taxable turnover above % of taxable turnover above and above % of taxable turnover above #5

8 Two SME Tax incentives and Relief Brackets

9 Two SME Tax Incentives and Relief Brackets Fortunately for small businesses Small to Medium Enterprises (SMEs) and Small business Corporations (SBCs) SARS offers tax incentives and relief measures when it comes to taxable earnings. When your business grows into a large company with lots of staff and a high annual turnover, you ll pay 28% of your turnover to SARS. While your business is still growing, however, SARS is offering you a different tax scale to offer you some financial relief: Taxable turnover (R) Rate of tax (R) % of taxable turnover % of taxable income above % of taxable income above and above % of the amount above SBC tax exempts you from paying tax on the first R of your annual earnings, while taxing anything above that amount with progressive tax rates. You will also be allowed to deduct certain operating expenses such as: depreciation on fixed assets used in the process of generating income research and development (R&D) expenditure home office expenses certain pre-trade costs for instance, if you spent money on marketing and advertising your business before you commenced with trading, or had to pay legal, accounting, and administrative expenses. These expenses will be offset against the income from the subsequent trade. Turnover Tax As mentioned before, SMEs and SBCs should take advantage of turnover tax, as this simplified tax favours low-income businesses. If you ve just started out, not only will turnover tax benefit you because it s a low tax rate, but you will save plenty of time and effort when it comes to admin since turnover tax replaces income tax, VAT, provisional tax, capital gains tax, and dividends tax. #7

10 Two SME Tax Incentives and Relief Brackets Making use of your home office Most small businesses start with entrepreneurs working from home and building their businesses until they need commercial office property to accommodate more employees, stock, and a more professional image. If you use your home office as your business premises, you may make the following deductions for tax purposes: rent of the premises interest on your bond cost of repairs to the premises other expenses, such as maintenance, rates and taxes, and electricity phones and stationery office equipment cleaning expenses wear and tear If you spend less than 50% of your time using your home office for trade and generating an income, you may not claim tax deductions for a home office. <50% of your time may not claim For instance, if you have a commercial office that you work from, but use a home office to do business on weekends, you may not claim expenses from this home office use. It s important to completely understand what may or may not be claimed as a business expense. #8

11 Three SArs helpdesk for smes

12 Three SARS Helpdesk for SMEs In 2015, SARS opened small business support desks on a national scale, to much praise from the financial and small business industries. SARS wants to increase tax compliance among small businesses, but rolling out these small business support desks comes with the added benefits of providing knowledge and assisting with growth for small businesses. There are over 138 support desks at SARS s 52 branches, where small business owners can get help with a range of small business enquiries, applications and functions, such as: new business registration assisting small business owners with monthly tax returns, queries and advice assistance with efiling registration (as well as using the various online services) tax clearance certificates company bank account changes business statements of account If you find yourself struggling with tax administration or you need to fill in the blanks when it comes to your deductibles and ensuring your business is tax compliant, visit your nearest SARS branch and give their SME helpdesk a test drive. While your business is still growing and you don t necessarily have the resources to hire a private tax practitioner, the SARS SME helpdesk may just be your light at the end of the tunnel. Not only will they be able to help you, but in the process, you will be equipped and empowered to handle your small business tax on your own until you can afford an in-house tax and financial administrator. Contact SARS for more information If you need to contact SARS for any further information on your SME tax obligations, or to find your nearest SARS Helpdesk, use the following contact details: SARS Contact Centre: Visit the SARS website here Find your nearest SARS branch here #10

13 Four Tax Challenges for smes #11

14 Four Tax Challenges for SMEs Up to this point, SME owners have according to a survey spent on average up to eight working days per month dealing with bureaucratic red tape, which includes tax issues. That s a lot of business time that could be better spent on sourcing new clients, servicing existing clients, networking, and training employees, etc. The challenges faced by most SME owners revolve around time, money and knowledge. Addressing Challenges Affordable software solutions can assist SMEs in generating the reports for the required submissions to SARS, and with complex calculations. These systems remove the administration burden and need for tedious spreadsheets. Instead, you can free up time to focus on growing your business. Time challenges Business owners need to submit tax returns on a monthly, bi-monthly, bi-annual and annual basis. That s a lot of admin. Most small business owners start off as solopreneurs, handling every aspect of their business on their own (with which you may be familiar), so to add a tax headache on top of that seems nightmarish. Money challenges The time and money challenges go hand-in-hand, since time is money. Perhaps you ve considered hiring a professional tax practitioner to deal with your business tax and remove it from your plate altogether. Tax practitioners are expensive, but so is the amount of time you would spend doing it on your own. It s up to each small business owner to decide which resource is more expensive to try to save: time or money. Knowledge challenges The whole purpose of this ebook comes as a result of SMEs and the knowledge challenges you face when dealing with small business tax. From the outset, it will be difficult to near-impossible for an SME owner to know exactly when and how to register for tax, and which types of tax to register for. Following that, you d need to know how to apply the different rules and calculations to ensure your tax results and payments are accurate and compliant with SARS s requirements. #12

15 Conclusion

16 Conclusion Small business and SME owners have enough to worry about without the threat of not being tax compliant. This Tax Guidebook has provided a detailed view of what taxes SMEs need to be aware of for their businesses, the tax brackets into which their businesses fall, and what SARS is doing to help keep SME owners and entrepreneurs tax compliant. tax compliant? There are also a number of challenges presented to entrepreneurs and SMEs, over and above trying to develop their businesses and offer competitive services to the market. These challenges are being addressed albeit slowly by SARS, who recently introduced the SARS Helpdesk for SMEs. Should you need any further help with your company s tax, contact SARS on the details provided in Section 3 of this ebook. To truly simplify your PAYE submissions to SARS, consider implementing a payroll solution like Sage Pastel Partner Payroll. Click here for more details. #14