How to Make SARS Work for Your Business.
Including everything you could, and should be claiming for
We know tax season can be daunting with many businesses scrambling to get what they need together in time, and in the rush potentially leaving money on the tax man’s table. We partnered with Tax Tim to give you all the information you need to handle your business tax like the BOSS you are so you can do the preparation now and finally make SARS work for you.
- The dates you need to know (and should add to your calendar now!)
- What information you need to keep for tax returns
- Which business expenses are tax deductible?
- How business tax is calculated
- What is the small business tax threshold?
- What happens if I switch from sole proprietor to pty ltd
- How does PAYE work?
- What resources and tools are available to make business tax filings easier?
- What other potential tax benefits are there?
What are the important dates I should be adding in my calendar?
Sole Proprietor (non-registered business):
August – 1st provisional tax return
February – 2nd provisional tax return
31 January after tax year end – ITR12 Annual tax return
Company (registered business)
6 months into the year – 1st provisional tax return
Company’s financial year end – 2nd provisional tax return
12 months after Company’s financial year end – ITR14 Annual tax return
What important information should I keep throughout the year that will impact my tax return? – see blog
Which business expenses are tax deductible?
Business expenses, also referred to as operating expenses, are those expenses incurred in the operation of the business. Don’t forget expenditure must be ‘in the production of income’.
Typical overheads could include:
- Accounting and bookkeeping costs.
- Internet: Costs to run and maintain the system.
- Insurance costs.
- Licences: Those that apply to the business.
- Legal fees: Costs incurred when obtaining legal advice.
- Maintenance and repairs.
- Motor vehicle costs: Maintenance, repairs and licences (costs should be allocated between personal and business usage based on mileage).
- Postage including stamps and mailing expenses.
- Printing and stationery: Letterheads, business cards.
- Delivery and freight.
- Depreciation: For business assets that lose value while in use by a business.
- Entertainment: Expenses – normally food and beverages paid for by the business to entertain people important to the business, such as customers and suppliers.
- Electricity and water: Costs associated with the business’s premises and the equipment use.
- Rent/Rates and taxes: For leasing your business’s premises.
- Rent: For any leased equipment, signage used by the business.
- Research and Development.
- Security: Costs for security services such as alarm monitoring, armed response, armed guards.
- Subcontractors: Other parties that have provided services for your business related to the product, services and sales.
- Telephone and Fax/Communication: Fixed line and cellular phone costs.
However ONLY business-related expenses are allowed to be claimed as a tax deduction. A lot of people have expenses that are part-business and part-personal – such as cell phone, rent, and petrol – and try to claim these in their entirety as a deduction. SARS is on the lookout for these claims and will heavily punish any chancers, so make sure only business expenses are claimed.
For those expenses like petrol and cell phone which are mixed, you will need to identify exactly what portion relates to business use and which portion is personal. Ideally, a written record or logbook (in the case of a vehicle) should be used for the calculation because SARS might one day want you to prove your estimation. If no records are available you can just make an educated estimate. Once you have decided on the ratio of business to personal use for a particular expense, you can claim the business portion in your tax return and in doing so reduce your taxable income 🙂
How business tax is calculated?
It depends on the legal status of your business:
The sole proprietorship itself is not separately taxed on its income. Instead, the sole proprietor reports business income and expenses on his or her own tax return. Therefore the business Owner is taxed on the profits at their applicable personal income tax rate.
Company profits are taxed at a flat rate of 28% (unless if qualifies as a Small Business Corporation (SBC) or micro business registered for turnover tax.
If the business’s turnover is less than R20m per year and it meets all other criteria which you can check here then it will be taxed according to the special tax rates for a Small Business Corporation.
Micro Business registered for turnover tax:
If the business’s turnover is less than R1m per year and it meets all other criteria which you can check here the business’s turnover will be taxed according to the special tax rates for micro businesses registered for turnover tax which you can check here.
What is the tax threshold for small businesses?
Sole proprietor – this would be the same for individuals which are R75,750 for 2018 and R78,150 for 2019 (if taxable income is less than this in the tax year, then tax is nil).
Registered Company: Tax is levied at 28% on taxable profit (there is no exempt portion)
What is the tax implication in switching from a sole proprietor to a Pty Ltd.? (there is no simple short answer for this, the tax regimes for each are completely different)
Individuals are taxed on a sliding scale, which means that the rate of tax you pay increases as your earnings increase. This is called a progressive rate of tax and applies to any individuals earning more than R75,000 per year.
