You’ve started a small business and things are going well. Better than you expected, in fact. You’re making money and are delighted with your progress, celebrating as your turnover inches past R100 000, R200 000 and eventually R300 000 within a couple of months. It’s every start-up business owner’s dream, and nothing should mar your enjoyment of success – provided you are aware of your tax obligations.
According to the SA Revenue Service (SARS), a business owner/taxpayer is defined in this way: “Any person who carries on an enterprise and whose total value of taxable supplies (taxable turnover) exceeds, or is likely to exceed, R300 000 in any 12-month period, must register for VAT.”
From the date that your business exceeds the R300 000 turnover mark – that is, from the date of liability – you have 21 days to register. And if you reasonably expect it to exceed this amount, you also need to register. So, if your business is fast approaching the R300 000 mark and you are still within the 12-month period, be aware of your pending liability.
This type of VAT registration is compulsory. You can also register for VAT voluntarily in certain instances if the taxable supplies of your enterprise exceed R20 000 in a 12-month period. Being registered necessarily adds another administrative load to your business, but it does mean that you can claim back VAT in certain instances.
For compulsory VAT registration, you need to complete a VAT 101 form and submit it to your local SARS office, along with the required documentation, a list of which can be obtained off the SARS website. In theory, the application should take 21 working days, but it can take a lot longer if there are problems with documentation. Submitting the incorrect documents with your registration can lead to seemingly endless delays in obtaining your VAT registration number, and for this reason it is often wise to make use of the services of a tax consultant.
If you decide to send the application in yourself, be proactive. Follow up with SARS to check what stage your application is at. Ask if there are any problems and whether you need to send them any further documentation. If you don’t follow up and there is a problem, there’s a chance SARS will simply mail the application back to you and you’ll have to start the process all over again.
You can check if your registration has been processed by entering your details under “VAT vendor search” on the SARS website. The website states: “SARS employees are not allowed to advise you verbally of your VAT number. If you have not yet received your certificate and require some proof of registration, you can request the local branch office to give you a letter confirming this fact.”
SARS suggests that you allow at least 10 working days for the local branch office to process your documents. They will post the certificate to the postal address given on your registration application within two weeks of your application being processed. For more information, visit www.sars.gov.za
New VAT Legislation
The new amendment to the Act, Section 20 (4), states that the following information must be given on all tax invoices:
- The words “tax invoice” must appear prominently on the invoice
- The name and address of the supplier must be given
- The VAT registration number of the supplier must be given, if the supplier is VAT registered
- The name and address of the recipient must be given
- The VAT registration number of the recipient must be given, if the recipient is VAT registered
- The invoice must have an original, serialised number and clearly show the date on which it was issued
- A full description of the goods or services supplied must be given
- The quantity and/or volume of the goods supplied must be given
- Where VAT is exclusive, the VAT amount must be indicated separately
- Where VAT is included in the total, the amount of the tax charged must be reflected, or a statement that VAT is included and the percentage at which it is included must be reflected
SMEs: Staying On The Right Side Of The Taxman
Remaining SARS compliant can be a constant challenge for small- to medium-enterprises (SMEs), especially when they are trying to focus on growing their businesses and streamlining their operations.
EasyBiz Managing Director, Gary Epstein, says submitting taxes can be a seamless process that does not have to take up more time than is necessary. “If business owners understand what is required of them and they put a few processes into place to deal with their tax submissions properly, their lives will be so much easier.”
What are the top three considerations for SMEs when submitting tax returns?
“Firstly,” says Epstein, “SARS returns must be accurate and submitted in terms of the relevant Act. Secondly, returns should be submitted and paid on time to avoid unnecessary penalties and interest, and thirdly, business owners must follow up on queries issued by SARS. “Do not ignore these queries, act on them as soon as possible”.
What are the major SARS submission deadlines for SMEs?
Epstein points out that small business owners need to adhere to various tax deadlines, each with their own particular dates for submission. “It is important that business owners diarise the dates (and set advance reminders for themselves) and/or enlist the services of an accountant or financial adviser to help them keep abreast of requirements.”
