Are you a small business owner in South Africa, trying to wrap your head around the complex world of taxes?
Well, you’re in the right place! In this article, we’re going to break it down for you in plain, easy-to-understand terms.
But wait, it’s not just about the what, it’s also about the how. We’ll unravel the legalities surrounding small business taxes, helping you stay on the right side of the law and avoid any unwelcome tax surprises.
So, stick around, because by the end of this article, you’ll be equipped with the knowledge you need to navigate the intricate world of small business taxes in South Africa. Let’s get started!
What Is A Small Business?
A small business is like the friendly neighborhood shop, the cozy cafe around the corner, or the family-run enterprise. It’s typically a compact operation, often managed by a few individuals or a single entrepreneur.
These businesses usually have limited resources, a relatively small number of employees, and modest annual revenue. They are the heart of the local economy, contributing to job opportunities and community vitality.
So, if you’re picturing a small-scale store, a boutique service provider, or a one-person show, you’re thinking of a small business.
What Are Small Business Taxes In South Africa?
Small businesses are the engine of our economy. They make stuff, offer services, give folks jobs, and help our economy grow. But for them to shine, they need a business-friendly environment. And that’s where fair, competitive, and growth-focused tax policies come into play.
When we talk about small business taxes in South Africa, it falls under Corporate Income Tax (CIT). SARS tells us it’s a tax for companies that call South Africa home or are run from here, and they make money from inside or outside our borders.
If you’re a non-resident company with a branch or permanent spot in SA, you’ll get taxed on all the income you rake in on our turf.
In plain terms, if you’re running a business in SA, whether it’s a local or international gig, you’ll owe some tax on all your earnings.
And if you’re an SME playing by the regular small business tax rules, get ready for provisional tax, which spreads out your tax bill over a certain period (more on that in a bit).
Now let’s get into the main part of the guide; the types of small business taxes.
What Are The Types Of Small Business Taxes In SA?
There are a total of six types of small business taxes in the country that we have identified from various sources, primarily the official SARS website. This includes Provisional or Income tax, Turnover Tax, Capital Gains Tax, VAT, Employee Tax or PAYE, and Dividends Tax.
Let’s discuss them all one by one.
1. Provisional Tax or Income Tax
What’s Provisional Tax?
Provisional tax isn’t a whole new tax party; it’s like a preview of the main income tax show. The idea is to help you avoid a big, scary tax bill at the end of the year. Instead, you spread your tax payments out over the year.
Who has to pay provisional tax?
Both companies and individuals are eligible for provisional or income tax.
Every business has to join the provisional tax club. You send in your dues twice a year – one at the six-month mark into your financial year and another when your financial year wraps up. Sometimes, there’s a third top-up, just to make sure you’re not hit with a mega tax bill.
Remember, these payments are based on predictions, which is where your financial plan comes in. You don’t want to overpay or come up short. Our financial planning guide, “Supercharge your start-up with a strong financial plan,” can be your sidekick.
If you’re employed or pay yourself a salary from your business, and that’s your only income source, you’re all good – no need to register for provisional tax. You’re already paying PAYE.
But wait, there’s more.
If you’re employed but have extra income streams (like a side hustle or rental income), you do need to jump on the provisional tax train.
If you’re a business owner getting dividends and investment income that’s separate from your salary, provisional tax is your ticket. It helps you settle the extra tax outside of the regular PAYE setup.
What about startups?
Startup owners often can’t afford a regular salary early on. Instead, they pump all their money into the business. During this phase, they might set up a loan account to cover personal expenses paid by the company or to pay themselves back for loans they gave to the company.
2. Turnover Tax
a) What’s the deal: If your business pulls in less than R1 million in a year, you’re considered a microbusiness. Being in this category makes you eligible for turnover tax, a simplified small business tax system.
b) Who gets in on the action?
In plain speak, to qualify for this small business tax, just add up all the money your business makes through its activities for the year.
Remember, that R1 million limit for turnover tax doesn’t include:
- Money from selling big-ticket items
- Certain government grants, according to the Income Tax Act
c) Turnover tax versus VAT
Your business only needs to sign up for VAT if it’s clocking more than R1 million in 12 months. Since microbusinesses usually earn less than that, VAT isn’t a must.
But sometimes, businesses can score some decent VAT credits, making it smarter to go with the VAT system instead of turnover tax. Many accounting firms can help you figure out which tax path suits you best.
d) When should you care about turnover tax?
“If your business makes less than R1 million a year, you should hop on the turnover tax train with SARS,” says Madelein van der Watt, Development Manager at Sage Pastel Payroll & HR.
In this case, the first R335,000 of your annual earnings won’t be taxed, and after that, you’ll owe 3% of your total earnings as tax. This beats juggling various tax tasks like VAT, income tax, provisional tax, or capital gains tax.
e) When to dig into your pockets?
