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5 Tax Questions Every Business Owner Should Ask In 2016

Here are the five tax questions every small business owner should be asking their tax consultant this year.

Yolandi Esterhuizen

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It’s tough out there. Entrepreneurs need to do more with less and keep an eye on changes in the tax legislation, as these could affect their payroll calculations and the tax they need to pay on behalf of their employees.

Finance Minister Pravin Gordhan’s recent budget speech admirably brought a sound outline for the country’s framework for the next year with some changes in tax legislation.

Some of these legislative changes (as included in the amendment Acts and reiterated in the budget speech), such as employee contributions to retirement funds, will most probably have an impact on the company’s payroll systems.

Related: Do You Know Your Taxpayer Rights?

1. What is happening with the Employment Tax Incentive (ETI)?

The 2016 Budget indicates that the ETI will be reviewed in the third quarter of 2016 with a view to extending its life for another year.

It is still debatable whether ETI has been effective in addressing the crisis of youth unemployment.

If the legislation is to be renewed, it needs substantial changes to make it more effective and to encourage wider participation by businesses. Areas of difficulty in the current legislation include:

  • Putting the responsibility for minimum wage compliance into the ETI Act has compromised its simplicity and effectiveness.
  • The three-step formula used to calculate the monthly incentive, results in complicated and poorly understood ‘grossing-up’ calculations that the payroll must perform if a ‘partial month’ is worked.
  • If employers claim the monthly incentive in a month in which they are inadvertently not tax compliant, penalties and interest can be the result.  This risk is too high in the opinion of some employers.

Generally, some employers are of the opinion that the administrative costs and risks outweigh the financial benefit of the incentive. I am hopeful that pragmatic changes to the ETI Act can address these challenges and improve its effectiveness as a way to boost youth employment rates.

2. Will there be any changes to employee contributions towards retirement funds?

Yes. From March 2016, any employee contributions towards a retirement fund (pension, provident and retirement annuity) are tax deductible, subject to a limit which must be applied by the employer. Previously, contributions towards a provident fund were not tax deductible.

The employee may contribute more than these limits, but he/she will only receive the tax benefit up to the statutory limit. Any contributions made by the employee in excess of the limits will reduce the taxable value of any lump sum paid in future.

Related: Don’t Forget to Claim Qualifying Tax Deductions

3. Am I obliged to register with SARS for skills development?

Yes. All employers registered with SARS for employees’ tax purposes in terms of the Fourth Schedule of the Income Tax Act, must register with SARS for skills development, irrespective of whether they are excluded from paying the levy by one of the following conditions:

  • any public service employer in the national or provincial sphere of government,
  • any national or provincial public entity, if 80% or more of its funding comes from government,
  • any religious or charitable institution,
  • any municipality in possession of a certificate of exemption, and
  • any employer where the total annual remuneration for the next 12 months is not expected to exceed R500 000.

4. Has there been any change to the income replacement policies since 2015?

Tax-changes

No. Since March 2015 premiums towards an income replacement policy were no longer tax deductible and this remains the same. It has not been affected by the changes to retirement fund contributions and how it should be treated on the payroll.

5. Are medical aid contributions still no longer tax deductible on the payroll for employees who are 65 years or older?

Yes. Since March 2014, medical aid was no longer tax deductible for employees who are 65 or older.

If an employee contributes towards a medical aid, the employee will be entitled to a tax credit amount.

However, effective from March 2016, these individuals will also be allowed an additional medical tax credit on the payroll. This value is calculated by allowing 33.3% of the value of the medical aid contributions which exceeded 3 times the normal medical tax credits.

Related: Tax Basics For Business Owners

Closing words

I believe that the global economy is powered by SMEs. Economic stability, growth and employment are reliant on the success of SMEs. Entrepreneurs are the drivers of potential prosperity. This will only be possible if tax legislation and the country’s fiscal policy supports this section of the economy.

To learn more about PAYE legislation changes for the 2016/17 tax year simply download the Sage Payroll Tax Guide 2016/17.

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1 Comment

1 Comment

  1. Dieter Munnik

    Jun 22, 2016 at 08:33

    What changes in tax legislation and fiscal policy would you recommend to be changed in order to assist entrepreneurs / SME’s ?

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Tax

7 Direct And Indirect Taxes You Should Consider Before Registering Your Business

Tax planning is critical for us all more so for the success of your newly registered entity.

Kenlin Stride

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If your business has been registered, guess what in the eyes of the law your business is now a legal entity, congratulations. What does this mean? Well this means your business is a distinct legal entity separate from you in the eyes of the law, this means your business can now enter into contracts to purchase assets, utilise debt instruments and hire staff amongst other things. This unfortunately also means your business is subject to tax compliance. Let me try and give you a snapshot of what taxes to be aware of as a business owner however not all will automatically be applicable to your business.

1. Income Tax

Income tax is one of the state’s main sources of revenue and is levied on taxable income determined in terms of the Income Tax Act. All businesses must be registered for Income Tax. It is illegal not to be registered for Income Tax if you have a business.

2. Provisional Tax

The payment of provisional tax is to assist taxpayers in meeting their tax liabilities by way of installments out of their taxable income. Income tax is only paid once the full 12 months of trading is complete. It would be impractical to expect taxpayers to pay one large lump sum of income tax to SARS. Companies automatically fall into the provisional tax system.

