Compliance for a small business

Compliance for Small, Micro or Medium Enterprise (SMME) in South Africa

According to a 2020 Trans Union report, as a result of the COVID-19 Pandemic, 95% of SMMEs (i.e., 2.55 million in RSA) reported a decrease in revenue attributed to the consumers’ inability to earn income. As a result, 90% of SMMEs are either struggling or temporarily closed. Only 2% reported an increase in revenue and 3% have stable revenue. Only 10% are operating as usual, and this is attributed to an investment in Research and Development and /or Innovation.

If you are starting out and need to register as a company, you will have to contact the Company and Intellectual Property Commission (CIPC), formerly called CIPRO. Please note that Companies are first required to register with the (CIPC) offices before registering with SARS for an Income Tax reference number. Once a taxpayer registered with CIPC, SARS will automatically generate an Income Tax reference number. Taxpayers must then register on eFiling to transact electronically.

When the company has the Company Certificate they can open up a bank account in the companies name. Having a company bank account ensures separation between the business owners personal bank account and that of the legal entity.

How to obtain your Tax Clearance Information

As a Small, Micro or Medium Enterprise (SMME), at some point or another you will be required to provide / confirm / share your Tax Clearance information with another entity. This could be to apply for a tender, new contract, good standing or in respect of Foreign Investment.

Registering for Turnover Tax. Turnover tax is a simplified tax system for small businesses with a qualifying turnover of not more than R1 million per annum. It is a tax based on the taxable turnover of a business and is available to sole proprietors (individuals), partnerships, close corporations, companies and co-operatives. Turnover tax takes the place of VAT (in the instance that you have not decided to elect back into the VAT system), provisional tax, income tax, capital gains tax, secondary tax on companies (STC) and dividends tax. So qualifying businesses pay a single tax instead of various other taxes. It’s elective – so you choose whether to participate. For Tax Tables see below.

Registering your business for VAT: Your company must register for VAT if it has reached the threshold of R1million rand of Revenue over a 12 month period. This registration is deemed to be a compulsory Vat Registration. The company can register for vat if they are under the R1 million threshold. In order to do this they must prove that they have been trading for a few months, or provide a contract to Sars for the registration.

Registering for PAYE, UIF and SDL, is imperative if the company has employees. In South Africa, in addition to the Sars registrations for payroll, there are other compliances such as Compensation Commission registration (Workplace Insurance) and registration with the Department of Labour for the Unemployment Fund.

In the case where you are already registered as a company and you meet certain qualifying requirements, you may register as a small business corporation (SBC) in order to obtain additional tax incentives. One of the incentives for SBCs is a reduced corporate tax rate.

As a member of the SMME segment you need to follow the compliance value chain/life cycle for all of the different tax/customs products you use (e.g., income tax; VAT; PAYE; etc.). This “chain” is made up of the different steps in your tax relationship with SARS from beginning to end as follows:

Registration – get onto the legal system of Sars and CIPC
Declaration – disclose your tax matters, accept or dispute our assessment of tax liability
Payment – if sars owes you money or you owe Sars
Deregistration – if you liquidate/close your business

When you comply with your tax obligations, you place your business at an advantage by eliminating the potential cost of non-compliance and administrative penalties. The government’s response to COVID-19- highlights the importance of tax compliance as one of the qualifying criteria to benefit from the tax relief measures – you must:

· Be registered for all required tax types
· Submit all your tax returns on time
· Pay all your tax debt on time

The table below provides compliance information for each of the seven (07) tax products/types.

Tax type	Submission frequency	Tax form	Explanatory notes
Company Income Tax (CIT)	Once a year as per company’s financial year end	ITR14	The company has 12 months to submit the ITR14 after the financial year end. The financial year end is indicated on the company registration certificate from CIPC.
Personal Income Tax (for self-employed individuals)	Once a year as announced by SARS during filing season.	ITR12	Sole traders, partners in a partnership and self-employed individuals must declare their business income on their ITR12.
VAT	Every two (2) months before the 25th	VAT201	The period will be allocated at registration and some companies may be required to submit every month.
PAYE	Monthly on or before the 7th	EMP201	The submission is due within seven (7) days after the month the tax was deducted from the employee.
Provisional tax	Twice a year	IRP6	For companies: The first submission is due six (6) months from the start of the financial year. The second submission is due at the end of your financial year. For individuals: the first submission is due 30thAugust and second submission is due 28/9 February of each year.
Turnover Tax	Once a year	TT03	The submission of turnover tax returns is done once a year in line with the company’s financial year-end or submission of the annual income tax returns, between 1 July and 31 January of the following year for individuals.
Employer Reconciliation	End of October and end of May	EMP501	First interim submission is due at the end of October and final submission end of May.

 

If you are keen to learn more, join us at our next accounting incubation.