Recently Registered pty. Best tax options?

[splinter_watsup]

Hi Guys

I recently registered a company with CIPC and got my number on Tuesday now I need to register the company with SARS.How can I do this to get the best tax bennifits? The company currently wont have a monthly turn over of R50k so are there tax bennifits because of this? For example not paying Vat or getting Vat back on purchases for example.

If so where can I find details on this. I am just an avrage IT guy who doesnt know how all this stuff works but I am wanting to learn.

Thanks in advance

 

[snowwolf]

VAT is not compulsory unless your turnover exceeds R1m p/a (open to correction)
Registering for Income Tax is a separate thing and should be done as soon as possible. I am not sure of there being any benefits for this, other than not being deregistered and SARS not coming after your company. But please feel free to correct me.

 

[Greig Whitton]

I recently registered a company with CIPC and got my number on Tuesday now I need to register the company with SARS.How can I do this to get the best tax bennifits?

Per snowwolf's reply, VAT registration isn't compulsory unless your turnover exceeds R1M annually. However, even if you don't have to register for VAT, it may be a good idea to do so anyway (e.g. perceived credibility; implement administrative systems now so that it doesn't become a last minute crisis when forced to register).

If your company employs anyone, you will need to register for employees' tax unless none of your employees are liable for normal tax. You may also need to register for UIF and SDL. [See comprehensive SARS guide to employees' tax]

And, of course, you will need to register for income tax. However, you have a few options here:

1. Register for Small Business Corporations tax. This is far and away the best option because you will end up paying much less tax than normal income tax (e.g. you don't pay any tax if your taxable income is R70,700 or less). However, there are a number of criteria that you need to satisfy before you can register for SBC. [See comprehensive SARS interpretation note for SBCs]

2. Register for turnover tax. This is intended to be an easier tax option for SMEs by merging income tax, VAT, provisional tax, capital gains tax, and dividends tax into a single tax on turnover. However, by taxing turnover rather than taxable income, it usually works out to be much more expensive than registering for those other taxes separately. As with SBC tax, there are qualifying criteria. [See SARS guide to turnover tax]

3. Register for regular income tax. If you don't qualify for SBC tax or turnover tax, then you will have to register for regular income tax by default. Assuming you qualify for all three, SBC tax is first prize and regular income tax will probably be second prize (since it is a tax on taxable income, not turnover).

 

[splinter_watsup]

Per snowwolf's reply, VAT registration isn't compulsory unless your turnover exceeds R1M annually. However, even if you don't have to register for VAT, it may be a good idea to do so anyway (e.g. perceived credibility; implement administrative systems now so that it doesn't become a last minute crisis when forced to register).

If your company employs anyone, you will need to register for employees' tax unless none of your employees are liable for normal tax. You may also need to register for UIF and SDL. [See comprehensive SARS guide to employees' tax]

And, of course, you will need to register for income tax. However, you have a few options here:

1. Register for Small Business Corporations tax. This is far and away the best option because you will end up paying much less tax than normal income tax (e.g. you don't pay any tax if your taxable income is R70,700 or less). However, there are a number of criteria that you need to satisfy before you can register for SBC. [See comprehensive SARS interpretation note for SBCs]

2. Register for turnover tax. This is intended to be an easier tax option for SMEs by merging income tax, VAT, provisional tax, capital gains tax, and dividends tax into a single tax on turnover. However, by taxing turnover rather than taxable income, it usually works out to be much more expensive than registering for those other taxes separately. As with SBC tax, there are qualifying criteria. [See SARS guide to turnover tax]

3. Register for regular income tax. If you don't qualify for SBC tax or turnover tax, then you will have to register for regular income tax by default. Assuming you qualify for all three, SBC tax is first prize and regular income tax will probably be second prize (since it is a tax on taxable income, not turnover).

Thats all great info Thanks so much! You guys both rock.

I looked into the SBC option a bit and have a few questions about qualifying createria. I found a Quick test to see if you qualify here.

1. Question 2 says " Does the business have a 'year of assessment' that ends on the last day of February?'
I seclected to have my fanacial year end be December. Is this what they talking about?

2.Next question" do you declare that income from ‘professional services’ and ‘investment income’ is not expected to exceed 20% of the total receipts of the business for the year of assessment."
Its a service and Digital marketing company. Which would mean I dont qualify?

Thanks again for the helps guys

 

[Greig Whitton]

I looked into the SBC option a bit and have a few questions about qualifying createria. I found a Quick test to see if you qualify here.

That's a test for turnover tax, not SBC tax.

 

[splinter_watsup]

You right, You right!(Hides face) however does this mean I dont qualify for Turn over? haha.

 

[Greig Whitton]

You right, You right!(Hides face) however does this mean I dont qualify for Turn over? haha.

You probably don't qualify, although I can't say with 100% certainty without knowing more about your business. In any event, per my earlier post, registering for turnover tax is very unlikely to benefit your business. Rather try register as a SBC.

 

[KalMaverick]

It sounds as if you're rendering a personal service (ie you personally render service on behalf on the company) and most likely 100% of your income would be the rendering of a personal service.

Unless you have 3 or more full-time (non-connected) employees you probably won't qualify to register as a SBC.

 

[Greig Whitton]

It sounds as if you're rendering a personal service (ie you personally render service on behalf on the company) and most likely 100% of your income would be the rendering of a personal service.

Unless you have 3 or more full-time (non-connected) employees you probably won't qualify to register as a SBC.

