Following my insert on ‘How to start up your own business’; I was inundated with questions relating to tax, VAT and all the laws that apply to small businesses; with that said, I’ve shortlisted all the basic requirements a small business needs to meet with regards to staying within the regulations of the law.
When should a business register for Income tax? The answer is simple; ALWAYS. Registering for Income tax isn’t dependent on the scale of one’s business and neither its profitability. A business owner is only required to pay Income tax when the business is making a profit, however it is equally important to always declare both profit and loss amounts to SARS.
When does a business register for VAT? A business with a turnover (total sales and not just your profit) of more than a million rand per year should register for VAT. That’s goes to say that if your sales is R80 000 p/m, you’ll be required to register for VAT, even if you’re not making a profit. The South Africa VAT rate is calculated at 14%. The calculation is made on all your sales minus your purchases that already have VAT included in their pricing. Sometimes the calculation can get quite technical and it’s best to refer to an Accountant to advise you.
What Employee taxes and levies need to be adhered to? Owners of registered businesses need to be reminded that even though they are the owners they still work for the business and need to comply with the following too:
- The correct Employee tax must be deducted from every employee’s salary and paid over to SARS, if it isn’t deducted, the business will become liable for the amounts. Employee tax rates can range from 0% to 41%.
- A monthly 1% Unemployment Insurance deduction is applied to each employee’s salary and businesses are required to contribute 1% towards each employee’s Unemployment Insurance fund. The 2% total contribution is made to SARs or the Department of Labour to protect employees in the event they are unemployed.
- Skills Development Levies are applicable to businesses with annual salaries of more than R500k. Businesses are charged 1% on their total monthly salaries and pay the levies over to SARS. These levies are claimable back by the businesses. Many Entrepreneurs only see this as another tax and not a benefit.
These are among the most important and common laws, businesses must comply with when relating to SARS however, there are others such as; Compensations, BEE and Import and Export duties.
It’s clear that Entrepreneurs do not have it easy when it comes to all these regulations. The government does intent to make it easier and lessen these requirements, but until then I would recommend appointing someone who’s a subject expert to keep you in line with all the requirements so that you can focus on your business.
Visit my website at www.marnusbroodryk.com and let’s discuss small businesses and the interesting world of entrepreneurship.