All That You Need To Know About SARS Business Compliance
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| Photo by Diva Plavalaguna |
The world of SARS business tax compliancere is lonely and a complex one. Are you a business owner in South Africa wondering how to navigate it with ease? You're not alone. Many entrepreneurs find themselves scratching their heads when it comes to meeting their tax obligations. In this comprehensive guide, we'll walk you through the steps to ensure your business is fully tax compliant with the South African Revenue Service (SARS).
Understanding Business Tax Compliance in South Africa
Tax compliance simply means fulfilling all your tax obligations for your business as required by law. It's like playing by the rules of a game – in this case, the game of running a business in South Africa.
Tax compliance is crucial for several reasons. First, it ensures you remain compliant with the South African legal regulations. Nobody wants to tangle with SARS, right? Second, it helps you avoid penalties and fines that could hurt your bottom line. And lastly, it contributes to the country's development. Your tax payments help fund essential services and infrastructure.
Registering Your Business with SARS
The first step in your tax compliance journey is registering your business with SARS. But before you do that, you need to decide on your business structure. But if you are a sole proprietor, you don't register as a business with SARS, you only register as an individual. Choosing to be a sole proprietor, partner, or company has distinct tax implications for each, so making an informed decision is crucial.
Once you've decided on your business structure and registered with the CIPC, SARS will automatically issue you with a tax reference number. Think of it as your business's ID in the eyes of SARS. You then have to register on the eFiling profile as an individual, if you haven't already. Once registered as an individual, you'll have to add the company to your profile.
Understanding Your Tax Obligations
Income Tax is probably the first thing that comes to mind when you think of taxes. It's based on your business's taxable income. The rate varies depending on your business structure and income level. Remember, ignorance is not bliss when it comes to Income Tax!
If your business makes more than R1 million in a year from selling goods or services that are taxed, you'll need to register for VAT. It's like a game of hot potato – you collect VAT from your customers and pass it on to SARS.
This is where a lot of businesses run into trouble with SARS because they don't plan for VAT. The key is, once you're VAT registered, to first figure out how much you want to charge for your services, then add 15% for VAT. This way, you've already earned your money, and you don't have to worry about subtracting VAT from your income and coming up short.
Do you have employees? Then you'll need to deduct PAYE from their salaries and pay it to SARS. It's like being a mini tax collector for your staff. This is also where many employers run into serious trouble with SARS because they don't account for PAYE, UIF, and other deductions and contributions. You have to submit a monthly EMP201 to the Revenue Service, and file the EMP501 employer reconciliations twice a year. You must also prepare the IRP5s for your workers to file during tax season.
When you hire an employee, you need to calculate the total cost to your business, not just the net salary the employee will receive. For instance, if your employee' s take home salary is R10 000 per month, you need to add PAYE and UIF to that. But if the gross is R 10 000, then you have to minus PAYE and UIF to the amount.
Also, bear in mind that SARS add penalties and interest for every month you don't pay employer taxes.
UIF is another deduction you'll need to make from your employees' salaries. It's a safety net for workers who become unemployed. You're essentially investing in a fund that will support your employee if they lose their job, get sick, or go on maternity leave.
UIF also provides a death benefit, which allows the spouse or minor children to claim if an employee passes away. This is a significant benefit that employers offer by contributing to UIF: you're helping to secure your employee's future in case of an emergency. The total cost to the company is 2% of the employee's total remuneration, with the employee and employer each contributing 1%.
Keeping Accurate Financial Records
Bookkeeping might not be the most exciting part of running a business, but it's crucial for tax compliance. It's like keeping a diary of your business's financial life. All financial activities, regardless of their magnitude, must be documented and accounted for. Whether it's R20 or R20 000, every cent counts and should be recorded as accurately as possible.
Gone are the days of dusty ledgers and paper receipts. There are plenty of digital tools available to make record-keeping a breeze. From cloud-based accounting software to mobile apps, technology is your friend in the quest for tax compliance.
Filing Tax Returns on Time
Filing your Income Tax return is like submitting a report card for your business. You'll need to do this annually, usually within 12 months of your financial year-end. Don't be late – SARS doesn't accept "the dog ate my tax return" as an excuse! You'll need a summary of your business's income and expenses for the financial year. This information is typically found on the balance sheet and income statement prepared by your bookkeeper or accountant.
If you're registered for VAT, you'll need to submit VAT returns either monthly or bi-monthly. This is where accurate record-keeping is crucial to track your VAT input and output. This is one tax type you don't want to get wrong.
Here is a simple explanation of how VAT works: VAT Input This is the VAT you pay on goods and services that you purchase for your business. Think of it as the VAT you spend. For instance, if you buy office supplies for R100 (including 15% VAT), your input VAT is R15.
