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Tax Incentives For Small Businesses – Give The Little Guy A (Tax) Break

Government has recognised that is unrealistic to expect small businesses to pay the same level of taxes as more established businesses. This led to the introduction of two favourable tax regimes available to certain small businesses.

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Entrepreneurs and small businesses play an important role in our economy, particularly to combat unemployment. Government has recognised that is unrealistic to expect small businesses to pay the same level of taxes as more established businesses. This led to the introduction of two favourable tax regimes available to certain small businesses. 

Small business corporations 

The more well-known of the two regimes is the “small business corporation” (commonly abbreviated as “SBC”) as defined in the Income Tax Act. An SBC benefits from a reduced income tax liability through reduced income tax rates and accelerated depreciation allowance for movable assets. 

Most companies pay income tax at a flat tax rate of 28% on their taxable income. SBCs, on the other hand, can benefit from a reduced tax liability if their taxable income does not exceed R550 000 in a year of assessment. For 1 April 2017 to 31 March 2018, qualifying SBCs will not pay tax on the first R75 750 taxable income. Thereafter, the SBC will pay tax at a progressive rate starting at 7%, 21% of taxable income exceeding R365 000 and 28% on taxable income exceeding R550 000. SBCs may also qualify for accelerated depreciation allowances against taxable income.

Related: 7 Top Tax Tips For SMEs

If a qualifying SBC owns plant or material and uses it directly in a process of manufacture or similar process, the SBC may reduce its taxable income by the full cost of the plant or machinery in the year of assessment in which it is brought into use for the first time.

An SBC may elect to apply accelerated deprecation rates to other movable assets, which would ordinarily have been regarded as wear and tear or depreciation. An SBC may choose to reduce its taxable income by 50% of the cost of the asset in the first year of assessment during which the asset is first brought into use, 30% of the cost in the second year, and 20% in the third year.

Not all small businesses qualify as SBCs. The following entities may qualify as an SBC: a close corporation, a co-operative, a private company and a personal liability company, if at all times during the year of assessment all of the shareholders or members of that entity were natural persons.

Additional requirements that must all be met to be regarded as a SBC, include:

  1. The entity’s gross income may not exceed R20 million for the year of assessment
  2. No member or shareholder of the entity may, at any time during the year of assessment, hold any shares or have any interest in the equity of another company, other than certain specific exceptions which include listed companies, collective investment schemes and others
  3. Not more than 20% of the total receipts or accruals and capital gains of the entity may consist collectively of “investment income” and income from the rendering of a “personal service”
  4. The entity may not constitute a “personal service provider” as defined for tax purposes.

The term “personal service”, for purposes of the SBC regime, is defined to include a wide array of professions, including:

  • any service in the field of accounting, actuarial science, architecture, auctioneering, auditing, broadcasting, consulting, draftsmanship, education, engineering, financial service broking, health, information technology, journalism, law, management, real estate broking, research, sport, surveying, translation, valuation or veterinary science, if
    • that service is performed personally by a person who holds an interest in the entity; and
    • that entity does not throughout the year of assessment employ three or more full-time employees (other than a shareholder or member or a connected person in relation to a shareholder or member) who are on a full-time basis involved in the business of the entity of rendering that service.

If an entity (in a year of assessment) employs three or more full-time employees (other than a shareholder or member or a connected person in relation to a shareholder or member) who are on a full-time basis involved in the business of the entity of rendering that service, it will not be regarded as rendering a “personal service” and will not be regarded as a “personal service provider”.

Related: What Should I Know About Dealing With Tax When It Comes To My Business?

A company, co-operative, close corporation or personal liability company should therefore carefully consider compliance with the requirements and, if so, take advantage of this favourable tax regime.   

Turnover tax payable by registered micro businesses

 turnover-tax

Businesses are not only burdened by their actual income tax liability, but also by their tax compliance obligations in this regard. This led to the introduction of an optional simplified tax system for registered micro businesses in terms of the Income Tax Act, known as the turnover tax regime.

