Getting to grips with Tax

By Drum Digital
21 October 2010

The saying goes that there are only two certainties in life – death and taxes. Well, one thing is for sure – if you have a business, tax is one of the things you will have to get to grips with.

For some reason the tax season seems to bring out our tendency to procrastinate. Most people either put it off to the last minute or pretend that it doesn’t exist. If you’re an individual taxpayer you may be able to get away with putting it off as long as possible and making use of the South African Revenue Service’s (SARS) extended deadlines. But when you’re a business owner it’s a little more complicated – you will need detailed records and will have a big problem if these have not been kept up to date.

Tax for businesses may seem daunting, but getting clued up is the first step. Here’s a guide to some of the tax basics you will need to understand.

1. Understand the tax implications for your type of business

“When starting a small business you should have a general understanding of SARS and of your duties and obligations in terms of the tax laws,” says Ryan Muller, a tax director at SibandaMuller Financial Services in Johannesburg, who often advises small- to medium-sized enterprises on tax.

What sort of business entity you choose to be – a sole proprietor, close corporation or private company, for example–will have legal and tax implications.

You could choose to operate your business as a Small Business Corporation (SBC), which can be a CC, private company or co-operative. The advantage is that SBCs are allowed two major concessions, Ryan says.

“The first concession is that the SBC is taxed on a progressive rate system, namely no tax on the first R57 000 of taxable income; 10% on taxable income in excess of R57 000 but not exceeding R300 000, and R24 300 plus 28% on taxable income exceeding R300 000,” Ryan says. “The second allows for immediate write-off of equipment used inamanufacturing or similar process, subject to certain conditions.”

For an SBC to qualify for these concessions, it has to comply with certain requirements, so you have to decide if it’s worth it.

Find out more about business entities and how they are taxed on the SARS website There’s a handy guide called Tax Guide for Small Businesses which you can read online or download.

2.Keep accurate records

It’s vital that business owners keep accurate, detailed financial records. This is not only essential for keeping track of money coming in and money going out of your business; you will also need them when tax season comes around and it’s time to complete your tax returns.

You will need to keep a record of your company’s income and expenses as well as what’s referred to as supporting documents – receipts, invoices, cancelled cheques, deposit slips and so on. This documentation is vital as it supports the entries in your records and tax returns. “Keep everything filed in a logical way and make sure they’re stored in a safe place,” Ryan says.

Most small businesses rely heavily on the business cheque book to support evidence of transactions made. “Consider using internet banking,” Ryan urges. “Going hi-tech could help you keep better track of expenses for tax purposes.” The size and type of your business will influence what kind of accounting or bookkeeping system you use. But whatever it is, make sure it complies with regulations.

Read the full article in DRUM of 28 October 2010

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