Starting a business offers many challenges. New business owners often find all their attention focused on day-to-day operational issues
and product development and as a result neglect the administrative and statutory requirements associated with running a business.
Besides losing money, the worst thing for new business owners is for SARS to come knocking…
Cash flow management is a key area for SMEs and will often determine success or failure. Tax and levy claims from SARS will put even a thriving business under financial pressure as they would not have been budgeted for. The reason many small businesses find themselves in this situation is due to poor planning, lack of knowledge and information regarding statutory requirements and poor administrative processes.
Planning: The importance of proper planning can’t be over emphasised. Structure follows on from strategy. The different business formats (see p.20 for more) bring varying degrees of risk, different administrative processes, as well as tax and statutory obligations. Small business owners need to adhere to all of the necessary requirements.
Administration: Many business owners aren’t aware of all the expenses they can deduct for tax purposes and as a result don’t keep the necessary supporting documents (receipts, invoices, etc.) to make claims. Many focus on product development, service delivery, production schedules, sales, staff issues and optimising processes, while the administrative side of the business is neglected and viewed as an unpleasant task necessary only to keep external stakeholders (e.g. government, shareholders and investors) happy.
Information: Many small business owners don’t know which levies and taxes they should register for, what supporting documentation should be kept, when and how submissions should be made and when payments are due. And tax and levy registration is often an afterthought rather than part of the planning and strategy of the business structure.
The following taxes and levies may be payable by SMEs: Provisional Tax; Income Tax; Employee Tax (SITE and PAYE); Skills Development Levies; Unemployment Insurance Fund (UIF); Workman’s Compensation Insurance (WCA) and Industrial Council (IC) and Value Added Tax. You need to register for tax (with SARS) as soon as you commence business.
Who: Any individual or company earning a business income or any individual who derives taxable interest, dividends and rental income in excess of R10 000. When: As soon as you start or register a business it needs to be registered for provisional tax.
How: The first payment must be made six months after the start of the tax year (September 1) and the second payment before the last day of the financial year (February 28). Your third payment should be made within seven months of the end of financial year. Income tax Who: All registered businesses and individuals.
When: Annual submissions should be made within seven months after the financial year end. If deadlines can’t be met the business needs to apply to SARS for an extension.
How: The tax rate for companies (STC) is 29% on profits made (March 31, 2007).
Employee Tax (SITE and PAYE)
Who: If you employ staff you are legally obligated to deduct tax from their salaries. SITE (Standard Income Tax on Employees) applies to salaries under R60 000, while PAYE (Pay-As-You-Earn) applies to those over this amount.
When: The employer deducts employee taxes from the employee’s earnings. The employer must register employees for employee taxes with SARS. Directors are also regarded as employees and are required to register for employee taxes.
How: Payable monthly to SARS.
Skill Development Levy
Who: The Skills Development Levy is paid by employers and is calculated as a percentage of the company’s payroll. You can claim part of your skills levy contribution back in the form of cash grants to pay for approved staff training. Your SETA (Sector Education & Training Authority) should provide you with information on approved training providers and conditions for receiving grants.
When: Skills levies are payable to SARS together with monthly PAYE and UIF contributions – not later than seven days after the end of the due month.
How: Presently, one percent of an employee’s leviable amount must be paid over to SARS.
Who: All employers who are required to register their workers with SARS for the payment of PAYE and/or SDL (Skills Development Levy) must also register with SARS for their UIF.
When: UIF payments are made monthly together with PAYE and Skills Levy payments to SARS.
How: Employers must pay UIF contributions of 2% of the value of each worker’s pay per month. The employer and the worker contribute 1% each.
Value Added Tax
Who: VAT is levied on the supply of goods or services made by registered vendors and the supply or importation of goods. The standard VAT rate is 14%, but certain supplies are “zero rated” or exempt from VAT.
When: Businesses with a taxable turnover of more than R300 000 in any 12-month period need to register for VAT with SARS. The business should keep accurate records showing how much VAT was charged for goods/services provided (input VAT) and how much VAT was paid on for services and goods (output VAT). The difference between output VAT and input VAT must be paid over to SARS.
How: Businesses with turnovers between R300 000 and R39- million need to make payments every two months. Where turnover levels exceed R39-million, payments are required monthly.
Over and above the statutory requirements above, there are plenty of administrative tasks to focus on to ensure that you set up your business correctly from the start, including:
- Opening a business bank account: No matter how small your business, don’t even think about operating from your personal account. Be sure to separate personal and business funds from the start because it can be a complicated and timeconsuming task to separate them at some point down the line. Also take the time to compare bank fees and minimum balance requirements.
- Set up your accounting system: Set up a system for retaining all business expense receipts and invoicing customers. Bring an accountant or bookkeeper on board and ensure that they understand the nature of your business, your accounting obligations and tax deduction opportunities.
- Identify where to get help: You’re going to need to call in the experts at various stages, so identify an attorney, accountant and anyone particular to your field who will be able to help you with your particular concerns. Remember also that other entrepreneurs and small business owners can be a great sounding board.
- Develop a payment policy: If you don’t get paid, you won’t survive. So be sure on your strategy here.
- Build stronger customer relationships: Make sure you have critical contact details at your fingertips so you can focus on what’s most important to your business – building stronger customer relationships.
Remember to keep an eye on your goals at all times and recognise your achievement in meeting them. Don’t get pushed off track in the race to open up shop.
Jacques Nel heads up Indus Consulting, a specialised small business and franchise consulting hub. For more information visit: www.indus.co.za or email: email@example.com.