How to deal with three common small business tax problems

Trying to navigate the unknown terrain of tax can be terrifying. As a business owner, you want to stay on the right side of the law and at the same time ensure that you’re not overpaying. Trying to meet those two directives can be rather difficult when the world of tax is an unfamiliar place.

The Finance Team is here to help. For starters, we’ve rounded up a few common tax problems that business owners face, and provided a few pointers in each case.

Tax problem one: First things first, what kind of tax is my business liable for? When registering your company with SARS, you will be required to identify what kind of business it is. Depending on whether it is a sole proprietorship, a partnership, or a private company, you will be liable to meet different tax requirements.

Pointers for tax problem one: Technically, you should have answered this question when you registered your company with the Companies and Intellectual Property Commission (CIPC). Look back at your company registration documents to identify your classification.

If you’re still unsure or have not yet registered, here is a brief rule of thumb:

• A sole proprietorship is a small company that is run by you and only you (a natural person). You accept personal liability for any debts incurred by the company.
• A partnership is similar to a sole proprietorship, but the liability is accepted by a group of people who also share in the running of the business and its profits. There can be between 2-20 partners in a business.
• A micro business registered for turnover tax could be either a sole proprietorship or a partnership with a turnover of no more than R1million per year.
• A private company is seen as a separate legal entity from the person or people who own the business. It has its own ‘life’ and its own rights and duties. Managers may or may not be shareholders.

Click here for a more comprehensive outline of each business type.

Tax problem two: I know I need to pay tax on behalf of my employees, but what exactly must I pay? As an employer, you are liable for payroll tax. But what is that?

Pointers for tax problem two: Payroll taxes are made up of deductions withheld from an employee’s salary. They comprise the following:

• Employees’ Tax [Pay-As-You-Earn (PAYE)] – withheld from employee’s salary. The percentage of tax payable depends on how much the employee earns. Follow the latest SARS breakdown for income tax to see the percentage of tax payable for each employee.
• Skills Development Levy (SDL) – payable by employer. This is a compulsory levy scheme used by the government to fund education and training.
• Unemployment Insurance Fund (UIF) – withheld from employee’s salary and payable by employer in equal shares. This is another compulsory levy that is used to fund unemployment benefits. Should your employee be retrenched or take maternity leave, for example, he or she can claim compensation from UIF.

Click here for a detailed explanation about meeting payroll tax requirements.

Tax problem three: How do I know if my company is tax compliant? When do you know that you’ve checked all the right boxes and that your company is in good standing with SARS?

Pointers on tax problem three:

If you can answer ‘yes’ to the following questions, then your company should have the all-clear with SARS.

• You do not have any outstanding tax returns
• You do not owe any money to SARS unless a payment arrangement or suspension of debt has been agreed to
• You are registered for all the tax products that you are liable for (speak to a finance professional to check this point)
• Your registered particulars are updated
• You have either merged (via the Merge tool on eFiling) or declared (on the ERC01 form available on eFiling), all your registered tax reference numbers.

SARS eFiling now offers something called My Compliance Profile (MCP) which allows you to view your company’s status and identify what needs to be rectified. Click here and scroll down to page two to find detailed instructions on how to access your MCP.

These three tax problems are just a few of the many questions asked by business owners when undertaking their tax reports. As you can see, there are many intricacies to be dealt with along the way. We recommend that you bring on a finance professional to help you ensure you’ve got everything covered. Contact The Finance Team to find out how you can receive ad hoc or part time assistance.