As an individual, you benefit from the general tax rebate, which brings down the amount of tax you owe by a flat amount, depending on your age. If you’re under 65 years, this is called the primary rebate. There’s a secondary rebate for those over 65 years and a tertiary rebate for those over 75 years.
In a company, profits are taxed at a rate of 28%, irrespective of value. In addition, dividends tax is levied at 20% on profits retained in the company and distributed as a dividend in the future.
More clarification and examples of the difference between the two here.
How does PAYE work from a business owner perspective?
If the business owner employs staff, then it would need to register itself as an employer with SARS in order to deduct PAYE and UIF from its employees’ salaries and pay it over to SARS on a monthly basis. This applies to a sole proprietor as well as a registered company.
You can use Tax Tim’s handy calculator to work out the monthly PAYE deduction.
What resources and tools are available to make business tax filings easier?
Consider using an accounting software package to make your record keeping easier and more efficient. Remember, at the very least, you will need a detailed listing of your business’s income and expenses in order to compile its tax return. If you have a registered company, then you will need a set of financial statements as a starting point (Income Statement and Balance Sheet) and this is where an accounting package can be very helpful.
Tax Tim’s business tax return product will guide you through all the steps required to complete and submit a tax return for your company, in the intuitive and simple manner you have come to expect from TaxTim.
TaxTim will ask you easy to understand questions, in plain English (no tax knowledge required!) and convert your answers into a fully completed tax return, ready for submission to SARS. Our built-in calculations for depreciation, capital gains, doubtful debts and prepaid expenses amongst others make completing your company return quick and easy.
What other tax potential tax benefits are there?
Please see our blog here for a list of potential deductions which can save you tax.
For more helpful information on business finance and more, visit our blog for the latest updates.
Being an entrepreneur is about following your passion. Unless your passion is accounting, you’re probably amongst the majority of small business owners overwhelmed by “accounting speak”.
For business owners operating in the pre-Internet era, the fear was justified. Physically capturing and filing invoices and receipts; reconciling bank statements; and submitting the necessary paperwork to their accountants on time and in an orderly fashion became an ongoing nightmare.
Technology has since saved the day and reduced the paperwork.
A big step up from paper-based billing, email billing allows businesses to email their invoices as attachments to customers and have proof of payment emailed in return. While the more tech-savvy businesses automate the tracking of emailed invoices and payments, having to manage bills due and payments received can still be a time-consuming administrative task.
This is where cloud-based invoicing bridges the gap.
What is cloud-based invoicing?
Cloud-based invoicing describes any billing software that resides on the Internet. You simply log into the software wherever you are in the world and issue your invoices. More than just an online billing system, cloud-based invoicing:
- Presents a professional face to your customer by providing standard, business-branded templates for your quotes and invoices.
- Provides a secure environment for you to store sensitive business and customer data.
- Saves you time – and, therefore, money – by automating the manual tasks of tracking and capturing invoices.
- Automates follow-up emails for overdue accounts.
- Integrates with payments received for seamless management of invoices out and monies in, depending on the platform.
PayFast’s online billing platforms are not only limited to online shopping carts, such as WooCommerce, Shopify and Magento. If you’re using WordPress to sell your services or single products online, WP Invoice is the perfect plugin to generate invoices directly from your website. Your invoice contains a “Pay with PayFast” button, allowing customers to immediately settle their bills.
If you prefer to invoice outside of your website, Snapbill is ideal for businesses requiring automated subscription or recurring billing with payment collection facilities. WHMCS, a platform for managing and billing hosting accounts, offers a mix of invoicing, client management, and payment collection features.
If you’re the owner of a fully operational e-commerce store, perhaps you should consider integrating your online billing with an accounting package, such as Xero. The biggest advantage of using cloud-based invoicing with cloud-based accounting is the way in which it takes the hassle out of accounting. Plus, if integrated with PayFast, customers can settle their accounts instantly via credit card, Instant EFT, Masterpass, and the full range of PayFast payment options.
Why integrate your online store with cloud-based invoicing and accounting
More than 1 million subscribers use Xero, which is online accounting software designed specifically for small businesses. Xero enables entrepreneurs to generate invoices, create expense claims, and manage their cash flow from their desktop or mobile devices as they go about their day.
Set up is relatively easy: Sign up, add company details, add the necessary bank accounts that money will be paid into and out of, and you’re good to go.
When you use Xero to handle all your payments and receipts, both you and your accountant could have access to reports and real-time information about your business transactions…wherever you are and whenever you want.