Value-added tax (VAT)
VAT payments need to be submitted in the VAT period allocated to the business, according to various categories and ending on the last day of a calendar month. This may mean making payments once a month, once every two months, once every six months or annually, depending on the category.
Provisional tax should be submitted at the end of August (first provisional) and at the end of February (second provisional) – for February year-end companies.
In addition to submitting an annual reconciliation (EMP501) for the period 1 March to end of February for Pay-As-You-Earn (PAYE), Skills Development Levy (SDL) and Unemployment Insurance Fund (UIF), employee tax, in the form of an EMP201 return, needs to be submitted by the seventh of every month.
When can SMEs get extensions and is it worth it?
Epstein says SMEs can apply for various extensions, but these are subject to the Income Tax Act and Tax Administration Act.
“It is best for SMEs to consult their tax professionals to get advice regarding extensions for their businesses.”
What is SARS not flexible about?
SARS is not flexible when it comes to late returns and late payments.
“I cannot stress enough how important it is for SME owners to ensure their tax returns are submitted on time. In this way, they will avoid the inconvenience and expense of additional fines and interest,” notes Epstein.
What skills do SMEs need in their organisations to be able to submit to SARS efficiently?
Business owners often don’t have the time or expertise to deal with tax submissions throughout the year. If the business cannot afford to employ a full-time accountant or financial services expert, it would do well to outsource its tax requirements to a registered tax practitioner.
“I would recommend that even if they are not submitting the tax returns themselves, business owners should have a broad understanding of the tax regulations and what is expected of them. There is a lot of helpful information on the various Acts and tax requirements on SARS’ website,” says Epstein.
How does the right software help SMEs remain SARS compliant?
SME’s (and their accountants’) jobs can be made easier by using reliable accounting software to calculate accurate VAT reports. These reports are only as accurate as the data entered into them, which means care needs to be taken when inputting data into the accounting programme. Epstein says a good accounting software package must be reliable, easy to use and functional.
“SMEs need to check that the software has thorough reporting capabilities and can interface with other software solutions. Of course, it is also important to find out whether the software is locally supported by the vendor or not.”
4 Dangers Of Business Under-insurance
A common short-term insurance peril that many SMEs face when submitting a claim following an insured event is the risk of being underinsured.
Malesela Maupa, Head of Products and Insurer Relationships at FNB Insurance Brokers says, many small business owners mistakenly believe that by merely having a short-term insurance policy in place they are adequately protected against unforeseen events.
“This is technically correct provided that the business is covered for the full replacement value of the items insured. However, in circumstances where the sum insured does not cover the full replacement value or material loss of the item insured, the business is underinsured,” explains Maupa, as he unpacks the dangers of business underinsurance:
1. Financial loss
The most common risk is financial loss on the part of the business. If the business is underinsured or the indemnity period understated, the short-term insurance policy will only pay out the sum insured for the stated indemnity period as stated in the schedule, with the business owner having to provide for the shortfall. This often leads to cash flow challenges, impacting profit margins or rendering it difficult for the business to recover following the financial loss.
2. Reputational damage
Should an underinsured business not have sufficient funds to replace a key business activity or critical component following a loss, this may impact its ability to fulfil its contractual obligations, leading to a loss of business or market share, and irreparable reputational damage in the worst-case scenario.
3. Legal action
A small business also faces the risk of customers or clients taking legal action against it, should it fail to deliver on goods and services following a loss or be unable to honour its financial commitments that they committed to prior to the loss.
4. Survival of the business
A catastrophic event such as fire, which could result in the loss of stock or company equipment and documentation, could threaten the survival of a small business that is not yet fully established, if the business assets are not adequately insured.
Working with an experienced short-term insurance broker or insurer is essential when taking up short-term insurance to ensure that business contents are covered for their full replacement value.
Furthermore, depending on the nature of the business or item insured, the policy should be reviewed on a regular basis to avoid underinsurance as the value of items often change overtime due to fluctuations in economic activity. Where it’s necessary, evaluation certificates need to be kept up to date.
“Lastly, SMEs should ensure that the sum insured does not exceed the replacement value, which would lead to over insurance. Should a business submit a claim following a loss, the insurer would only pay out the replacement value, regardless of the higher sum insured,” concludes Maupa.
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