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It has been a gruelling year thus far for individuals and businesses alike and the rollercoaster is not over yet. We have been inundated with news on the economy, and rightfully so as it is integral to the success or failure of our country. In previous newsletters I’ve informed you of some of the macro economic factors that impact our economy and hopefully this has allowed you to analyse the impact of the recent developments in your environment.

One of the areas impacted by the poor performance of the economy and one that is close to my heart for obvious reasons is the impact on small business and the challenges they face.

In dealing with small business I have noticed a common dilemma; the administrative burden for small business makes it difficult to operate effectively.

I have tried my best to summarise the requirements as well as provide tips and useful links to those of you interested in starting your own business or for those small businesses that need some direction.

Where to begin?

Getting your company registered begins with the Companies and Intellectual Property Commission (CIPC). The process is relatively straight forward and everything can be done online. The CIPC also requires all companies registered to submit an annual return. The CIPC will calculate a fee based on the turnover submitted.

South African Revenue Service (SARS)

These are the summarised details you need to be aware of as a small business owner;

  1. Types of registration

-       Income tax registration: You will normally automatically be allocated a tax reference number when you register your company via CIPC.

-       VAT registration: This is not mandatory but can be voluntary. It is mandatory for any business to register for VAT if the income earned in any consecutive twelve-month period exceeded or is likely to exceed R1 million.

-       PAYE, UIF and SDL registration: If you have employees, you must register for Pay-As-You-Earn (PAYE), Unemployment Insurance Fund (UIF) and Skills Development Levy (SDL). These amounts must be withheld by the employer and paid over to SARS.

-       Import Export licences: Should your business be involved in importing or exporting, you will need to apply for a licence.


  1. Submission requirements

Income tax

Income tax must be submitted annually (within 12 months after the end of the company’s financial year end). This submission is the ITR14. The ITR14 is basically a disclosure of a company’s financial statements to SARS.

Provisional tax

Provisional tax is enough to turn any business owner’s hair grey prematurely. Provisional tax must be submitted twice a year with a possible third submission. The first submission is halfway through the tax year and due at the end of August. The second submission is due at the end of the tax year being February. The submission is the IRP6. The first provisional tax payment is an estimate of the amount of tax due for the entire tax financial year (1 March – 28/29 Feb). This amount estimated must be within eighty percent of the final assessment, if not, SARS may impose a penalty. The third submission (top-up) is only required if insufficient tax was paid in the first two submissions.

VAT

When you register for VAT, you will be allocated a VAT period (VAT period is dependent on certain criteria being met). The period determines when you will submit and pay VAT to SARS.

  • Category A
  1. Under this category, a vendor is required to submit one return for every two calendar months, ending on the last day of January, March, May, July, September and November.
  2. The Commissioner will determine whether a vendor falls within this category.
  • Category B
  1. Under this category, a vendor is required to submit one return for every two calendar months, ending on the last day of February, April, June, August, October and December.
  2. The Commissioner will determine whether a vendor falls within this category.
  • Category C
  1. Under this category, a vendor is required to submit one return for each calendar month.
  2. A vendor will fall within this category if :
  • the total value of taxable supplies made by the vendor has exceeded or is likely to exceed R30 million in any consecutive period of 12 months,
  • the vendor has applied in writing to be placed in this category, or
  • the vendor repeatedly failed to perform any obligations as required by the VAT legislation.
     
  • Category D
  1. Under this category, a vendor submits one return for every six calendar months, ending on the last day of February and August.
  2. This category applies mainly to a vendor who –
  • carries on farming activities, where the total value of taxable supplies is less than R1.5 million for a period of 12 months,
  • is a micro business that is registered in terms of the Sixth Schedule to the Income Tax Act.

PAYE, SDL and UIF

The PAYE, SDL and UIF submissions are made monthly in the form of an EMP 201. On an annual basis, businesses are required make a declaration (EMP 501). This is a reconciliation between what was declared on a monthly basis, what was submitted on employees IRP5’s and what was paid over to SARS.

Other taxes such as dividends tax, estate duty and customs and excise etc. are also applicable to those businesses that require it.

Department of labour

If you have employees working in your business full time or part-time, you will need you meet the Department of Labour (DoL) requirements.

UIF

Please note that the UIF registration for SARS differs to that of the DoL. Monthly submissions need to be made to the DoL in the form of a U19 submission. This is a declaration to the DoL and no payment is due to the DoL.

Compensation for Occupational Diseases and Injuries (COID)

All employers who employ one or more workers in connection with their business or farming activities, are required to register with the Compensation Fund. Once registered, an annual submission (Return of Earnings) to the DoL is required and a fee payable.

The above requirements serve as a starter kit for small business. Depending on the nature of the business, additional licences and registrations may be applicable.


