tax-deductible

Tax deductible expenses for businesses in South Africa

Do you know the saying that says “money makes the world go round”? Well, so does tax – it makes the country go round. We have a couple of blogs that explain the tax system in South Africa, which we will link down below for you. In this blog, specifically, we will share with you various tax-deductible expenses in your business to help you lower your taxes. 

For context’s sake, TAX DEDUCTIBLE is an item you can subtract from your taxable income to lower the amount of taxes you owe. Let’s suppose you earned R100,000 during the tax year and spent R20,000 on company items. In this example, your taxable business income would be R80,000 instead of R100,000, lowering your tax bill for the year.

Day-to-day business expenses

These are general day-to-day office or business expenses, they are incurred as part of running your business, these include:

  • Employee costs and administration costs
  • Business/office rental costs
  • Office supplies
  • Phone costs
  • Travel and transport, including business vehicle costs
  • Uniforms (if needed)
  • Wholesale purchase costs for goods resold
  • Financial charges (such as bank fees), utilities
  • Legal fees
  • Insurance fees
  • Marketing, advertising, and promotion costs

Wear–and tear (in respect of certain assets)

Also known as depreciation, a wear and tear allowance may be deducted on movable assets used for the purpose of trade. There are no statutory provisions relating to rates of wear and tear, but the SARS has published a table of periods over which the assets may be written off. The rates of wear and tear, based on the cash cost, are calculated either according to the straight-line or diminishing-balance method.

Donations (to approved bodies)

Donations to certain charitable organizations approved as public benefit organizations are tax-deductible, up to a maximum of 10% of taxable income.

Bad debts

Bad debts are tax-deductible if they are owed at the end of the assessment year and they relate to an amount that has been included in the taxpayer’s taxable income in any tax year. Regarding questionable debts, a tax deduction is also offered.

If the loan was made as part of a money-lending business, any bad debts that result from it are deductible.

Education expenses

You can deduct the cost of schooling for yourself or your employees that are directly related to running your firm as a business expense.

Net operating losses

Any losses incurred in the same business in previous years can be carried forward as a tax deduction.

Bonus:

According to SARS, here are some deductions your employees can save from: 

Tax-deductible expenses for Salaries:

Pension fund contributions

Retirement annuity fund contributions

Provident fund contributions (only from 1 March 2016)

Legal costs – under certain qualifying circumstances

Repayable amounts – amount received for services rendered as refunded by that person

If you need any help with TAXES, don’t hesitate to get in touch with us:

Call: 0615238833Email: info@accasesolutions.co.za

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How to boost your business’s Tax Incentives by hiring young people

We had briefly touched on this in our previous blogs, but let’s get a bit deeper into it. President Cyril Ramaphosa emphasized the role of the government in helping businesses thrive in this year’s State of the National Address (SONA). This is mainly for job creation in South Africa. 

With the unemployment rate in South Africa (as discussed in our previous blog), the need to support small businesses so they grow, and also to encourage entrepreneurship, especially amongst the youth has significantly increased. 

Introducing ETI’s

The good news for businesses, they can utilize the tax benefit by hiring young people. This is called the Employment Tax Incentive (ETI), and it’s said to be one of the most powerful tax benefits out there. ETI essentially reduces your overall Pay-As-You-Earn (PAYE) contribution without affecting the employee’s salary. 

> Employers will be able to claim the incentive for a 24 qualifying month period for all employees who qualify.

> The incentive amount differs based on the salary paid to each qualifying employee and whether the qualifying employee was employed after the inception of the ETI programme. 

How ETI works

Simple example:

If you hire 4 young people with salaries of R5000 per month, the total monthly payroll for all 4 employees would be R7500 from your overall monthly PAYE liability in the first 24 months in which the employee qualifies.

This can be done on your payroll system, and your employee’s salary will totally be unaffected. 