Once you’re in for turnover tax, you’ll need to send in two provisional returns. Small business tax rules say you’ve got to file a TT02 twice a year:
- The first one is due six months into your current financial year
- The second comes in at the end of your financial year
- There’s a third option to top-up any shortfall six months after year-end (that’s the TT03 form)
f) Why does it matter?
Don’t assume you’ll always be a microbusiness, especially if your earnings are on the upswing. Get cozy with the tax codes to steer your small business toward success.
If your company rakes in more than R1 million every year, VAT registration is a must. But if you’re not hitting that mark, you can still sign up, but it’s your call. VAT is a tax on stuff you buy or services you use.
We have explained the South African VAT system in detail, so you can refer to our guide on it to know more about VAT.
4. Capital Gains Tax (CGT)
As many people get confused between GST and CGT in Australia, the same goes for Income and Capital Gains Tax in SA.
Small business taxes can also kick in when you decide to sell or get rid of stuff your company owns, like property, especially if you make a profit on the sale. This money-gobbling tax goes by the name of capital gains tax, and it’s like a distant cousin of regular income tax.
Capital gains tax, as part of small business taxes, is the fee you pay when you make a sweet deal selling company assets, like property, and the profit exceeds what you originally paid for them. It’s like the government’s way of taking a slice of your earnings from these sales to help fund public services.
So, when you score big on asset sales, be ready to share the joy with the taxman.
5. Employee Tax (PAYE) – Small Business Taxes
What is PAYE?
The law mandates every employer to register for Pay-As-You-Earn tax, commonly known as PAYE. It’s essentially a withholding tax on your employees’ income, functioning as an advance payment of their income tax. If your employee has paid more tax than they owe, the excess will be refunded to them during assessment.
When Does PAYE Apply?
As a business owner and employer, you’re responsible for deducting UIF (Unemployment Insurance Fund) and PAYE tax from your employees’ salaries every month. It’s crucial to submit your monthly PAYE, UIF, and SDL (Skills Development Levy) declaration (EMP201) on time to avoid fines from SARS. Remember, UIF is your contribution to the Unemployment Insurance Fund, while SDL goes into the Skills Development Levy.
When is PAYE Due?
PAYE is typically due on the 7th day of the following month. If this date falls on a weekend, the payment should be made on the preceding Friday.
Registering for UIF, SDL, and PAYE
Small business tax regulations stipulate that your business must register with SARS for PAYE and/or SDL and UIF. The good news is that you can tackle the registration for all these small business tax categories at once using the SARS client information system.
Streamline with a Reliable Payroll System
Implementing a trustworthy payroll system can provide you with peace of mind, ensuring that your PAYE, UIF, and SDL are automatically calculated and compliant.
Stay on top of your PAYE responsibilities to keep your business in good standing with SARS and provide your employees with accurate income tax withholding.
6. Dividends Tax – Small Business Taxes
What it is: Dividend tax becomes relevant for your small business if it has shareholders receiving dividends.
How It Operates: In the world of dividends tax, SARS puts the responsibility on the beneficial owner of the shares. But here’s the twist: the owner doesn’t have to lift a finger. The tax is automatically snipped from the dividend payout, thanks to the withholding agent – typically the company. The withheld tax is then delivered to SARS.
Filing Matters: When those shareholders tackle their tax returns, the dividends tax paid on their behalf by the company plays a starring role. It’s essential, especially if the shareholder qualifies for a reduced tax rate or a complete exemption on their dividend earnings.
The Due Date: This small business tax should be settled promptly. You need to hand over the withheld tax to SARS within a month of dishing out the dividends, accompanied by a DTR01/02 return form. Delaying the dividends tax payment or submission might come with an interest charge from SARS.
Understanding dividends tax keeps your small business financially sound and on the right side of the law.
In wrapping up our exploration of the intricate world of small business taxes in South Africa, it’s clear that grasping the nuances of this tax landscape is paramount for small business owners.
Throughout this article, we’ve delved into various aspects of small business taxes, shedding light on the key categories that might directly impact your small business.
By staying well-informed and fully compliant with the specific tax regulations that govern small business taxes, you not only safeguard the financial health of your small business but also play an active role in shaping the broader economic landscape of South Africa.
These insights into small business taxes are your key to informed decision-making and confident navigation of the intricate tax terrain. Keep in mind that while taxation may appear complex, it’s an integral aspect of operating a successful small business.
But these financial complexities can be solved simply with ProfitBooks, an easy-to-use cloud accounting software. With ProfitBooks, you can manage all your taxes, not only in South Africa but all major African nations like Kenya, Tanzania, Zimbabwe, Nigeria, Ghana, Morocco, Zambia, Mozambique, Botswana, and many more.
Get your 100% FREE account now!