Saving on your taxes

As part of governments efforts to assist small business, SARS introduced reduced tax rates for business qualifying as either Small Business Corporations (SBC) or micro businesses.

If a business meets the requirements for a SBC (Appendix 1) then the business pays tax on the following table:

[1]Tax rates 1 April 2016 - 31 March 2017

​Taxable income (R)

Rate of tax​ (R)

0 – 75 000

0% of taxable income

75 001 – 365 000

7% of taxable income above 75 000

365 001 – 550 000

​20 300 + 21% of taxable income above 365 000

550 001 and above

​59 150 + 28% of taxable income above 550 000

A business can also register for turnover tax if the requirements (Appendix 2) of a micro business are met:

Turnover tax is a simplified system aimed at making it easier for micro business to meet their tax obligations. The turnover tax system replaces Income Tax, VAT, Provisional Tax, Capital Gains Tax and Dividends Tax for micro businesses with a qualifying annual turnover of R 1 million or less. A micro business that is registered for turnover tax can, however, elect to remain in the VAT system (from 1 March 2012).

Turnover tax is worked out by applying a tax rate to the taxable turnover of a micro business. The rates are applicable for any year of assessment ending during the period of 12 months ending on 28 February 2017:

Turnover​ (R)

Rate of tax (R)

0 - 335 000

0%​

335 001 - 500 000

1% of each R1 above 335 000

500 001 - 750 000

1 650 + 2% of the amount above 500 000

750 001 and above

6 650 + 3% of the amount above 750 000

Table 1: Turnover Tax Rates for any year of assessment ending during the period of 12 months ending on 28 February 2017.

Aside from the legal requirements, many small business struggle to finance operations long enough to allow the business an opportunity to succeed. There may be many avenues to explore in terms of financing but many of these are unknown to small businesses. I have included a few financing possibilities below:

www.sefa.org.za

http://www.nefcorp.co.za/HomebrPage.aspx

http://www.businesspartners.co.za/general-finance-solutions/

A trend that seems to be gaining momentum is crowd funding. If you are looking for funding and want to try this new age method, check out www.startme.co.za

Along these lines is also something referred to as angel investors. These are individuals who will finance projects that they believe will be profitable in exchange for equity or some form of return. You can visit these sites to find out more:

www.investmentnetwork.co.za

http://www.angelhub.co.za/

A host of government grants are available for various industries and have specific requirements. The process can be difficult and time consuming but if successful can change your business. The different grants offered can be found at: http://www.thedti.gov.za/financial_assistance/financial_assistance.jsp

Conclusion

If you have begun on path of entrepreneurship or are thinking about diving into the unknown, be committed, stay motivated and persist. The journey is not an easy one, but small business plays a vital role in our economy and is instrumental in job creation.

Natasha Bhowani Seeth CA (SA)

SBC pic

Appendix 2

Questions[1]

​Will the “qualifying turnover” of the business be less than or equal to R1 million for the year of assessment?

​Do you declare that the business is not a “personal service provider” or a “labour broker” without a SARS exemption certificate?

​Does the business trade in one of the following forms: sole proprietor, partnership, close corporation, co-operative or company?

​If the business is a partnership, do you declare that all the partners will be individuals throughout the year of assessment?

​If the business is a close corporation, co-operative or company, do you declare that all of the shareholders/members will be individuals throughout the year of assessment?

​Do you declare that the business is not a public benefit organisation, recreational club, association of persons or a small business funding entity?

​Does the business have a year of assessment that ends on the last day of February?

​Do you declare that the owner, any partner, shareholders, members and the business do not hold shares/interests in a close corporation, company, or cooperative other than the following exceptions:

  • Listed South African companies;
  • Collective investment schemes;
  • Body corporates and share block companies;
  • Venture capital companies;
  • Less than 5% in social or consumer co-operatives;
  • Less than 5% in cooperative burial societies or primary savings co-operative banks;
  • Friendly societies;
  • Any other company that did not trade during any year of assessment and which did not own assets with a total market value that exceeds R5 000 during any year of assessment;
  • Any company that has taken steps to liquidate, wind up or deregister?

      a) If you are a natural person, do you declare that the income from "professional services" is not expected to exceed 20% of your total receipts during the year of assessment
      b) If the business is a company, close corporation or co-operative, do you declare that income from "professional services" and "investment income" is not expected to exceed 20% of the total receipts for the year of assessment?

      ​Do you declare that the income from the disposal of assets by the business over the year of assessment and the past two years of assessment is not expected to exceed R1.5 million in total?

      ​Do you declare that the business was not previously registered for the Turnover Tax?

      If the answer to any one of the questions is “NO”, the business will not qualify for turnover tax registration for that year of assessment.  

       




      [1] www.sars.gov.za

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