NB: The value of the ETI the employer may claim depends on the value of the monthly remuneration paid to the qualifying employee. If the employee has worked less than 160 hours in the month, the remuneration amount must be ‘grossed up’ to 160 hours per month to calculate the value of the ETI. The amount can then be calculated and be ‘grossed down’ in the same ratio.

Source: SARS

The math is simple, employers are rewarded for hiring young people, in return, they gain skills and experience. The private sector grows, and the economy grows. 

Who qualifies?

In his 2022 Budget Speech, Finance Minister Enoch Godongwana announced an increase in the ETI values from 1 March 2022.

An employee qualifies for the ETI if he/she:

  • works for you assists in conducting business, and receives remuneration for their work,
  • is documented in your employer records according to the provisions of section 31 of the BCEA,
  • earns at least the minimum wage,]
  • is between 18 and 29 years old, or is employed in a special economic zone, and
  • has a valid South African ID, a valid asylum seeker permit, or an ID in terms of Section 30 of the Refugees Act.

An employee will not qualify for the ETI if he/she:

  • is a domestic worker,
  • is a “connected person” to the employer,
  • spends more time studying than working (unless the employer and employee have entered into a learning programme as defined in Section 1 of the Skills Development Act, or
  • earns a monthly remuneration of R6,500 or more.

We hope this helps you somehow, feel free to contact us if you need any more clarity. You may also refer to our blog about other effective and legal ways to avoid paying tax in South Africa: https://accasesolutions.co.za/2021/06/17/how-to-avoid-paying-tax-as-a-small-business-in-south-africa/

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How the tax system works in South Africa | 2022

With everything, you first have to understand the most basic things. Tax is simply a compulsory contribution to state revenue that every South African working citizen and business must pay. Non-South African residents are taxed on South African-sourced income. The majority of the state’s income is derived from income tax (personal and company tax).

Every year, the Minister of Finance presents the Budget, which outlines the total government expenditure for the following financial year and the ways in which this expenditure will be financed. Which we recently had on the 23rd of February 2022. See below:

This tax money pays for public goods and services, but it is also key in the social contract between citizens and the economy. Paying taxes fosters economic growth and development. 

Understanding taxes: types, filing for returns, refunds from SARS:

There are many different types of taxes. Just to mention a few, some include:

  1. Pay As You Earn (PAYE)
  2. Personal Income Tax
  3. Provisional Tax
  4. Capital Gains Tax
  5. Value Added Tax

An example: 

Ordinary taxpayers are the people who earn a salary from an employer. The employer deducts Pay As You Earn (PAYE) from their salary monthly and pays that to SARS on their behalf. Here’s an example of how Net Income will look like after taxes: 

Filing for tax returns

Income tax returns must be requested by registered taxpayers every year. The year of assessment for individuals covers 12 months, beginning on 1 March and ending on the final day of February the following year. Tax returns must be submitted to SARS on the date given, please note that SARS tax returns and CIPC tax returns are two different things and must be filed separately to both organizations respectively. 

Companies are required to submit an income tax return within 12 months from the date on which their financial year ends. People whose income comes from sources other than a wage  – such as a trade, profession or investments and companies – are required to submit two provisional tax returns and where applicable make two provisional tax payments during the course of the tax year and may opt for a third “topping-up” payment six months after the end of the tax year. – Source: SARS. 

You can submit tax returns yourself, or hire a certified and registered tax practitioner to file your returns on your behalf. Here are some things to consider when picking the best accountant/tax personnel for your business 👇

As per Tax Administration Act no. 28 of 2011, every person who provides advice to another with respect to the application of tax principles or assists with any tax matters for a fee must:

✅ Be registered with a Recognized Controlling Body that’s registered with SARS. 

✅ Be qualified.

✅ Undergo examination to evaluate their ability to competently perform functions of a tax practitioner

✅ Engage in continuing professional development.

Accase Solutions, for instance, is registered with the IAC, Institute of Accounting and Commerce as a Certified Tax Practitioner since the registration of Accase Solutions, practicing under practitioner number PR0100503.

