Tax Tune-Up: A short refresher on all things small business tax

As the tax season swings into action again once again, small business owners in South Africa must equip themselves with up-to-date tax knowledge to ensure compliance, maximise their deductions, and streamline financial processes. Understanding the tax landscape is crucial for the success and growth of any SME. In this comprehensive refresher “course”, we will cover essential tax concepts, obligations, deductions, and practical tips to refresh your small business tax knowledge.

First up, let’s dive a little bit deeper and understand the South African tax system for SMEs.  

What is small business tax?

Small businesses are the backbone of the economy. They produce goods and services, create jobs, and contribute to economic growth. But, in order for them to grow and thrive, they need a business environment that is conducive to their needs. And this means that they need tax policies which are fair, competitive and promote economic growth. Small business tax falls under Corporate Income Tax (CIT), which according to SARS is a tax imposed on companies' resident in the Republic of South Africa i.e. incorporated under the laws of, or which are effectively managed in, the Republic, and which derive income from within or outside the Republic. Non-resident companies which operate through a branch, or which have a permanent establishment within the Republic are subject to tax on all income from a source within the Republic.  

In other words, if you operate a business within South Africa, whether that is a South African business or not, you will need to pay tax on all income. All SMEs that are registered under the ordinary small business tax system will need to pay provisional tax, which means that your tax liability will be spread out over the assessment period (we will explain this a bit further down).  

P.S. Our content was created in collaboration with TaxTim

Important small business tax jargon  

Taxpayer Identification Number (TIN)

Before diving into the tax season, ensure that your small business has a valid Taxpayer Identification Number (TIN), also known as the Tax Reference Number (TRN). This unique identifier is crucial for all tax-related activities. A registered company is a separate legal entity with its own TRN, while a sole proprietor business is included in the owner’s personal tax return so it’s TRN is the same as that of the business owner.

Income Tax

The core tax for any business, calculated on the taxable income derived from trade, investment, or other sources.

Value Added Tax (VAT)

Applicable to businesses with an annual turnover exceeding the VAT threshold (currently R1 million). SMEs charge VAT on goods and services supplied and claim input tax credits for eligible purchases.

Pay-As-You-Earn (PAYE)

Relevant if you have employees. PAYE is the withholding tax on employees' salaries, deducted by employers and remitted to SARS (South African Revenue Service).

Skills Development Levy (SDL)

A levy used to fund training initiatives, applicable to employers whose total salaries exceed the prescribed threshold.

Unemployment Insurance Fund (UIF)

Contributions to this fund are mandatory for employers and employees and provide support during periods of unemployment.

When do I need to submit my small business tax return?

For sole proprietors: Tax season opened on the 7th July and you’ll need submit these returns by the  24 January 2024. If you'd like a little help with registering for small business tax, we’ve unpacked it all in our small business tax guide.  

For CIPC registered companies (Pty’s): corporate tax returns are due 12 months after the company's financial year end. For example, if your company has a June year end, the 2023 corporate tax return will be due 30 June 2024.

What is my small business tax year?  

For sole props, the business tax year is the same as the tax year for individuals. The tax year in South Africa runs from 1st March to 28th/29th February.  

For CIPC registered companies (Pty’s): the tax year is the same as the companies financial year. It can run for any 12-month period; the financial year-end month will be reflected on the Companies CIPC registration certificate.

Why should I keep record of all my expenses?  

Maintaining accurate and complete financial records is a legal requirement. Keep records of all income, expenses, invoices, receipts, and other relevant documents for at least five years, so that if SARS does an assessment of your return you have everything ready.  

Why do I need check my Tax Compliance Status?

Tax Clearance is often required for various business activities, tenders, or government contracts. Ensure your business is up to date with its tax compliance so that it can conduct business effectively without unnecessary delays. Note, SARS is no longer issuing tax clearance certificates; instead they issue a PIN, which you need to send to the companies that are requesting tax clearance from you. The company will then enter the PIN on SARS eFiling and check if your taxes are compliant.A Tax Clearance Certificate is often required for various business activities, tenders, or government contracts. Ensure your business has a valid certificate to avoid unnecessary delays, and so that you can file your tax return correctly.  

What can I deduct as a business expense?  

1. Operating expenses

Maximize deductions by claiming legitimate operating expenses. These may include salaries, rent, utilities, office supplies, marketing expenses, and professional fees.

2. Depreciation and wear and tear

SMEs can claim depreciation on certain assets, such as equipment, vehicles, and machinery, over their useful life. Additionally, the wear and tear allowance can be claimed on qualifying assets.

3. Travel and mileage

Keep detailed records of business-related travel expenses, including mileage. You can claim these as deductions.

4. Entertainment and meals

Deduct a portion of business-related entertainment and meal expenses, provided they meet specific criteria outlined by SARS.

5. Home office expenses

If you run your business from a home office, you may be eligible to claim a portion of your home expenses, such as rent, utilities, and internet costs.

6. Research and development (R&D) incentives

Consider exploring R&D incentives offered by SARS to encourage innovation and development in your industry.

Here are 5 essential tax tips to make sure you stay ahead in 2023

1. Seek professional guidance (when needed)

Tax laws can be complex and ever-changing. Consider working with a qualified tax professional who can help you navigate the intricacies and ensure compliance. TaxTim is an easy to use platform that can assist SMEs with their tax journey.  

2. Keep on top of tax updates

Stay informed about changes in tax legislation, deadlines, and requirements by regularly checking SARS' official website or attending workshops.

3. Separate personal and business finances

Maintain separate bank accounts and financial records for your business and personal expenses to avoid confusion and potential tax issues.

4. eFiling and digital Services

Utilise SARS eFiling and other digital services for a more streamlined and efficient tax-filing process.

5. Know your rights and obligations

Familiarize yourself with your rights as a taxpayer and understand your obligations to ensure a smooth tax season experience.

How can I calculate how much business tax I owe?

It will depend on whether you run your business through a registered company or as a sole proprietor. Registered companies are taxed at a flat rate (see below) while sole props are taxed on sliding tax tables applicable to individuals.

While you can do it the old fashioned way, there are a number of tax calculators you can use, TaxTim has a pretty nifty one for SBCs.

What happens if my SME is a small business corporation?

If you are an SBC you will qualify for the special tax rates for a Small Business Corporation. If you aren't a SBC you will taxed at a flat rate of 27% for years of assessments ending on or after 31 March 2023 (it is 28% for previous years).

Here are the 3 most common tax pitfalls for SMEs in South Africa  

1. Tax evasion and non-compliance

Attempting to evade taxes or non-compliance with tax regulations can lead to severe penalties, fines, or even legal action. Always be honest and accurate in your tax declarations.

2. Overlooking deductions

Many SMEs miss out on valuable deductions due to oversight or lack of knowledge. Thoroughly review all potential deductions to minimize your tax liability.

3. Late filings

Avoid late tax filings, as penalties and interest accumulate for each day of delay.

As a small business owner in South Africa, staying on top of your tax knowledge is essential for financial success and peace of mind. By understanding the tax system, fulfilling your obligations, and making the most of deductions and allowances, you can navigate the tax season with confidence and focus on growing your SME in 2023 and beyond.  

Remember that while this guide provides valuable insights, it is essential to consult with a tax professional like TaxTim for personalised advice tailored to your specific business needs. Embrace the tax season as an opportunity to optimize your financial strategies and pave the way for a prosperous future for your South African small business.

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