When you decide to start a business you have to remember that there are legal and tax and implications. Each of the different types of business entities in South Africa have tax responsibilities. Tax consultant helps us understand the tax implications for small businesses Tax is a compulsory contribution to state revenue, levied by the government on workers’ income and business profits. It is the government’s main source of income. Income tax returns are available annually after the end of each year of assessment to registered taxpayers, and must be completed and submitted to the South African Revenue Service (SARS) each year. For Companies and Close Corporations the year of assessment is the applicable financial year. A sole proprietorship is a business owned and operated by an individual and is the simplest form of business entity. The business has no existence separate from the owner who is the proprietor. The owner must include the income from the business in their own income tax return and is responsible for paying taxes. A sole proprietor is subject to income tax levied at progressive rates ranging from 18% to 40%. A partnership is the relationship between two or more people who join together to form a business. It is also not a separate legal person or taxpayer. Each partner shares equal responsibility for the partnership’s profits and losses and its debts and liabilities. The partnership itself does not pay income taxes, but each partner has to report their share of business profits and losses on their individual tax return. Each partner is taxed on their share of the partnership profits. Each partner is subject to income tax levied at progressive rates ranging from 18% to 40%. A Close corporation (CC) is a company similar to a private company. It is a legal entity with its own legal personality and succession and must register as a taxpayer in its own right. A CC has no share capital and no shareholders. For income tax purposes a CC is regarded to be a company. The owners are the members and their initial interest in rands are called contributions. CCs are taxed at a rate of 28% on taxable income for the tax year, unless they qualify as Small Business Corporations (SBC), in which case they are taxed at a different, lower scale. A private company (PTY) ltd, is treated as a separate legal entity and must also register as a taxpayer in its own right. The owners of a private company are the shareholders. Private and Public Pty Ltds are taxed at a rate of 28% on taxable income for the tax year, unless they qualify as SBC, in which case they are taxed at a different, lower scale. Micro businesses pay turnover tax. This is a simplified tax system for micro businesses and serves as an alternative to the current income tax, provisional tax, capital gains tax, secondary tax on companies and VAT systems. Turn over tax is available to sole proprietors, partnerships, close corporations, companies and co-operatives. A person qualifies as a micro business if that person is a natural person or company where the qualifying turnover of that person for the year exceeds R150 000 but is less than R1 million. From 1 March 2012, qualifying micro businesses are allowed to be registered for VAT and turnover tax. Qualifying businesses pay a single tax instead of various other taxes. It’s elective – so you choose whether to participate Registering your business for VAT is mandatory for any business if the income earned in any consecutive twelve month period exceeded or is likely to exceed R1 million?. Any business may choose to register voluntarily if the income earned, in the past twelve month period, exceeded R50 000. A small business that is registered as a micro business under the Sixth Schedule of the Income Tax Act may also register for VAT and may elect to submit returns and payments every four months, ending on the last day of June, October and February. SARS has a system of strict administrative penalties against non-compliant taxpayers. The various tax or revenue laws provide for the imposition of interest, penalties and additional tax up to 200% for non-payment of or non-compliance to these laws. A person may also be liable on conviction to a fine or to imprisonment on matters such as non-payment of taxes, failure to complete tax returns, failure to disclose income, false statements, helping any person to evade tax or claiming a refund to which they are not entitled.
Posted on: Thu, 04 Jul 2013 08:56:36 +0000
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