Why SARS issues refunds:

If for instance, you take unpaid leave at work, the payroll administrator has to adjust your tax therein. If the adjustment is not made, it means that your company deducted more tax as it was based on a wrong annual income. In this case, SARS is liable to give you a refund.

The whole point of filing for tax returns is for SARS to determine all your taxes, and if you have paid, they conclude on the right amount. If you have overpaid them, they will definitely give you your money back. Understand that, you only get a refund IF you have overpaid because you filed for returns.

If you want a breakdown/in-depth understanding of different types of taxes, please refer to this blog: https://accasesolutions.co.za/2021/03/29/important-things-to-know-about-tax-in-south-africa/

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All about NPOs in South Africa

We have touched on Public Benefits Organizations not so long ago on one of our #FunFactsWednedays video, let us to continue this chat. 

What is an NPO?

We cannot assume you know, let’s get to understand what an NPO is. An NPO is a Nonprofit Organisation that plays a significant role in society, they take responsibility of the social and development needs of the country.

How to get started: 

Just like any other business/organisation, there must be intent or purpose of starting. Start here: 

1️⃣ Define your goal – before you could even register, you just at least know what your NPO will stand for. Knowing your WHY is important, it will help you navigate things more especially in cases where you need to go back to the drawing board. What exactly do you hope to achieve once you start the organization? Read more: What exactly do you hope to achieve once you start the organization?

2️⃣ Choose your board of Directors – selecting management of the NPO is probably the most fundamental step. Bring in like-minded people on board, it’s even better to get people from different industries who could come in with different perspectives during different situations. 

3️⃣ Draft your memorandum – this is important as it proves your intention to register the organization as a “not-for-profit” company – followed by information about how the organization would be governed, owned, and other important things to note therein.

Lastly, register. 

About registering your NPO

You can submit your non-profit organisation (NPO) application at your nearest provincial  social development office or a local South African Revenue Service (SARS) branch office. 

Benefits of registering is that its certificate:

  • improves your credibility and increases funding opportunities
  • it allows your organisation to open a bank account
  • helps your organisation with tax incentives.

The prerequisites of registering is that you must be one of the following:

  • non-governmental organisation (NGO)
  • community-based organisation (CBO)
  • faith-based organisation (FBO).

Do NPOs pay tax? 

However these organisations are “nonprofit”, they do not automatically qualify for tax exemption, the organisations that meet the requirements set out in the Income Tax Act, 1962 must apply for this exemption. Only IF the exemption application has been approved by SARS, the organisation will then be registered as a Public Benefit Organisation (PBO) and allocated a unique PBO reference number. 

These organisations can issue section 18A certificates – which allow for tax deduction to parties who make donations to such organisations. This becomes an attraction to donors because they get to enjoy these tax benefits therein by making donations to your organisation. 

As a member of a Public Benefit Company/Organisation, familiarise yourself with the conditions of the section 18A or contact Accase Solutions and we will gladly assist: 

✉️: info@accasesolutions.co.za

☎: 0615238833

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Bookkeeping Guide

Let’s not assume you know, and take it from the top. 

Bookkeeping is the recording of financial transactions made by a business, this means keeping track of what your business spends and what you receive. The  transactions would be recorded in daybooks, cashbooks, or journals, you can also use a spreadsheet program like Microsoft Excel.

Do you need a bookkeeper for your business? 

You can either do this by setting up a software, or hire a bookkeeper to keep your books in check. A Bookkeeper’s responsibility is to record, classify, and organize every financial transaction that is made throughout business operations. 

Amongst other reasons, one of the reasons why some startups fail is due to the poor management of money: sole business owners mostly can relate. It gets a bit challenging to separate business finances form personal finances, making it harder to account for some of the money that comes in, and goes out of the business because no one is holding you accountable for anything. This is where bookkeeping comes in. When studied thoroughly, you can see some of your spending habits which you need to change.