The turnover tax regime allows qualifying micro businesses to register for and pay a single tax known as turnover tax instead of various other taxes. The turnover tax replaces income tax (including provisional taxes and capital gains tax) and to an extent dividends tax. A micro business is still required to withhold payroll taxes and VAT (if voluntarily registered as a VAT vendor). 

Turnover tax is calculated by applying the relevant turnover tax rates to the taxable turnover of the micro business as determined. For any year of assessment ending on or within the 12-month period before 28 February 2018, registered micro businesses will pay no turnover tax on a taxable turnover not exceeding R335 000.

A turnover tax will apply to 1% of the taxable turnover exceeding R335 000, 2% of the taxable turnover exceeding R500 000, and 3% of the taxable turnover exceeding R750 000. 

Registered micro businesses also benefit from reduced record-keeping requirements and only need to retain information relating to the following:

  1. Amounts received during a year of assessment;
  2. Dividends declared during a year of assessment;
  3. An asset with a cost of more than R10 000 at the end of a year of assessment; and
  4. A liability that exceeded R10 000 at the end of a year of assessment.

As with SBCs, micro businesses are subject to strict requirements of registration. The turnover tax is available to individuals (sole proprietors or partners in a partnership), close corporations, co-operatives or private companies, if their qualifying turnover (as determined) does not exceed R1 million in a year of assessment.

Related: Payroll Tax: 6 Things Small Business Owners Should Know

Certain persons are disqualified as micro businesses, including:

  1. Persons holding shares or having any interest in the equity of a company, other than certain specific exceptions which include listed companies, collective investment schemes and others;
  2. If more than 20% of the total receipts during a year of assessment consists of income from the rendering of a “professional service” (for natural persons) or the aggregate of “investment income” and income from the rendering of a “professional service” (for companies);
  3. If the proceeds from the sale of certain capital assets used mainly for business purposes exceed R1,5 million over a three-year period;
  4. Companies with a year-end other than the last day of February;
  5. If any of the partners, members or holders of shares are not natural persons in a year of assessment;
  6. Personal service providers and certain labour brokers;
  7. Public benefit organisations, recreational clubs, associations and small business funding entities; and
  8. Special rules apply to partnerships.

The term “professional service”, for purposes of turnover tax, includes the same array of professions as for the SBC regime, for example a service in the field of accounting, actuarial science, etc. However, for turnover tax, no exception applies for businesses rendering professional services that employ three or more full-time employees.

Businesses rendering professional services, although they will not qualify for turnover tax, may possibly qualify for the SBC regime, provided they employ three or more full-time employees in addition to meeting the other criteria of qualifying as a SBC.

The turnover tax regime does seem to significantly reduce the tax compliance burden of certain small businesses. It may not be the best option for every small business as it imposes tax on a turnover basis as opposed to a taxable income basis – thus affording lower tax rates but without taking into account exemptions or deductions that would otherwise have reduced taxable income.

We understand that very few businesses are registered as micro businesses on the turnover tax system. This could be ascribed to the determination of whether a business meets the registration requirements.

Author: Esther van Schalkwyk

Entrepreneur Magazine is South Africa's top read business publication with the highest readership per month according to AMPS. The title has won seven major publishing excellence awards since it's launch in 2006. Entrepreneur Magazine is the "how-to" handbook for growing companies. Find us on Google+ here.

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Entrepreneur Today

Surge In South Africans Swopping Their Cars For Bitcoin

The cryptocurrency Bitcoin has experienced a seemingly interminable rise. Early adopters have experience lottery-sized pay-outs on minor investments as the currency exploded in value in 2017.

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The cryptocurrency Bitcoin has experienced a seemingly interminable rise. Early adopters have experience lottery-sized pay-outs on minor investments as the currency exploded in value in 2017.

As South Africans are itching to get their hands on the digital currency, there’s been an increase in swops and bitcoin-only sales on Gumtree.co.za, says Claire Cobbledick, Head of Core at Gumtree. “This is particularly true for high-value items like cars, bikes and boats. Many sellers are willing to take a gamble with their assets in hopes of a large pay-out.”

This is on trend with other marketplaces. In the United States a McLaren 720S was put up for sale in exchange for 25 bitcoin, a theoretical value of $425,000.

