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Stop Making Tax Mistakes

SMEs tend to all make the same tax-related mistakes. Here’s what they are, and how you can change them.

Le Roux van der Walt

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As an SME owner, if you feel a bit out of your depth when dealing with tax, don’t worry, you aren’t alone. By far, the most common tax related legal mistakes relate to payroll, staff and salaries, and they are prevalent amongst SMEs.

Complicated compliance

Tax rates have reduced year-on-year for the last couple of years due to the fact that more and more income earners have been drawn into the tax net.  This simply means that systems have been put in place and improved to ensure that people who earn money and should be taxed, now pay the tax due.

In previous years it was a regular occurrence for people who earned multiple incomes from multiple employers not to submit a tax return, nor pay the taxes due on their income. However, while more people paying the correct amount of tax means that everyone can pay a little bit less each year, it also means that more emphasis is placed on payroll compliance. The paperwork and documentation in this regard has become more and more complicated and the level of compliance has increased.

Recording salaries, wages and taxable employee benefits (even, for example, paying the staff member’s transport) has become a cumbersome task, as has dealing with freelance and independent contractors. An expert should be consulted on a regular basis to inspect payroll records to ensure that your business remains compliant.

It’s important to remember that payment of wages or salaries may not be made to anyone without obtaining their income tax reference number, identity number (and copy of ID, just to be safe), contact details, such as telephone and address, and their banking details.  It is best to draw up a template that is completed whenever payment to a new staff member or casual is made for wages or salaries, instead of trying to obtain these details after the fact.

The Income Tax Act is often amended, and unless regular checks are done by a professional to ensure that your business remains compliant with the laws that govern employment, it can cost you dearly in penalties and the double payment of taxes that were not deducted from staff and paid over to SARS when required.

Common FAQs

Here are the three most common questions that SME owners ask me.

Q: What are financial year ends, and when is mine?

  • Companies (CCs and PTYs) can choose which financial year end they would prefer, and it can be any month of the year.  This is done when they are registered with the CIPC (previously CIPRO) and can be changed if need be.
  • Individuals’ financial year end in South Africa is always February, for everyone.

Q: May a specific expense be deducted for income tax purposes?

  • The basic principle here is that any expense paid for, that is ‘in the production of income’, is deductible against income earned, for income tax purposes. A basic example is: ‘In order to sell my goods, I have to place an advertisement in the newspaper.’ The advertising costs may be deducted from the income earned from sales, as a tax deductible expense. This concept basically leaves ‘allowed’ expenses wide open, and if an expense can be adequately justified as a necessary expense in order to earn income that resulted from that expense, then it may be deducted for income tax purposes.

Q: When do I need to register my business for VAT?

  • Only once your business sales/turnover (not salary) in any 12 month period is expected to exceed R1 million does it become compulsory to register for VAT.
  • Alternatively, if your business needs a VAT registration number for tender or other contractual business purposes, then a voluntary VAT registration number may be obtained.  One of the basic requirements here would be proof that more than R50 000 in turnover/income has already passed through your business account.

Le Roux van der Walt is an accountant who swopped the overstressed, underpaid life of working at a firm of Chartered Accountants in the Cape Town city centre, where clients are simply another file on his desk, for the more fulfilling life of working for himself and servicing smaller clients in person. Lighthouse Consulting gets its name from the view from Le Roux’s office where he started off in Mouille Point, and signifies the guiding light Lighthouse Consulting aims to be for their clients. Email leroux@lighthouseconsulting.co.za for more information.

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Take The Toll Out Of Tax

Remember that degree you’ve got in taxation? Of course you don’t, because you didn’t. Your job isn’t understanding tax code – that’s ours.

QuickBooks SA

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When you connect QuickBooks to your bank, credit cards and other accounts, your transactions are automatically imported for you, helping you ensure that come tax time, your books are balanced, and every rand is accounted for.

Once you find the right QuickBooks product for your business needs on your computer, downloading the QuickBooks companion app turns your phone’s camera into an instant receipt scanner. Snap, save and store tax deductible receipts with built-in receipt scanner. Simply take a photo of a receipt and QuickBooks will attach it to the expense in your books. Plus, the scanned receipt is saved as a digital file for documentation at tax time.

Not only does the QuickBooks app come with built-in receipt scanning to help you track and organise your expenses, it can enable you to run your business with the following features:

  • Automatically sort your expenses and save over 40 hours a month
  • Easily send invoices and payment reminders directly from your mobile device, anytime anywhere
  • Imports your transactions for you so you’ll spend only minutes reconciling your accounts at the end of the month
  • Create customised reports to get important insights specific to your business

Join over 5.6 million customers globally and find the QuickBooks plan that works for your small business on www.quickbooks.co.za. Save 30% on your subscription today! Terms and conditions apply.

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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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