Self-employement, income tax, VAT, UIF, etc.

[Paul_S]

My wife wants to start her own business but all the tax laws, company acts, etc. are confusing and legal advisers are a rip off so can someone in the know verify that I have the following correct?

The business will have very little operational expenses (consulting type service) and there is no "home office" to claim expenses from, so I don't see the point in registering a company because that entails complying to company act book keeping, audits, etc.
The amount she'd be able to save by operating through a company would be far less than paying an accountant and tax consultant.

My questions are:
1. If she trades as a sole trader she doesn't need to do anything other than keep records of income for personal income tax purposes?
2. She doesn't need to register for UIF?
3. Can she register for UIF?
4. How does some one who is self employed submit an income tax return? There is no IRP5 issued because there is no company to issue it.
5. Does she need to charge VAT as a sole trader if she earns an income above a certain threshold (like companies have to do when they reach a certain turnover threshold)?

Thanks

 

[JayM]

1. Correct. I would get another bank account for the 'company' to keep things simple.
2. No, you can't.
3. No.
4. Phone SARS and ask them for the procedure - they are quite helpful.
5. She will need to register for VAT if she turns over >1bar/year.

 

[Paul_S]

1. Correct. I would get another bank account for the 'company' to keep things simple.
2. No, you can't.
3. No.
4. Phone SARS and ask them for the procedure - they are quite helpful.
5. She will need to register for VAT if she turns over >1bar/year.

Thanks!
Yes, we'll open a separate bank account to make tracking the income easier.
If our combined incomes was 1 bar I'd be more than happy to go the company route.

 

[Alton Turner Blackwood]

Just a note, if she goes for a sole prop, creditors can go after her personal property (and if you're married in community of property, they'll go after yours too!

A company is a completely different legal entity. I suspect you two have a serious look at it.

The companies act has changed so much (to encourage people to do business) that you don't have to submit anything annually anymore (depending on certain criteria).

Tax is done the same way as for an individual. You open a bank account, register for tax and complete your tax return. The same as for a person.
edit: thinking about it now, its not 100% the same, but still fairly simple.

 

[deweyzeph]

Self-employed people fill in a tax return just like anybody else. When you fill in the tax return it will ask you whether you were employed by a company or whether you carried on a trade (i.e. self employed). Based on those questions the relevant forms will be displayed in the tax return. Obviously they don't expect IRP5's from people who are self-employed as these are only issued to people who are in the PAYE system.

Don't forget your wife will also have to be a registered provisional tax payer. Which means she will have to make 2 advance tax payments based on her estimated taxable income during the tax year on 31 August and 28 February of each tax period. Don't ignore this, there are penalties for non-payment of provisional tax, especially for the second payment.

 

[rrh]

A minor tip: get a small accounting package e.g. Quicken. It makes life that much easier - ask my accountant

 

[deweyzeph]

A minor tip: get a small accounting package e.g. Quicken. It makes life that much easier - ask my accountant

I recommend an online accounting package like Sage Pastel:

https://www.pastelmybusiness.co.za/

Your accountant will love you for it! They can access it from anywhere. So can you.

 

[Mila]

Thanks!
Yes, we'll open a separate bank account to make tracking the income easier.
If our combined incomes was 1 bar I'd be more than happy to go the company route.

You don't have to register for vat if you register a company. If I understand correctly.
My thread also gave some good advice on this.
http://mybroadband.co.za/vb/showthread.php/624693-Small-Business-start-up

Interesting that rent is not a bad thing to have to pay.
Remember you will have to file for personal tax.

This all very new and very confusing, things has changed so much that almost nothing I was taught in business economics is worth anything

Good lick and please ask more questions here, I can use more advice.

 

[Mila]

Self-employed people fill in a tax return just like anybody else. When you fill in the tax return it will ask you whether you were employed by a company or whether you carried on a trade (i.e. self employed). Based on those questions the relevant forms will be displayed in the tax return. Obviously they don't expect IRP5's from people who are self-employed as these are only issued to people who are in the PAYE system.

Don't forget your wife will also have to be a registered provisional tax payer. Which means she will have to make 2 advance tax payments based on her estimated taxable income during the tax year on 31 August and 28 February of each tax period. Don't ignore this, there are penalties for non-payment of provisional tax, especially for the second payment.

This taxable income, is this the income of the whole business? Or just her salary part?
How does SARS do this calculation?
In this respect is it easier to register a pty?

 

[Mila]

http://www.swiftreg.co.za

This explains a bit more. Seems like registering a pty has benefits.
No-one likes paying tax. If you are not registered you will have to pay personal tax on all your profits. Personal tax has brackets, which basically means the more you earn the more you pay. If you are successful then your business will very quickly start to pay over 30% of its profits to tax. However if you are registered as a PTY then you will be able to choose how to distribute the profits. You have a lot of options available to you, all of which will help you save money. Your accounting officer or tax consultant will be able to give you advice on how to save money.

.

 

[Paul_S]

There's not much point if the company has no operational expenses and 95+% of the income is going to be paid as a salary.
If there were operational expenses then it would be worthwhile going the company route as then one can look at claiming VAT, office rental, etc. and only pay tax on profit.

 

[Pitbull]

My wife wants to start her own business but all the tax laws, company acts, etc. are confusing and legal advisers are a rip off so can someone in the know verify that I have the following correct?

The business will have very little operational expenses (consulting type service) and there is no "home office" to claim expenses from, so I don't see the point in registering a company because that entails complying to company act book keeping, audits, etc.
The amount she'd be able to save by operating through a company would be far less than paying an accountant and tax consultant.

My questions are:
1. If she trades as a sole trader she doesn't need to do anything other than keep records of income for personal income tax purposes?
2. She doesn't need to register for UIF?
3. Can she register for UIF?
4. How does some one who is self employed submit an income tax return? There is no IRP5 issued because there is no company to issue it.
5. Does she need to charge VAT as a sole trader if she earns an income above a certain threshold (like companies have to do when they reach a certain turnover threshold)?

Thanks

Def not the way you want to start your business. Make sure the foundation is laid thick and build from there. Don't try and cut corners you will hurt yourself and your business in the long run.

Just some advice

 

[Mila]

There's not much point if the company has no operational expenses and 95+% of the income is going to be paid as a salary.
If there were operational expenses then it would be worthwhile going the company route as then one can look at claiming VAT, office rental, etc. and only pay tax on profit.

Oh, thanx.

My start up will have many operational expenses.