How PayFast merchants can integrate their invoicing with Xero
There are two ways in which PayFast merchants can use Xero to automate their invoicing.
1. Invoice manually with Xero
For the entrepreneur who offers a service, sells a single product, or whose website is not set up for selling, Xero could be used to create an invoice using PayFast as the payment gateway. The invoice will be generated with a “Pay now” link to pay via the PayFast platform. Payments received against the invoice will automatically be allocated to the correct customer details in Xero.
More about PayFast’s integration with Xero here.
2. Automatically export invoice data to Xero in real-time
Website owners who prefer to invoice directly from their online shops—including WooCommerce, Ecwid, Shopify, PrestaShop, and Magenta—could export their invoice data to Xero in real-time for up-to-date reporting.
Read more about how these different platforms integrate with Xero:
While cloud-based invoicing and accounting doesn’t completely absolve business owners from the responsibility of understanding accounting basics, it certainly reduces the dread. Setting up Xero, or the cloud accounting package of choice, may require an initial learning curve. However, once the setup is complete, the automation will free you up to focus on other aspects of your business.
You’ll be smiling, your accountant will be smiling, and your cash flow will flourish as you make informed, real-time decisions about what’s right for your business.
For any small business cash flow is pretty important. A study from the financial services company U.S. Bank found that about 82% of startups and small businesses fail due to poor cash flow management. No one can run a business without having a firm grip on their cash flow.
One of the biggest problems is getting paid on time and not having to chase clients for payments. You know how it goes, you send an invoice and nothing happens. You send a reminder, still nothing. Eventually, a manual EFT happens and then you have to reconcile the proof of payment with your other payments that come in dribs and drabs. Seriously, who has time for that? Luckily it’s 2019 and there are some great solutions to help you take control of your cash flow, and get your clients to pay you faster.
Instant EFTs that are actually Instant
Allowing your customers to pay with PayFast’s Instant EFT service takes the waiting game out of EFT payments. When your customers pay through Instant EFT by PayFast the funds reflect immediately in your PayFast account, that way you can ship or fulfil their order immediately. It’s peace of mind for you and gives your customer instant service which they will love. What’s more, you don’t need to wait for proof of payment. The payment is immediately reconciled in your PayFast Transaction History and you can download this along with all your other payments received.
Cloud Accounting, it’s the future
Xero is a cloud accounting platform that has changed the face of accounting for small businesses around the world. If you’re still manually inputting and reconciling your accounts then it’s time for a change! With Xero you can send clients invoices with pay now links that allow your clients to pay immediately through various methods such as credit or cheque cards, Instant EFT, Masterpass or even bitcoin!
Once payment is made from a Xero invoice, this will reflect in your Xero account. You can even add monthly PayFast payments to your Xero account by uploading them to Xero so your business accounts will be organised in one place (in the cloud!) where you can access it from anywhere.
Cover your bases
It makes sense that if you have a brick and mortar store, sales tend to drop off during the week and pick up on the weekends when people aren’t at work. Did you know this is the opposite for online stores? You can see in the graph below that sales actually increase during the week for online stores with Monday and Tuesday being the busiest. So cover all your bases and set up an online store to increase sales during the week. That way you’ll have a consistent flow of cash coming into your business.
Keep your taxes under control
Submitting tax returns for small businesses can be a minefield and you need to make sure this part of your business is air tight. If you have an accountant to assist you then that’s great. However, if not you can make use of Tax Tim who’ve just launched a product specifically for small businesses. Tax Tim assists individuals and small businesses file their tax return by asking simple questions (in English… no tax jargon) and convert your answers into a fully complete tax return ready to be submitted to SARS for a small fee. Who knows, you may even qualify for a tax refund and you didn’t even know!
Keeping your cash flow under control is easily doable, set aside some time during your schedule to make sure you know what’s going on in your business and if you’re really stuck and find you need a little cash injection the good news is that PayFast merchants can apply for a Lulalend loan straight through their merchant dashboard. Visit payfast.co.za for more information.
Choosing the right business finance these days can be a lot like sitting down to a buffet and trying to decide between all that is on offer. There are more and more options out there, between the banks or other traditional lenders, and nowadays with more alternative lenders, it is difficult to know who to go to for the best business funding.
SME business finance in South Africa has evolved over the years. Not only has there been substantial growth in the number of B2B alternative lenders in the South African marketplace, but there has also been growth in the type, and diversity, of products offered. Many business owners are not aware of alternative lenders, which range between 40 to 50 in South Africa. Gone are the days where the only options are an overdraft facility or credit card from your bank.
