If your small business’s income tax returns are not up to date, now is the time to get your affairs in order.
From December, the South African Revenue Service (SARS) will start imposing ‘administrative penalties’ on companies that receive final demands to submit returns, writes Viresh Harduth, vice-president: new customer acquisition (start-up and small business) for Sage Africa & Middle East.
Unlike personal taxpayers, companies were not fined in the past for late income tax returns nor for failure to file submissions. However, SARS is now reportedly looking to hit some 300 000 registered companies with fines for failing to submit their income returns.
The exact penalties will depend on your assessed profits or losses and will range between R250 to R16 000 per month while non-compliance continues. That could rapidly add up to a hefty amount for a small business that fails to comply – especially if added to penalties for late payment of taxes.
To avoid penalties, companies should submit outstanding returns before the end of November. Here are some ways to streamline compliance in the years to come, so that your business can avoid penalties and fines for late submissions.
Straighten out your record-keeping
One of the best ways to streamline compliance is to ensure you keep your books up to date. Keep detailed records about your company’s assets, liabilities, inventory, expenses and payments. Rather than throwing your receipts and slips into a shoebox, make a habit of scanning them immediately and capturing them in an electronic accounting system.
A modern accounting system will make it simple for you to issue invoices, track outstanding payments, and import transactions from your bank account feed directly into the accounting solution.
This will make it far easier for you to generate accurate profit and loss statements when you need to file submissions with SARS – negating the need to sit with a spreadsheet and a pile of paper at the end of the year to work out your tax liability.
Plus, an accounting and payroll solution developed for the local market will also make your payroll tax (EMP501, UIF and ETI) and VAT submissions a snap.
Tip: If you don’t feel you have the admin skills and discipline for day-to-day bookkeeping, you can engage a bookkeeper to take care of routine recordkeeping for you.
Appoint a qualified accountant and tax practitioner
If you are not an accountant, it is wise to ask a qualified professional to help you prepare and file your company income tax return (also known as the ITR14). It is a legal requirement for a limited company in South Africa to appoint an accountant or an accounting officer to sign off its accounts at the end of each financial year.
Seek out a firm or professional registered with a body such as the South African Institute of Professional Accountants (SAIPA), the South African Institute of Chartered Accountants (SAICA) or the South African Institute of Tax Practitioners (SAIT). Your accountant should also be registered with SARS as a tax practitioner. Look for someone with good references and an established base of small business clients.
Stay ahead of deadlines for the year
There are several key company tax deadlines you will need to meet each tax year:
- You must file a compulsory provisional tax return six months from the start of the tax year and another at the end of the tax year.
- You may make a voluntary submission and top-up payment six months after year-end.
- You must file your annual return within 30 days of the date of incorporation.
If you are diligent about your provisional returns and payments, it will be easy to meet the annual return deadline because you will have done most of the work. Plus, you will already have made provision for the money you owe SARS.
Always make ample provision for the money you owe SARS for income tax
Many small businesses – especially those in their early stages – survive month-to-month. If you are heading for a cashflow crises, do not use money you owe SARS for VAT, payroll taxes or income tax to get over the bump. Try to build a cash reserve for emergencies rather than getting into the habit of using money owed to SARS to bridge shortfalls between invoicing clients and receiving payment.
This can be challenging, given that small businesses need to book revenue in their financial statements before they receive payment. Using an accounting system can help you better understand the flow of cash in and out of your business by year and month, so you can plan and hopefully avoid making a choice between paying your taxes or your salaries and power bill.
Approach SARS before SARS approaches you
If you haven’t filed corporate income tax returns for a while, you may be concerned that you owe SARS a lot of money. This might be the case even if your company has gone dormant. Work with an accountant as soon as possible to establish what your tax liability could be, and then approach SARS without delay. If you communicate early and honestly, SARS may be more receptive to helping you structure a sensible repayment plan to clear your debt.
Stay abreast of the latest SARS news
The South African tax environment is constantly changing as SARS tightens policies and regulations. Cruise over to the SARS website once a month or so to check on any new regulations and requirements, and keep an eye on the business press for tax news and advice.