VAT Output This is the VAT you charge on the goods and services you sell. It's the VAT you earn. If you sell a product for R100 (including 15% VAT), your output VAT is R15. The VAT Cycle The difference between your input VAT and output VAT determines whether you owe SARS or SARS owes you. If your output VAT is greater than your input VAT: You owe SARS the difference. If your input VAT is greater than your output VAT: SARS owes you the difference. Essentially, you can claim back the VAT you paid on business expenses (input VAT) from the VAT you collected on your sales (output VAT). This mechanism ensures that businesses only pay VAT on the value they add to goods and services.
Don't believe anyone who tells you they made millions in VAT because they know how to cook the books for SARS.
PAYE returns are due monthly. Think of it as a monthly roll call for your employees' tax contributions. PAYE must be submitted and paid every month on efiling if you have less than fifty employee. If you have more than fifty employees, it must be filed on SARS easyfile. It's important to remember that you need payroll software to prepare the information that must be submitted.
Making Timely Tax Payments
SARS offers various payment methods, from EFT to credit card payments. The most efficient and simple method to pay SARS is to use the push notification on efiling. But if you have debt or pay late, you have to pay the penalties via your banking app or any of the other methods mentioned here. The system only allows you to pay the exact monthly contributions. If your monthly contribution is R500 and you have penalties and interest of R65, you can only pay the R500 on eFiling. The R65 must be paid using a different method.
Select the option that suits you best. Just remember, the money needs to reach SARS by the due date. If you're using another payment method, the money will take between two and three days to reflect. SARS doesn't recognise the money when you've paid it; only when it shows on their system.
Late payments can result in penalties and interest. It's like being charged extra for returning a library book late – except much more expensive! The longer you delay payment, the more interest and penalties will accumulate. This is a prime example of compound interest working against you.
Utilising SARS eFiling System
SARS eFiling is like the online banking of the tax world. It allows you to submit returns and make payments from the comfort of your office or home. No more queuing at SARS offices! But if you haven't filed returns for more than five years you have to go to a branch.
Registering for eFiling is straightforward.
This is what you'll need to complete the registration process:
Your ID number
Your personal tax number
Your cell phone number
Your email address
Seeking Professional Help
When to consult a tax practitioner or an accountant
Sometimes, tax matters can get complicated. If you find yourself in over your head, it might be time to call in the cavalry – a registered tax practitioner, an accountant or even a bookkeeper who is well experienced working with business taxes. At the end of the day, it will come down to which one of the three you can able to afford their fees.
Choosing a tax practitioner is like choosing a doctor. You want someone qualified, experienced, and who you can trust with your business's financial health.
Staying Updated with Tax Laws and Regulations
Tax laws change frequently. Staying updated is like keeping up with the latest fashion trends – it requires constant attention. Subscribe to SARS newsletters, attend workshops, or join business associations to stay in the loop.
Conducting Regular Tax Health Checks
Regular tax health checks are like visiting the dentist. It might not be your favorite activity, but it prevents small issues from becoming big problems down the line. Check your latest statement of account. Pay any outstanding penalties and interest as soon as you can. File on time.
Handling SARS Audits
If SARS decides to audit your company, don't panic, you can contact us for help. It is not a witch-hunt you'll do fine, if your record keeping has been in order.
Tax Compliance for Small Businesses
Small businesses have some special considerations when it comes to tax compliance. SARS offers certain relief measures for small businesses, so make sure you're aware of these.
Common Tax Compliance Mistakes to Avoid
From miscalculating VAT to missing deadlines, there are many common tax compliance mistakes. Recognising these factors constitutes a significant step towards success..
Conclusion
Achieving full tax compliance with SARS might seem daunting, but it's entirely achievable with the right approach. Remember, it's an ongoing process that requires attention and dedication. By following the steps outlined in this guide, you'll be well on your way to becoming a model tax-compliant business. Not only will this keep you on the right side of the law, but it will also contribute to the smooth running and growth of your business. So, here's to your success and tax compliance!
If you need help in getting your books ready for SARS, give us a call or send a message on WhatsApp.
FAQs
- Q: How often do I need to file tax returns?A: It depends on the type of tax. Income Tax returns are typically filed annually, VAT returns can be monthly or bi-monthly, and PAYE returns are filed monthly.
- Q: What happens if I miss a tax payment deadline?A: Missing a tax payment deadline can result in penalties and interest charges. It's always best to pay on time or communicate with SARS if you're facing difficulties.
- Q: Can I handle all my tax compliance matters myself, or do I need a professional?A: While it's possible to handle tax compliance yourself, especially for small businesses, many find it beneficial to consult with a tax professional, particularly as the business grows or tax matters become more complex.
- Q: What is the recommended duration for retaining financial documentation in SA?A: SARS requires that you keep records for at least five years from the date of your last assessment.
- Q: What should I do if I discover I've made a mistake on a previous tax return?A: If you've made a mistake on a previous return, you should submit a revised return as soon as possible. It's better to correct the error yourself than to have SARS discover it during an audit.
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