CC vs SBC vs No Business Registration for Freelancers?

[WakeUpYouNeed2MakeMoney]

My partner and I work as freelance web designers and we registered a CC in South Africa to get our payments in through our business bank account in SA. We didn't fully understand the definition of a CC and what it means for taxes.

We're thinking that we should have registered as a SBC - looking it up - it states if you made under R70700 per anum - 0% is taxable.

So I'm guessing that means that the full profit is then given to the owners of the small business - and then they are liable for individual tax payments for that income?

But under Individual Taxes where it clarifies if you have to pay taxes, it states the following:

"If you earn under R350 000 for a full year from one employer (that’s your total salary income before tax) and have no other sources of additional income (for example, interest or rental income) and no deductions that you want to claim (for example medical expenses, travel or retirement annuities), then you don’t need to submit a return."

Which to me sounds like we wouldn't have had to pay any taxes at all for the business and as individuals?

With a CC - you have to pay 28% on your profit - so that means that even if it falls under R70K - we'd still be paying 28% taxes?

In that case what really is the benefit of a CC? It seems like a loss.

Also another question - in our case we are the owners and also the workers as we spend our time building websites under the company name - can we pay ourselves salaries and do these count as business expenses?

Why couldn't we simply get paid by our American clients without registering a business and then pay taxes as individuals? It seems that we would still fall under the R350000 per year bracket...

My partner thinks we made a mess of things by registering a CC - did we?

Yes, we're not business savvy.

 

[Boris Becker]

You are completely mistaken. You are referring to turnover tax and it's not applicable to service based industries like web designers

 

[Idiosyncratic]

Paying yourselves a salary counts as a business expense so the CC won't pay tax on that... It sounds like the CC is new, my understanding is you can't register CCs anymore - what's the story, how could you have been operating a CC all this time without some sort of major interaction with SARS and CIPC?
Just curious.

Anyway, a CC is ok if you wish to expand in the future (employ others), otherwise you guys may as well have formed a partnership which would have been much less paperwork and costs in the long run.

And no, the tax bracket isn't 350k, it is ~75k if I remember correctly

 

[netcruiser]

The 350K only applies if you already paid taxes in the form of PAYE at an employer. If you didn't pay PAYE then you will have to fill out a tax return.

 

[JayM]

You are completely mistaken. You are referring to turnover tax and it's not applicable to service based industries like web designers

No, SBC and turnover tax are completely different things.

 

[Thor]

When did you register a CC?

 

[WakeUpYouNeed2MakeMoney]

Paying yourselves a salary counts as a business expense so the CC won't pay tax on that... It sounds like the CC is new, my understanding is you can't register CCs anymore - what's the story, how could you have been operating a CC all this time without some sort of major interaction with SARS and CIPC?
Just curious.

Anyway, a CC is ok if you wish to expand in the future (employ others), otherwise you guys may as well have formed a partnership which would have been much less paperwork and costs in the long run.

And no, the tax bracket isn't 350k, it is ~75k if I remember correctly ��

We registered it a while back and then did small things with it while keeping our day jobs. Had an accountant handle all our stuff - we just paid her and she did whatever it is she was supposed to do while we remained blissfully ignorant. We feel now that we wasted money and paid too much in tax because we made the mistake of not researching enough on what type of business we should register for our situation.

This year we putting more focus on our business and quitting our day jobs - so we want to figure out the right way forward. We want to find a more suitable arrangement to keep costs lower. I also want to be more hands on with all of this stuff because we're no longer kids and we have to get money-wise and stop blowing cash out of ignorance - have to buy a house, car and do all the grown up stuff we've been delaying for a long time.

We're looking at a significantly bigger turnover this year and we're thinking maybe we should let go of the CC and find a better way to handle things and save on costs. Maybe you could point out a few ideas?

We're just a couple - about to get married (if that's somehow relevant to you) - working as web developers online and our clients are all abroad (mostly USA and a couple in Australia and New Zealand) - we are paid through paypal mostly.

We used to make maybe R160K a year (gross sales) since we registered the CC - didn't really care to make much more cause apparently we don't like money...lol...but mostly we had other jobs too.

This year we're looking at a potential increase to around R500K - this is a rough estimate and really depends on how things pan out with the plans we have.

If you have any idea how we should go forward, we'd appreciate it.

We want to buy and invest in property and stocks and also possibly do some investments abroad. We would much rather donate to charity than pay for Zuma's mansion. So we're looking for the best way forward and eventually we want to leave South Africa completely.

P.S. Looking for a new accountant and maybe financial adviser - our last one ran off on us.

 

[Tomtomtom]

No, SBC and turnover tax are completely different things.

Neither an SBC nor turnover tax is available to businesses involved in "personal services", which includes "information technology".

We're looking at a significantly bigger turnover this year and we're thinking maybe we should let go of the CC and find a better way to handle things and save on costs. Maybe you could point out a few ideas?

Yes, work on what you do best and stop worrying about your taxes. There's no magic bullet. Whether you're a company with two employees, or a partnership of two, it's swings and roundabouts from a tax perspective.

If you're currently billing clients from your company, keep doing that. Pay yourselves salaries so that the company makes no profit. Your tax rate will be exactly the same as if you were employees at any other company, and it comes off your salary as PAYE.

If you do any work as individuals outside the company, you will need to be registered for provisional tax as well.

 

[WakeUpYouNeed2MakeMoney]

Neither an SBC nor turnover tax is available to businesses involved in "personal services", which includes "information technology".



Yes, work on what you do best and stop worrying about your taxes. There's no magic bullet. Whether you're a company with two employees, or a partnership of two, it's swings and roundabouts from a tax perspective.

If you're currently billing clients from your company, keep doing that. Pay yourselves salaries so that the company makes no profit. Your tax rate will be exactly the same as if you were employees at any other company, and it comes off your salary as PAYE.

If you do any work as individuals outside the company, you will need to be registered for provisional tax as well.

Thank you that gives me some clarity on things. I'm super ignorant on this stuff - that's what happens when you leave someone else to do everything for you without bothering to ask them what's what.

I'd love to focus on my work solely and leave all this admin stuff to someone else but unfortunately my accountant bailed on me and I need to pick up where she left off until I find someone else who we can trust.

If anyone knows of a good book/s I could read to DIY this whole thing, please let me know.

 

[Thor]

Dammit now I want to listen to 21 pilots again

 

[Tomtomtom]

If anyone knows of a good book/s I could read to DIY this whole thing, please let me know.

I don't, but I think it could be a bad idea. Sounds like your experience with the accountant has put you off having an accountant at all. I wouldn't recommend that, especially for a company on what sounds like a very good growth trajectory.

You should be able to find someone who understands your industry, who serves other businesses at your scale, and who will sort out your company reconciliations and filings and salary payments and will not charge too much. Google them, visit them, talk to a competitor and ask who theirs is!

With international clients you are really on to something, and if you keep it up, your bigger worry in the next year is going to be your first hire!

Good luck.