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Tax Relax: Amnesty for SMBs

How does the tax amnesty for small businesses apply to you?

Juliet Pitman

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Small business plays a vital role in stimulating growth in the economy, fostering job creation and creating wealth. There are, however, many small businesses that are not fully tax compliant and even though many of them would like to become compliant, to do so would mean risking tax payments and penalties.

In his 2006/2007 budget speech, Finance Minister Trevor Manual announced that SARS would offer a tax amnesty to small businesses with a turnover not exceeding R5 million who have previously not been compliant with the tax system. If you have a friend who knows someone who has a friend in this position, then read on.

Tax amnesties are SARS’ way of offering an olive branch to taxpayers who they would otherwise fine and prosecute for non-compliance. It’s a golden opportunity and one you should not hesitate to take.

As SARS states in a document posted on its website: “It should be noted that revenue collection is not the immediate goal of registering small businesses for tax purposes. Bringing people into the taxnet is not always about immediate gains – it is also about future contributionsand general improvement in the culture of compliance. This amnesty enablescompliance and regularisation.

“As businesses grow, they can see the benefits of moving into the formal economy. One part of this growth is about regularising their relationship with government, including SARS as a revenue administration. It will also enable small businesses who are partiallycompliant to eliminate any uncertainties that may exist in respect of taxation.”

In this particular case, taxes, penalties and interest will be waived for years of assessment ending on or before 31 March 2004, subject to a non-disclosure penalty of 10% based on taxable income for 2005. This applies to small businesses that have been totally non-compliantas well as those that have been only partially compliant; that is, those that are registered but that have under-declared their tax position.

The amnesty will be rolled out in two phases. Phase one pertains to taxi operators, and the amnesty window period for this will run from 1 August 2006 to 31 May 2007. Phase two will include other qualifying small businesses and will commence later in the year.

All persons (natural persons, trusts, companies and co-operatives) who operate one or more businesses, the collective turnover of which does not exceed R5 million for the 2005 year of assessment, qualify to apply for amnesty. This includes persons unregistered for tax purposes at 31March 2004 and those who are registered taxpayers and whose income from small business activities has not been declared or has been understated.

Income from salary and investment is excluded from this amnesty, as are those people who are the subject of enforcement action and who have received a letter from SARS stating that they are the subject of a tax audit or investigation. In addition, the amnesty excludes any person who has already submitted a return to the extent of the amount already disclosed.

Amnesty will be refused or revoked in those cases where a person fails to make full disclosure of all income received inthe 2005 year of assessment, as well as a full disclosure of such person’s assets and liabilities as at the end of that year.

How to Apply

You need to apply for amnesty in writing to SARS during the window period for the phase that applies to you. If you qualify, you will be required to pay a levy of 10% based on taxable income from small business operations for the 2005 year of assessment. No refunds will be made for taxes paid in respect of years of assessment for which amnesty has been granted.

A separate unit within SARS will be established to process all applications on a confidential basis.

Contact your regional SARS office for more information, or visit www.sars.gov.za.

Juliet Pitman is a features writer at Entrepreneur Magazine.

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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