I agree, OP's business probably won't qualify as a SBC. However, just to clarify, the income threshold for personal services is 20% (i.e. a business won't qualify as a SBC if more than 20% of its income is derived from personal services).

[Note: the 20% income threshold applies to both personal services as well as investment income - e.g. dividends, royalties, property rental income, interest, etc.]

Furthermore, even if a business owner is personally rendering a service, it will only be deemed to be a "personal service" if it falls within one of the following fields: accounting, actuarial science, architecture, auctioneering, auditing, broadcasting, broking, commercial arts, consulting, draftsmanship, education, engineering, entertainment, health, information technology, journalism, law, management, performing arts, real estate, research, secretarial services, sport, surveying, translation, valuation, or veterinary science.

[OP defines himself as an "average IT guy", so I am assuming his business renders an IT service - which is one of the excluded fields].

Finally, even if a business does employ 3 or more non-connected employees, it still won't qualify as a SBC if any of the shareholders or members render "personal services" (i.e. simply employing people isn't sufficient - you have to employ them to render the services so that the owner(s) no longer need do so).

Just to complicate things even further, a business that passes the "personal services" test may not qualify as a SBC if it is deemed to be a "personal service provider" - which, incredulously, is not the same thing as providing "personal services" (i.e. "personal services" and "personal service provider" are defined separately).

 

[KalMaverick]

Finally, even if a business does employ 3 or more non-connected employees, it still won't qualify as a SBC if any of the shareholders or members render "personal services" (i.e. simply employing people isn't sufficient - you have to employ them to render the services so that the owner(s) no longer need do so).

That is incorrect. Reread s12E of the Income Tax Act.

[OP defines himself as an "average IT guy", so I am assuming his business renders an IT service - which is one of the included fields].

Was probably a typo.

 

[Greig Whitton]

That is incorrect. Reread s12E of the Income Tax Act.

My bad. What I meant to communicate is that simply employing 3 or more non-connected people is not enough. You have to employ them to render the personal service(s) that the business provides.

 

[KalMaverick]

My bad. What I meant to communicate is that simply employing 3 or more non-connected people is not enough. You have to employ them to render the personal service(s) that the business provides.

No, they just need to be full-time employees, they can be cleaners or bookkeepers or receptionists, it doesn't matter.

 

[TheMightyQuinn]

My bad. What I meant to communicate is that simply employing 3 or more non-connected people is not enough. You have to employ them to render the personal service(s) that the business provides.

Find yourself a good accountant. They will figure all this stuff out for you, make all the correct payments on your behalf etc.etc. Otherwise it becomes a minefield. I own my own company, so I know....

 

[Greig Whitton]

No, they just need to be full-time employees, they can be cleaners or bookkeepers or receptionists, it doesn't matter.

per Section 12E4d of the Income Tax Act, a "personal service" is:

"any service in the field of accounting, actuarial science, architecture, auctioneering, auditing, broadcasting, consulting, draftsmanship, education, engineering, financial service broking, health, information technology, journalism, law, management, real estate broking, research, sport, surveying, translation, valuation or veterinary science, if-
(i) that service is performed personally by any person who holds an interest in that company, co-operative or close corporation; and
(ii) that company, co-operative or close corporation does not throughout the year of assessment employ three or more full-time employees (other than any employee who is a holder of a share in the company or a member of the co-operative or close corporation, as the case may be, or who is a connected person in relation to a holder of a share in the company or a member), who are on a full-time basis engaged in the business of that company, co-operative or close corporation of rendering that service."

Yes, they do need to be rendering the personal service.

 

[KalMaverick]

Snip

You are incorrect. You've misread the requirement as well as incorrectly cited the section.

I suggest you confirm what you say before you misled people.

 

[Greig Whitton]

To the best of my knowledge, what I have posted is correct. If I am wrong, could you kindly cite the correct section and explain how my interpretation is incorrect?

 

[KalMaverick]

To the best of my knowledge, what I have posted is correct. If I am wrong, could you kindly cite the correct section and explain how my interpretation is incorrect?

Firstly, it's s12E(4)(d), s12E4d does not exist.

Secondly, don't just latch on to one phrase, you need to read the whole thing and then understand how it is worded.

(ii) that company, co-operative or close corporation does not throughout the year of assessment employ three or more full-time employees (other than any employee who is a holder of a share in the company or a member of the co-operative or close corporation, as the case may be, or who is a connected person in relation to a holder of a share in the company or a member), who are on a full-time basis engaged in the business of that company, co-operative or close corporation of rendering that service."

Bookkeeping, cleaning staff, secretary, receptionist, admin, etc are all activities that form part of rendering that service, the domestic worker working full-time for a shareholder in his personal capacity however does not (obviously).

 

[Greig Whitton]

Bookkeeping, cleaning staff, secretary, receptionist, admin, etc are all activities that form part of rendering that service, the domestic worker working full-time for a shareholder in his personal capacity however does not (obviously).

Thank you, that makes sense. It strikes me that this particular section would read more clearly if the "who are on a full-time basis engaged in the business of that company, co-operative or close corporation of rendering that service" bit was omitted. I'm struggling to think of a scenario where a business could employ someone on a full-time basis who was not directly or indirectly involved in the service that the business provided.

 

[KalMaverick]

Believe me I've read quite a few sections of the Act that I thought could do with some rewriting and preferably not by Yoda.

 

[Fulcrum29]

Best solution, get an accountant and proceed on his/her advice.