Taxation for small businesses
If you’ve ever considered opening a business or found yourself wanting to scratch that metaphorical entrepreneurial itch and the thought of taxes and how they work seemed daunting to you, then this is for you.
Taxes are no easy feat; however, there are things to know that could make a world of difference to you. One of the keys is to track the movement of money from the very start. Many entrepreneurs and business owners start their journey by registering as sole proprietors or partnerships before the company starts generating enough income to be registered as a private company (Pty Ltd).
The first type of business we’re looking at is a sole proprietor, in which one person owns all business assets. In this instance, the individual is legally liable for any debts that may arise through the business. Their assets could be used to pay off business debts should the need arise. Should the individual pass away, the company will seize to exist. However, the legal requirements and tax legislation are far less stringent than a registered company.
When it comes to taxes for sole proprietors, an individual does not need to register the business with SARS as all income and expenses get added to your personal annual income tax returns and added to any additional income streams. You will only need to register for provisional tax if; (1) you are self-employed and earn a taxable income above the threshold of R91 250 for the 2023 tax year, (2) you are employed and run a side business, and your total taxable income exceeds the threshold. Should your turnover exceed R1 million, you must register as a VAT vendor.
As a sole proprietor, you can claim all business expenses as a tax-deductible expense. These may also be referred to as operating expenses. These overheads include motor vehicle costs, printing and stationery, entertainment, cell phone costs and retirement annuity contributions.
See The Financial Hustlers article on Retirement Annuities and how they can benefit you.
If you are working from home, you can claim deductions on the portion of your house that you use for trade. Some office expenses include rent, cost of repairs, cleaning, and security costs. Partnerships follow a very similar structure; however, everything is split between the partners.
(Please see the complete list of deductible expenses – https://www.taxtim.com/za/guides/the-guide-to-small-business-tax)
Due to increased turnover, you need to obtain SARS tax clearance certificates as your business grows. SARS requires you to prove that your business is tax compliant and that there is a paper trail of the movement of money in your industry. This would need you to register your business on the CIPC (Company and Intellectual Property Commission) website. Your business will now become a separate legal entity. The business will now have a different tax regime. The director will have to submit a separate individual tax return.
The second type of business is a private company. A private company (Pty LTD) must consider turnover tax. This category is for businesses that turnover less than R1 million and is regarded as a microbusiness. This includes all capital-related receipts, including proceeds from the sale of large business items. You will be required to submit two provisional tax returns, the first being six months into your current financial year and the second at the end of your tax year (TT02), with a third top-up available should there be a shortfall after year-end (TT03). Paying semi-annually ensures you spread your tax payments out over the year instead of needing to produce one large amount at the end of the tax year.
It is essential to have an accurate financial plan as your payments are based on forecasts. Business expenses and office expense deductibles apply to private companies as well. You will be eligible for dividend tax at 20% if you take out dividends from your company or receive dividends from your investments. An individual must submit claims within a month of the dividend being paid using a DTR01/02 return form.
There are many great ways to efficiently conduct your tax returns to maximise rebates. You should always contact a tax consultant, accountant or The Financial Hustler.
SARS Website: https://www.sars.gov.za/businesses-and-employers/small-businesses-taxpayers/
Financial Disclaimer: The Content is for informational purposes only; you should not construe any such information or other material as legal, tax, investment, financial, or other advice. Nothing in this post constitutes a solicitation, recommendation, endorsement, or any third-party service provider to buy or sell any securities or other financial instruments in this jurisdiction. Such solicitation or offer would be unlawful under the securities laws of such jurisdiction. All Content on this site is information of a general nature and does not address the circumstances of any particular individual or entity. Nothing on the Site constitutes professional and financial advice, nor does any information on the site includes a comprehensive or complete statement of the matters discussed or the law relating to that.
Share this article! 
