Tax for Small Business

Last week I presented a webinar on preparing a budget as a small business. During the Q&A I fielded several questions about tax.

As the saying goes, of two things you can be certain: death and taxes. So, for this article I decided to demystify tax for small businesses.

As a business there are several different types of taxes that may apply to you. These include:

Corporate Income tax (CIT)

Corporate income tax is the tax imposed on all resident companies. CIT is levied at 28%, but there are exceptions:

  • Registered Micro Businesses pay turnover tax as per the tax tables. Turnover tax ranges between 0% to 3% of turnover.
  • Registered Small Business Corporations (SBC) pay tax as per the tax tables. The tax payable ranges between 0% to 28%, depending on the total taxable income.

 Provisional tax

Provisional tax is not a separate tax, but rather paying your income tax liability in advance. It requires the tax payer to pay at least two amounts in advance during the year of assessment.

Companies are automatically registered as provisional taxpayers. If you are trading as a sole proprietor you would also need to register as a provisional tax payer.

Read more here

Value-Added Tax (VAT)

You don’t want to get in trouble with this one. I touched on this in one of my previous articles.  Know when to register for VAT and enlist the services of your bookkeeper, accountant, tax practitioner or a professional for assistance.

There are 2 ways in which to register for VAT, namely:

  • Voluntary VAT registration – this is for business that has taxable supplies of less than R1 million but has exceeded R50,000 in the preceding 12 months.
  • Compulsory VAT registration – this is for any business that exceeds R1 million turnover in any consecutive 12-month period

For more information on VAT registration please visit the SARS site

Capital Gains Tax (CGT)

This is a tax that is applicable on gains when you dispose of assets. This applies to voluntary and involuntary disposals.  Let’s say you own a warehouse which you purchased for R1m five years ago. Things in the business have changed and you wish to relocate but to do so you need to dispose of the current warehouse to relocate to the new premises. If you dispose of the property for R1,5m you will be taxed on the R500,000 gain.

Recoupment tax

This tax is applicable when you dispose of assets that you have depreciated. Let’s say you bought manufacturing plant and depreciated it over 5 years. In year six you sell this item to buy a newer machine. Recoupment tax applies between the book value and the value at which you dispose of the item.

Dividend tax

A dividend refers to the profit paid to shareholders.  Tax of 20% is levied on dividends and is withheld by the entity paying the dividend.

Employee taxes (PAYE, UIF & SDL)

If you have one or more employees and any of them earn over the threshold amount you will need to register for PAYE (Pay As You Earn)

All employees, as well as their employers, are responsible for contributions to the UIF. The employer must pay a total contribution of 2% (1% contributed by the employee and 1% contributed by the employer)

Should your payroll exceed R500,000 per annum you are also liable to register for SDL (Skills Development Levy). A levy of 1% of the total amount paid in salaries to employees (including overtime payments, leave pay, bonuses, commissions and lump sum payments) is applicable.

 

By popular request I will soon host a webinar to discuss taxes for Small Business in more detail. I will also discuss taxes on my Business Brainwaves Podcast Show.

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Published On: August 3rd, 2020 / Categories: Micro Business, Newsletters, Small Medium Enterprise (SME), Tax, VAT / Tags: , , , /

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