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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 taxpayer’s 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 and CC’s are taxed at a rate of 28%. Individual tax rates are between 18% and 40%. Trusts pay tax at 40%,.

Small-business corporations (those with an annual turnover of less than R14-million) are taxed according to a sliding tax rate. This scale is adjusted every year.

Provisional tax

CIPC (Companies and Intellectual Property Commission) controls the registration of companies. A Company will automatically be registered as a taxpayer when CIPC informs SARS of the registration of the company. A sole trader must register, but a 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 Company, then they would register the business as a taxpayer, in the name of KwikSave Pty.

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

IRP 6 returns are done through SARS e-Filing. Taxpayers can pay through a 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. The reference and account details must reflect on the IRP6 and must be used when making the payment.

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.

The Income Tax Act specifies that all expenses incurred in the production of income must be deducted. . 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.

Even if the directors or members are provisional taxpayers, PAYE must still be deducted on a monthly basis.

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.

Assessment

Once a year all taxpayers have to submit an income tax return. On this return the taxpayer must indicate all income and deductions. SARS will then determine what the final income tax payable is. This is called an Assessment. On the assessment SARS will consolidate all provisional tax paid as well as tax credits and PAYE. The difference between what was paid through  provisional tax etc,  and the final amount will show as the result of the assessment, If not enough tax was paid the taxpayer must pay the difference to SARS. If there was an overpayment SARS must refund the taxpayer.

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 e-Filing

Electronic filing (e-Filing) 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.

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