Business Registration Question

[wolf289]

Hi all,

A friend of mine has been running her business since 2014, on and off. In 2016, the business made a profit of R60 000 (very small still), and this year so far it has made a profit of R68 000. By the end of the year the assumption would be that it would be over the R75000 tax bracket.

Today I found out that according the sars, the moment you commence with a business venture, you are meant to register the business within a 60 day period. I don't know what commence means in this case. And also, what sort of penalties would there be for not registering as she started in 2014 I guess?

Also, she has run all by herself and has no employees. Her income is unregistered.

Advice please.

 

[Milano]

Not sure but I would imagine the penalties would be negligible if any at all. This is Africa so expectations on the populace are low, plus SARS primarily wants to bring compliance, even if that compliance is late. So nailing people in low income scenarios for late registration would run contrary to growing the tax base. Try their call centre for answers.

 

[savage]

There's a difference between profit, and turnover.

If you at any time did over R1M in turnover, you where required to register for VAT. In that case, the penalties will be quite a bit. SARS is very strict on VAT. The fact that the income is "unregistered" (I assume not declared), will make her situation worse.

I would on board an accountant and get things registered, and get tax certificates issued, asap.

 

[wolf289]

There's a difference between profit, and turnover.

If you at any time did over R1M in turnover, you where required to register for VAT. In that case, the penalties will be quite a bit. SARS is very strict on VAT. The fact that the income is "unregistered" (I assume not declared), will make her situation worse.

I would on board an accountant and get things registered, and get tax certificates issued, asap.

Turnover this year so far is R82000. Yes it is unregistered income, but obviously nowhere near R1m turnover levels.

 

[HibiscusTunes]

My wife runs her own business as a sole proprietor, she only pays provisional income tax.

 

[Tomtomtom]

Hi all,

A friend of mine has been running her business since 2014, on and off. In 2016, the business made a profit of R60 000 (very small still), and this year so far it has made a profit of R68 000. By the end of the year the assumption would be that it would be over the R75000 tax bracket.

Today I found out that according the sars, the moment you commence with a business venture, you are meant to register the business within a 60 day period. I don't know what commence means in this case. And also, what sort of penalties would there be for not registering as she started in 2014 I guess?

Also, she has run all by herself and has no employees. Her income is unregistered.

Advice please.

She's a provisional taxpayer. For more info: https://www.taxtim.com/za/tax-guides/what-is-provisional-tax-how-and-when

You don't mention if she has income from a salary or other sources. As a sole proprietor, the business has no separate identity and all her income is added together for tax purposes. The business does not get its own separate tax threshold.

 

[mh348]

Register a company instead of running as a sole prop. Registering a PTY with cipc takes less than 24 hours now a days.

If you only have one company on your name you qualify as a Small Business Corporation & tax rates are much lower.

SBC tax rates for financial years ending on any date between 1 April 2017 and 31 March 2018 - See changes from last year:

Taxable income (R) ​Rate of tax (R)
0 – 75 750 0%
75 751 – 365 000 7% of taxable income above 75 750
​365 001 – 550 000 20 248 + 21% of taxable income above 365 000
​550 001 and above 59 098 + 28% of taxable income above 550 000

http://www.sars.gov.za/ClientSegments/Businesses/SmallBusinesses/Pages/default.aspx

 

[TheLoneWolf]

She's a provisional taxpayer. For more info: https://www.taxtim.com/za/tax-guides/what-is-provisional-tax-how-and-when

You don't mention if she has income from a salary or other sources. As a sole proprietor, the business has no separate identity and all her income is added together for tax purposes. The business does not get its own separate tax threshold.

Ok so if we get it registered, you would in theory have R75000 which can be her total income before paying tax (salary), and the businesses R75000 before having to pay tax if it gets to the point of making R150 000 profit for the year?

Also, would it be possible to change over to a sole prop at some point once already registered as a business?

 

[EnT@nGleD]

mh348, if only it was that simple....

There is more to it than just registering a company. You have to submit bi-annual provisional tax returns (and make bi-annual payments), submit an income tax return, prepare annual financial statements, submit an annual return declaration to CIPC, keep minute books and statutory records etc. This is all costly and time consuming! If you pay a salary you will need to register for UIF with department of labour and the compensation commissioner. Only when her salary exceeds the tax threshold will you need to register for PAYE. Any amount above her salary although not taxed will incur a Dividends Tax of 20% when withdrawn or a loan account will be created resulting in the business having to charge interest or declare a dividend to her on the interest lost (also at 20% of the interest).

An individual also pays no tax up to 75 750 although every Rand above this is taxed at 18% until you reach the next threshold at 189 880. She can also claim a medical aid tax credit as an individual as well as an retirement contributions. Therefore based on the current income levels it does not make sense to register a company.

Just my opinion on the matter.

*Seek the advice of a professional before jumping the gun. It may cost you now but will benefit you in the long run*

 

[TheLoneWolf]

mh348, if only it was that simple....

There is more to it than just registering a company. You have to submit bi-annual provisional tax returns (and make bi-annual payments), submit an income tax return, prepare annual financial statements, submit an annual return declaration to CIPC, keep minute books and statutory records etc. This is all costly and time consuming! If you pay a salary you will need to register for UIF with department of labour and the compensation commissioner. Only when her salary exceeds the tax threshold will you need to register for PAYE. Any amount above her salary although not taxed will incur a Dividends Tax of 20% when withdrawn or a loan account will be created resulting in the business having to charge interest or declare a dividend to her on the interest lost (also at 20% of the interest).

An individual also pays no tax up to 75 750 although every Rand above this is taxed at 18% until you reach the next threshold at 189 880. She can also claim a medical aid tax credit as an individual as well as an retirement contributions. Therefore based on the current income levels it does not make sense to register a company.

Just my opinion on the matter.

*Seek the advice of a professional before jumping the gun. It may cost you now but will benefit you in the long run*

Its a one person business at the moment and really dont know if all that crap she will have to go through would be worth it. What I had in mind was just getting registered as a sole prop, and then registering for the turnover tax system. Her profit margins are very high, so most of the turnover would be profit and she will not reach the R335 000 threshold anytime soon. So she can have the business registered and not pay any tax for a very long time anyway.

Is this a good idea? Also very little admin in theory.

 

[Tomtomtom]

She doesn't have to register her sole proprietorship, she just has to declare the income.

Her high profit margin suggests she won't be eligible for turnover tax - you'd need to check the exclusions and if in doubt get professional advice. If she is eligible, she's lucky.

Otherwise, if her total income including all sources exceeds the R75k threshold, then she is a provisional taxpayer and should simply file accordingly.

 

[piranha786]

Hijacking this thread sorry...

Whats the benefits of using a company such as swiftreg or ptyregistrations to register a company rather than using Cipc directly?

 

[mh348]

Hijacking this thread sorry...

Whats the benefits of using a company such as swiftreg or ptyregistrations to register a company rather than using Cipc directly?

Don't think there is any benefit. While I haven't done a registration myself, my account has done my one.. My accountant recentantly did a registration for my brother, Applied on Monday afternoon, he then sent a form to sign, we then sent the form back at 8am the next morning and by 10am the company was registered, under 24 hours.

CIPC have become more efficient, they now claim to process new registrations in 4 hours (business hours), they also now accept credit card payments, where previously you had to "load credit" on your account by deposting in their account.