27 Nov Saving on Tax For your Small Business
As the famous saying goes, there are only two things in life that are certain- death and taxes!
For most business owners, the topic of tax is their least favourite topic to talk about, but if you want to run a successful business, tax obligations will be a definite part of your life.
Paying your tax is the right thing to do. We know that tax is a reality and most small businesses feel that pressure all too often.
Here’s the good news: learning to get your tax ducks in a row will help you save money and grow your understanding of taxation. South Africa has some wonderful tax benefits that you as a business owner can take advantage of!
Below are two mechanisms you as a small business owner can use to start saving on tax:
ETI-Employment Tax Incentive
ETI is an incentive aimed at encouraging employers to hire young job seekers. It was implemented with effect from 1 January 2014 and reduces the employers’ cost of hiring young people aged between 18 and 29. This is done through a cost-sharing mechanism with government, allowing you to reduce the amount of Pay-As-You-Earn (PAYE) you pay while leaving the employees wage unaffected.
ETI Break down:
Employees earning between R1000 and R2000 per month – Allows the employer to get a TAX credit of 50% of their salary.
Employees earning between R2000 and R4000 per month – Allows the employer to get a TAX credit of R1000 per month.
Employees earning between R4000 and R6000 per month –
R1 000 – (50% x (Monthly Remuneration – R4 000)) – Example: R5500 pm = (1000 – (50% (5500-4000)) = R250 tax credit per month.
Qualifying ETI Criteria:
The employee must be aged from 18 -29.
The employee cannot be a domestic worker.
The employee cannot be a connected person, example: child, cousin or aunt.
The employee must have a South African ID, Asylum Seeker permit or an ID issued in terms of the Refugee Act.
If you are part of a regulated industry – the employee’s salary may not be below the prescribed rate for that industry.
You must not have displaced an older worker to replace them with the new employee.
You may not have any outstanding returns/declarations or owe SARS any money, for which you don’t have a deferral arrangement in place.
SBC (Small Business Corporations Tax)
Over the past few years SARS has simplified tax compliance obligations for small businesses.
A normal company pays a flat tax rate of 28% from R1, where as a company qualifying for SBC will pay as follows:
R0 – R78, 150 = Tax Free
R78, 150 – R365, 000 = 7%
R365, 000 – R550, 000 = R20, 080 + 21% of the amount over R365, 000
R550, 000 + = R 58,930 + 28% of the amount over R550, 000
Let’s further explain this in an example:
A business makes R480, 000 profit for the 2019 tax year, tax compliance will be as follows:
Normal Company Tax (28%) R134, 400
SBCT Company R 44,230 (R90, 170 saving)
Sole Proprietor R 106,607
Qualifying SBC Criteria:
Turnover must not exceed R20 million Rand.
Not more than 20% of the income can be of an investment nature.
Not more than 20% of the income can be from a personal services company (accounting, architecture, legal) UNLESS you employ more than 3 unconnected persons – including yourself.
All shareholders or members throughout the tax year are natural persons (so a company owning shares in another company won’t apply) who do not hold shares in any other company or close corporation, unless the other company is dormant, has assets below R5000 or is in liquidation or deregistration.
For more information on how we can help grow your business financially, click here!