Related: 11 Things You Need To Know About Bitcoin

While Gumtree does not allow for the sale of bitcoin miners or services, Cobbledick says that customers can exchange goods for bitcoin on the site, but should be fully aware of the risks. “Bitcoin is a volatile currency, so while you could easily see a 50% increase in your investment, you could just as easily end up with nothing. It’s up to the seller to decide if they are willing and able to take a gamble.”

Some cars currently up for sale in exchange for bitcoin includes a Land Rover Defender, BMW X5 and a rare 1970 Mercury Cougar V8.

“There are also a few other sellers accepting bitcoin in exchange for Kruger Rands,” says Cobbledick. “Perhaps proving that gold as a store of value is falling out of vogue.”

But the most unusual swop would have to go to an entrepreneurial seller who is offering carnivorous plants in exchange for the cryptocurrency.

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Zando Sold 80 Items A Minute During Black Friday – By Doing This

Black Friday has brought immense success for numerous local online retailers – reflecting the potential of e-commerce in South Africa. Why not learn from Zando’s success in 2017 to ensure your success during the 2018 Black Friday sales season?

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For South African e-retailers, Black Friday is a big sales event. But you need to ensure you’re prepared for the web traffic and that your e-commerce store can handle the logistics of thousands of orders.

zando-sascha-breussAccording to Zando, they experience 100% up-time during Black Friday and less than a week after the season sales event, 95% of customer orders have already been shipped.

To help fellow e-tailers perform better next year, Zando’s CEO, Sascha Breuss answers some key questions about the company’s preparations and learnings around Black Friday:

1. How did you encourage greater sales on Black Friday?

Over the last few years Black Friday has developed a following in South Africa, so we benefitted from the existing hype around it. We didn’t focus too much on upfront marketing, but put our energy into flawless execution and of course great deals for the customers.

Related: The Evolution Of Retail: From Corner Store To Artificial Intelligence

2. How much planning went into ensuring your store platform ran at optimum?

The real ‘hot phase’ started with the first day of November when our IT department went into a ‘feature freeze’ and we focused 100% on site-stability and scalability.

We went through some intense testing of our site with loads up to 15 times the average daily amount of visitors. So, when the actual day came, we were confident in our systems.

3. How were you able to successfully co-ordinate logistics during Black Friday?

Early preparation and experience from past years have been the key to success. We increased our head count in both Warehouse and Customer Service well in advance so that we could rely on well-trained and experienced colleagues come Black Friday.

4. How did you ensure a seamless experience between your website and your app?

We know that our customers are browsing Zando on all platforms, desktop, mobile and app so we implemented some handy features to make the transition between each platform easier. For example, shared baskets and wish lists are now a feature. Some of the deals however have been app-only and sometimes we reward our app users with early access to shop the best deals. So it is definitely worth it to download our app.

Related: How SA’s Online Retailers Can Cash In On Black Friday Fever

5. How did you scale your entire operation for a single event?

This is easy to summarise in one word – TEAMWORK. The Zando staff did an amazing job and were the backbone of our success. Not only did they put the required extra hours in and worked hard until the job was done, but they also showed real team-spirit. When you called our Customer Service during Black Friday it’s very possible that you spoke to someone in our HR, Social Media or Legal team who helped out answering calls.

6. How did your marketing campaign affect traffic on your platforms?

The most surprising element was probably the high volume of traffic that we saw during the night. Visits started to increase every minute before midnight and during the first two hours of the day we saw peaks that were higher than on our strongest week day. This traffic never dropped with a lot of orders being placed between 2am and 3am on Black Friday.

7. How did your technology systems handle the influx of shopper traffic?

In the build up to Black Friday we added additional server capacity and changed the way we handled the flow of traffic. This made us very flexible to switch on additional capacity wherever required. So it was a combination of intensive preparation, close monitoring and ultimately very little sleep for a couple of days to ensure we monitored our system health 24 hours a day.

8. What was your sales strategy?

For us everything that had a discount of 40%-80%, and was still a relevant and recent look, qualified for Black Friday 2017. Once these criteria were fulfilled we made sure that we had sufficient stock available – in some cases the demand was so high that we brought on additional stock from our suppliers during the Black Friday weekend.