SME business loans vary substantially and include product types such as term loans, secured or unsecured loans, invoice discounting, factoring, purchase order finance, merchant cash advances, asset finance, asset rentals, line of credit, trade finance etc.
To further complicate matters each one of these products differs in terms of structure of loan terms, interest rates, fees, security, collateral, facilities, advances, deposits and residuals. The product chosen also has a direct impact on cash flow, profit and loss as well as income tax and balance sheet strength.
With all these challenges, it makes it difficult to find the right lender and product type, and to compare and decide on the best product to suit your business needs. It requires skill and knowledge to assess ideal products for specific purposes. Apart from Google searches, how do you find alternative lenders, and once you have found them how do you know if they are reputable and how to you compare like for like? After all, you’re not only looking for the right product. As a business owner, you’re also looking for a lender who offers great customer service and moves at the speed of your business. The problem with many lenders, alternative or not, is that the application process is time consuming and the assessment takes even longer. This is where the likes of Lulalend stands out among the competition: with an easy application process, a turnaround time of 24 hours, and a product offering where funding can be used for an array of business purposes.
When shopping for business loans, it is important to consult with a trusted and experienced advisor such as your broker, accountant or auditor. Don’t rush into a decision which you could regret, rather spend time with the experts that can help you make the right decision accurately. In addition, there are independent portals, such as FundingHub that offer a service to help you match your needs to most of the reputable lenders. They have independent experts that can coach and guide business owners, and help them find lenders that they never knew existed and offer the right product for their needs.
Guest blogger: Barry Leonard
Barry is a Chartered Accountant and has been the CEO of an SME company for 13 years. He is passionate about technology in financial services and through FundingHub wants to make it easy for the SME to find funding.
SA’s largest online payment gateway, PayU, has entered into two collaborations with the aim of allowing South African eCommerce merchants to finance their business and will also allow shoppers to purchase on credit.
The partnerships with Lulalend, a leading merchant financing company, and Mobicred, a consumer credit provider, is set to boost an eCommerce industry that is promising to grow exponentially.
Karen Nadasen, PayU South Africa CEO, says, “As the payment gateway that processes the highest value of eCommerce transactions online in South Africa, these innovative collaborations offer the opportunity to push the industry forward, allowing more people to transact online and further strengthens our expansion into the Fintech space. Both of which will benefit our existing merchants, as well as attract new ones.”
Two win-win collaborations
The collaboration between Mobicred and PayU enables PayU merchants to offer Mobicred as an additional payment method at checkout. Merchants will be able to offer their customers a credit as a method of payment in addition to the existing 25 payment methods available through PayU.
Mobicred Director, Geraldine Anderson explains, “We are excited about this because PayU is enabling us to expand our merchant network – creating more of a “virtual mall” where our thousands of account holders can transact. We currently have over 650 merchants offering Mobicred. Partnering with PayU allows us to grow, and offer some of the premium online shopping brands that we were missing.”
PayU’s collaboration with Lulalend will enable merchants to navigate the challenges of seasonality and cash flow by giving merchants access to cash funding within 24 hours. Lulalend assists SMEs – that may have struggled to get funding through traditional institutions – to access easy funding to help them grow their businesses.
Trevor Gosling, Lulalend CEO and Co-founder: “Our collaboration with PayU offers a channel into the eCommerce space where we are able to increase our footprint and allows us to expand our product base to offer merchants the various types of funding they need to make their businesses succeed.”
With eCommerce growing at a healthy rate in South Africa, Mobicred customers can benefit from a unique, virtual online payment facility that is safe and secure and also allows customers to pay in affordable monthly instalments to make budgeting for big ticket purchases simple.
The eCommerce space continues to evolve with an increasing number of merchants turning to online retail needing to manage supply and demand to meet customer needs. It has become increasingly vital for merchants to have access to funding that allows for quick inventory purchases.
“Working capital is an obstacle for eCommerce in South Africa. There are operational costs involved in any business, but for eCommerce in particular, there is a big need to continue to scale. The online world doesn’t wait for anyone – so fast, convenient access to funding is essential,” says Gosling.
At a time when South African consumers are feeling the pinch and economic growth prospects are muted, access to funds through credible companies can provide the lifeline that the eCommerce industry needs to not just survive, but to thrive. The collaborative efforts of PayU, Mobicred and Lulalend will create the necessary platform for this to become a reality.