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Chapter 13 - Small Business Law

Income tax

Income tax is the government's main source of income and is levied in terms of the Income Tax Act (No 58 of 1962).

Income tax is levied on peoples’ income. Tax is levied on your taxable income that consists of your gross income after taking off deductions that are allowed by the Act.

Companies are taxed at a rate of 29%.

Small-business corporations (those with an annual turnover of less than R6-million) are taxed according to a sliding tax rate:

- 0% tax rate on the first R35 000 taxable income,
- 0% from R35 001 to R250 000 taxable income, and
- 29% in excess of R250 001 taxable income.

Provisional tax

If you own a business the Income Tax Act says that you must register yourself as a provisional taxpayer. In other words, any person who operates as a sole trader, partner in a partnership, member of a CC and director of a company needs to register as a provisional taxpayer.

Sole trader and partnerships need only register in the name of the sole trader or of the partners, because the law does not make a distinction between the debts and assets of the people who own the business and the debts and assets of the business. Close corporations (CC) and companies must be registered in the name of the CC or company. (The members of a CC, and the shareholders and the directors of a company still have to pay their own personal tax, so they would also be individually registered as taxpayers.)

See Types of businesses.

The Companies and Intellectual Property Registration Office (CIPRO) arranges the registration of CCs and companies. A CC and a Company will be automatically registered as a taxpayer when the Registrar of companies informs SARS of the registration of the company. The Receiver will not send notification of this registration as a taxpayer directly to the registered address of the CC or company. In other words, a sole trader must register, but a CC or Company will automatically be registered.

Example: Lena Jacobs and Susan Smith own a business called KwikSave. KwikSave is a partnership. When they register for income tax, they would each have to register as taxpayers in their own names. If KwikSave was a CC, then they would register the business as a taxpayer, in the name of KwikSave CC.

Individuals who are provisional taxpayers (the sole trader, partners, members and directors) must pay tax twice a year. The first provisional tax is paid before the 31st August and the second on or before 28/29th February of each year.

You must fill in a form called a IRP6 form and send it or take it with a cheque to the SARS. You can also pay through your bank by using the account details on the IRP6 Provisional Returns, or through the SARS e-Filing service. Go to www.sarsefiling.co.za or www.sars.co.za for more information

If you register as an e-Filer (electronic tax payer) with the SARS e-Filing Service, you can pay your tax and SARS will send you your electronic returns on the Internet.

A sole trader or partner calculates the tax to pay by taking her or his income and subtracting all the money spent on the business. Business expenses are things like:

• money spent on buying whatever you need to run the business
• rent for the place where you run the business
• water and electricity
• transport costs
• salaries and wages for employees and casuals
• money paid for Compensation for occupational injuries and diseases
• money you pay someone to help you with the books for the business
• bank charges, if you have opened a bank account for the business

CCs and companies pay tax on the income brought into the business, after the expenses of running the business have been deducted. One of the expenses which a CC or company can subtract is the salaries paid to members or directors. Members of CCs and directors of companies cannot subtract the business's expenses from their own salaries. The CC or company will subtract these expenses when it pays CC or company tax.

A full list of the things a business (a sole trader, a CC or a Company) can deduct from its taxable income can be found in sections 11-23 of the Income tax Act. These are some of the things that can be deducted:

• If people buy on credit and they do not pay you, this is called a ‘bad debt’. Bad debts can be subtracted from the amount of income on which you can be taxed
• If you repair your business premises, these costs can be subtracted. You cannot subtract the cost of improving your premises
• If the business is run from home, then you work out the percentage of floor space the businesses takes up and subtract that percentage from costs such as electricity and water; rates; repairs and so on.

It is complicated to work out tax. The local SARS will help people to fill in their tax forms. A CC or company should ask an accountant to help with its tax.

Once you have paid your provisional tax, the Receiver checks it and decides whether you have overpaid or underpaid. If you have overpaid, you will be repaid this amount. If you have underpaid, you will get an account which you must pay.

How to register as a taxpayer

Contact the nearest SARS office in your area and ask for form IT77. Fill it in and send it back to the SARS. Instead of completing the form, you could send the following information to the SARS and they will complete the form:

• your full name
• income tax reference number, if you have one
• the revenue office you have sent tax returns to before, if you have
• occupation or job
• date when you first started working
• marital status (married, divorced, separated, single, widowed)
• number of children under the age of 18 (including step-children and adopted children)
• type of income: do you earn a salary, a weekly wage, commissions, rental on something you rent out, interest on money in the bank or investments, etc.
• immigrants should give the date when you arrived in South Africa

The person and the CC or company who register like this are called provisional tax payers.

Sole traders and partnerships

If you are a sole trader or a partner in a partnership, this is all you have to do to register.

Close corporations and companies

When a CC or a company is registered with the Registrar of Companies in Pretoria, the Registrar lets the Receiver of Revenue in your area know. The Receiver will send the CC or company a form IB68 to fill in. The Receiver will tell the members or directors what information the Receiver needs, and what else the CC or company must do. The CC or company will then be registered as a taxpayer itself, besides its members or directors being registered as provisional taxpayers themselves.

What happens if you do not pay tax or pay late?

It is a criminal offence not to pay tax. If tax is paid late, the Receiver can fine the taxpayer.

SARS eFiling

Electronic filing (eFiling) through the SARS eFiling website is a way of submitting your tax returns electronically. This method of submitting your returns removes the risks and problems of manually sending in your tax returns.

Before submitting your tax returns, you first need to complete the registration process on www.sarsefiling.co.za.

The main benefits for taxpayers of eFiling are that it is simple, must faster and more convenient. The other benefits include:

• view all form-related correspondence with SARS
• history of payment and forms submitted online
• help facilities and online guides
• due-date reminders via SMS and email
• tax forms and payment tracking
• electronic confirmation of all transactions
• request for extensions
• request for tax directives

What is the cost?

The eFiling service is offered at no charge. However, normal service charges for Internet Banking payments will apply.

What are the steps involved?

1. To register for eFiling go to www.sarsefiling.co.za.
2. Print the registration form after registration. Sign the form and fax it through to (011) 361 4444, together with a copy of your ID.
3. Within 24 hours of providing the necessary documentation you will be activated on SARS eFiling.

For more information, contact the eFiling Call Centre on 0860 709 709 (07h00 to 17h30, excluding weekends and public holidays), or visit www.sarsefiling.co.za