Related: 5 Last-Minute Tips For Small Retailers To Boost Black Friday Sales

9. What were your biggest learnings?

We have been very successful in our approach to remain true to the idea of Black Friday – offering great deals on relevant product and not outdated clearance ranges. The customer is very educated and will identify a good deal, and we have seen consumers’ negative comments on stores who used Black Friday solely as a warehouse clearance opportunity.

10. What surprised you about Zando’s success during Black Friday?

Thanks to extensive preparation we have been able to achieve an uptime of 100% for the full month of November. We also kept the deliveries and returns 100% free regardless of discount or basket size. It seems like our customers appreciated this approach and we have actually seen very positive sales numbers after Black Friday while we expected a drop. I believe the full focus and investment on the Customer Experience has worked for us.

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Team Resolutions: 11 Tips To Uncover Passion And Potential In New Hires

If there’s one resolution HR departments should make this new year, it should be to transform the onboarding experience for new hires.

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If there’s one resolution HR departments should make this new year, it should be to transform the onboarding experience for new hires says Michelle Seko, Talent Acquisition Manger at Sage Africa & Middle East.

The importance of a good candidate experience cannot be underestimated. Research has shown that 88% of job applicants are more likely to buy from a company if they’ve had a positive experience when applying for work there. Research has also shown that candidates talk about their experiences with a company, regardless of whether they got the job. Some candidates would even refer a friend to the company and others will re-apply for a future role, if the experience was a good one.

Research also found that:

Related: Why You Should (Seriously) Stop Hiring People

Win-win

Businesses enter into a relationship with a new hire the moment they sign on the dotted line. And, as with any relationship, it will only flourish if built on trust, respect and a commitment to self-improvement.

When you set new hires up for personal success, the outcomes naturally feed into your business’ success, which means you both win.

Here are a few ideas to get the most out of your new hires:

Make them feel welcome

Introduce them to the people they’ll be working with as soon as possible so that they immediately feel part of a team. At Sage, we partner new hires with a buddy, or Sage Ambassador, who helps them settle in and meet new people, contributing to the positive on-boarding experience.

Focus on the benefits

Compelling benefits not only attract the best candidates but also boost loyalty and job satisfaction. People are motivated by different things: one person might value flexi-time while another could place more importance on growth opportunities or bonuses. Focus on the benefits that align with the individual’s values when onboarding.

Set goals early and outline a plan to achieve them

This keeps your team focused, especially if they will be rewarded for achieving their goals.

Assess performance

Monthly, at least. Adjust goals and plans where necessary, reward good performance, introduce new challenges and deal with issues promptly.

Show genuine interest

Regular catch-ups and remembering children’s names, for instance, makes people feel appreciated.

Empower them

Let your new hires apply their knowledge to business challenges and offer training opportunities outside of their comfort zones. Reward ideas that help you do things better and faster.

Related: Hiring The Right Person Is Critical When Growing A Business

Encourage collaboration

People thrive when they can learn from others and when they can share their knowledge. Involve experienced team members in the new hire’s training. This is a great way to recognise and appreciate their loyalty and skills.

Be transparent

Do you have difficult clients? Will the new hire have to work overtime? What are the business’s goals? New hires should know what they’re getting into.

Provide solid training on everything from company culture and benefits, to opportunities for growth

The biggest cost associated with training people is the time it takes for them to become productive. But rushing through on-the-job training could lead to a host of other problems, including repeated mistakes and a lack of confidence.

Openly communicate any changes in the business

Manage your team’s expectations and be clear about yours. Allow new hires to question and understand how you do things and to point out errors – their past experience probably gave them new ideas and ways of working that could boost your team’s efficiency and productivity.

Be upbeat

Your mood sets the tone for everyone else. You can have the best product in the world but unless your team is passionate and enthusiastic about that product, you won’t get the results you’re hoping for.

Keeping people motivated and productive is hard work

But if you provide them with the tools, knowledge and support to do their best work and to contribute their best ideas, motivation and productivity will come naturally.

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