Related: Tax Basics For Business Owners

3. Small Business Corporations Tax

SBC Tax was introduced as a tax relief measure for small business. SBC Tax will not be calculated on the flat 28% of taxable income. Dependent on your annual taxable income, you will be liable at the percentages in the table.

4. Pay As You Earn

Employees’ tax refers to the tax required to be deducted by an employer from an employee’s remuneration (salary) paid. The process of deducting or withholding tax from remuneration as it is earned by an employee is commonly referred to as PAYE.

5. Value Added Tax

This is an indirect tax levied on the ‘sale’ and ‘purchase’ of goods and services. This tax is not compulsory unless your turnover has exceeded R 1 000 000 mark however you choose to register voluntarily if it makes sense for your business strategy.

Related: How to Reduce Your Taxable Income

6. Unemployment Insurance Fund

UIF contributions are compulsory for all employees working more than 24 hours a month. The contributions are paid to the Department of Labour (DOL), or can be included in the SARS payment of PAYE on the EMP201

7. Workman’s Compensation

An employer must register with the Commissioner within seven days after the day on which he employs his first employee, (this includes the Director or Owner of the company)

You might be thinking tax compliance, what’s the big deal? I’ve been doing that most of my adult life, well personal tax is very different to business tax. As the director of your newly registered business it is assumed that you have done the research as to what laws to comply with as a business owner. In reality however the thrill of having a business overshadows the mundane compliance elements that go hand in hand when running a business. Let’s face it as much as your business is now a legal entity your business won’t do the research and comply with the necessary taxes on its own that responsibility lies with the director and when I say director I mean you.

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Tax

Tax Refunds – What You Need To Know

You are able to object/dispute any SARS decision not to release the refund on efiling or through your tax practitioner.

Maselaelo Mphela

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Most taxpayers are not aware of the requirements for a tax refund to be facilitated and SARS very often will delay paying out the refund. In this article, we will look at the requirements taxpayers need to be aware of and the Tax Ombud’s report on the investigation into alleged delayed payment of refunds as a systemic and emerging issue in terms of section 16 (1) (b) of The Tax Administration Act No. 28 of 2011 (TAA).

What you need to know as a taxpayer:

  • The tax refund must be claimed within 5 years from date of submission of the return.
  • SARS has the right to withhold the refund as per section 190 (2) of TAA: “SARS need not authorise a refund as referred to in subsection (1) until such time that a verification, inspection or audit of the refund in accordance with Chapter 5 has been finalised.”
  • Authorisation of payment of refund done once SARS is satisfied with the acceptable security provided by the taxpayer in terms of section 190 (3) of TAA: “SARS must authorise the payment of a refund before the finalisation of the verification, inspection or audit if security in a form acceptable to a senior SARS official is provided by the taxpayer.”
  • As a taxpayer, you need to ensure that you verify your banking details with SARS and that there are no outstanding returns in order for your refund not to be delayed.
  • Any decision not to refund by SARS is subject to an objection and appeal by the taxpayer in terms of section 190 (6) of TAA.
  • Refunds less than R100 are not refunded but carried forward to the next tax period.
  • To view the status of your refund you can use the Refund Dashboard on efiling under the ‘Returns History’ tab for the tax period in question or contact the SARS call centre.
  • Interest starts accruing from 21 business days from the date on which the refund became due, i.e. verification/audit outcome finalised.

Related: Tax Basics For Business Owners

Tax Ombud’s Report

The Tax Ombud’s report identified various mechanisms used by SARS to defer or delay the payment of refunds due:

  • SARS failing to link submitted supporting documents at a SARS branch to the main file.
  • The use of special stoppers on taxpayers’ accounts and the delay in lifting the stoppers, e.g. being required to verify banking details in person at a SARS branch. Even after the verification is done, there is still a lengthy delay in paying the refund.
  • Using the filing of new returns as an excuse to block refunds. The system blocks already verified refunds the moment a subsequent return is submitted by the taxpayer.
  • Withholding of refunds for one period while an audit/verification is in progress on another period. This is contrary to section 190 of the TAA.
  • The use of historic returns suddenly reflecting as outstanding but these have never been shown as outstanding on the Tax Clearance Certificate or the Statement of Account.
  • The raising of assessments and passing of journals to absorb credits on taxpayers’ accounts, i.e. overpayments. In doing so, SARS creates fictious tax liabilities instead of making a decision on the refund.
  • Requesting further information during the audit to delay finalisation, thus delaying the time frame from when the interest accrues.
  • No turnaround time for assessments successfully disputed.
  • Obstacles regarding diesel refunds.
  • Raising of assessments prematurely before the 21 days to submit the supporting documents
  • Refunds for periods that have been verified automatically set-off against bad debts on other periods not withstanding a request for suspension or where there is the suspension of payment. SARS may not instate any collection steps from date of submission of request for suspension of payment until 10 days after decision to not grant the request has been communicated to the taxpayer in terms of section 164 (6).

You are able to object/dispute any SARS decision not to release the refund on efiling or through your tax practitioner.

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Company Posts

Reimagine The Use Of Technology

The phenomenon of ‘big data’ is rapidly catching up with the world of tax.

PwC

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As tax professionals we live in a new reality, fueled by the blinding pace of change. The digital revolution is here. Reimagine the future of the tax function through the lens of analytics.

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