3 reasons why you need bookkeeping:

  1. To reflect on whether you are spending more than you make, vise versa. Moreover, bookkeeping enables you to seamlessly analyze your expenses, and adjust your budget, if need be. You will have a record of all your financial information you may need in a case where you want to plan or budget for the future. 
  2. You can curate accurate tax returns. Tax preparation can be a stressful season for small business owners, this is where bookkeeping comes in. Instead of looking through a pile of documents to get the required information, bookkeeping ensures that this information is well organized beforehand.
  3. We have mentioned before, cashflow is one of the struggles small businesses have. Bookkeeping will help you mitigate that challenge by keeping track of the cash going in and out of your business. Having this kind of information will give you the confidence and peace of mind you need to make financial decisions. 

Bookkeeping: How-To

  1. Record your sales (in a cashbook/spreadsheet).
  2. Note down every business-related purchase (keep proof of purchase).
  3. Regularly cross-referencing your business books against your bank statements to check that the transactions and balances match, A.K.A Reconciliation. 

Other things to note…

  1. Accounts receivable, i.e. issuing invoices and making sure they’re paid, and accounts payable, i.e.paying bills on time.
  2. Payroll (paying employees). 


Bookkeeping software

There are many small businesses that use online bookkeeping software to speed up the job, this also cuts down on human data-entry errors and saves time. The benefits of these tools include, but not limited to: automatically pay bills, send automated invoice reminders to people who owe you money, and allow you to check cash flow from your phone. 


Here are 3 softwares you can check out:

1️⃣ Sage 

2️⃣ Xero 

3️⃣ QuickBooks


I’m conclusion…

If you are too much of a busy for bookkeeping for your small business, then you can find someone to do it for you; outsource or hire. We have an article on what’s the best option between the two, again this depends on a number of things. If you wish to get a bookkeeper for your business, look no further: Accase Solutions would love to assist! Reach us here: 

 ✉️: info@accasesolutions.co.za

☎: 0615238833

Can SARS tax you even if your business is not registered?

Can SARS tax you even if your business is not registered?

The answer is YES. If you are running a business that is not registered, you are basically a sole proprietor.


What Is Sole Proprietorship?


A sole proprietorship is defined as a business that is owned and operated by a natural person (individual).

This is considered the simplest form of doing business. It simply means the entity is not legal (registered) and has no existence separate from the owner who is called the proprietor. Although a sole proprietorship can operate under the name of its owner or give a business’ fictitious name, the name does not create a legal entity separate from the sole proprietor owner.


Pros and Cons of Sole Proprietorship


Sole proprietorship obviously has some pros and cons. Here are 3 pros and cons:

Pros:
1️⃣Simple to establish, operate or even discontinue the business.
2️⃣Owner is free to make decisions.
3️⃣Owner receives all the profits.


Cons:
1️⃣The owner is legally liable for all the debts of the business. 
2️⃣​Limited ability to raise capital, which limits the expansion of a business when new capital is required.
3️⃣The owner alone has limited skills, they may need to hire employees with sought-after skills.



What Is Most Tax Efficient?
Sole Proprietorship vs LTD (PTY)

It all boils down to expected earnings from your business.

Individuals are taxed on a sliding scale, which means that the rate of tax you pay increases as your earnings increase. This applies to any individual earning more than R87,300 per tax year.

In a company, profits are taxed at a rate of 28%, irrespective of the value. Plus, dividends tax is levied at 20% on profits retained in the company and distributed as a dividend in the future.

In A Nutshell…

As an individual earns more, you move into the higher tax bracket. The difference in tax between a company and a sole proprietor decreases. At a lower level of taxable income, it’s more tax-efficient to operate as a sole proprietor and enjoy the benefits available to individuals. At higher income brackets, it’s likely that company registration would be more beneficial.

This should help you make a better decision if you were stuck between registering your business and operating it individually. For business registrations and taxes, please do get in touch with us 📲