Small businesses are an important engine for economic growth and job creation, but until the government reconsiders stifling taxes and regulations, it is vital for them to have sufficient tax and compliance support. Receiving the right compliance support and having simplified administration will allow business owners to better focus on growing their businesses rather than becoming inundated with time-consuming tasks and confused by complex tax regulations.
The budget speech and changes to tax, announced by SARS, highlight five key areas for small businesses to note about the new tax year:
1. Employment Tax Incentive extended for 10 years
In 2014, the government introduced the Employment Tax Incentive(ETI) to encourage the employment of young people and workers with less experience. The ETI allowed the employer to reduce the employees’ tax payable to SARS for PAYE, SDL and UIF, which are deducted from employees’ wages and salaries. This was able to provide a real cash flow benefit to employers and a greater opportunity to hire resources to drive growth.
The ETI was initially meant to be implemented for three years but has now been extended until 29 February 2029, due to its success at supporting jobs for the youth. The programme currently supports about 1.1 million young people according to the Minister of Finance.
The ETI is available for employees who meet the following criteria:
• Earns a monthly wage from R2 000 and R6 000
• In possession of a valid SA ID, Asylum Seeker Permit or Refugee ID
• Aged between 18 and 29 years old (not applicable in Special Economic Zones)
This news was especially good for small businesses operating in this tough economic environment.. Business owners are encouraged to take full advantage of government incentives such as the ETI to drive growth and access resources at the Jobs Fund and through industrial business incentives.
2. Directors of private companies are no longer automatic employees
Directors of private companies were historically excluded from the definition of an employee in terms of the fourth schedule of the Income Tax Act as they did not receive regular remuneration throughout the year. This gave them an advantage over normal salaried employees who had PAYE deducted from their salaries on a monthly basis, but in 2017 were included in to the definition in order for SARS to receive employees’ tax and prevent tax avoidance.
Directors of private companies have now been removed from the definition of employees and now must apply the definition of remuneration to determine whether employees’tax must be deducted from payments made to them. It is important to note that directors that run their business full time or act in an executive role for the business, would almost certainly satisfy the definition of remuneration for payments made for these services.
However, if directors operate in a non-executive capacity in relation to a company, there may be some benefit in having a conversation with the accountant and the tax consequences of amounts they receive from the company.
3. Penalties for outstanding income tax returns
SARS has begun imposing administrative penalties for outstanding income tax returns that have not been filed by companies. It is compulsory for all registered companies (trading or dormant) to submit income tax returns. Income tax returns are due 12 months after the year-end of the business, in addition to provisional tax returns that must be submitted earlier.
Cwele offered some insight into registered businesses: “It is important to note that companies registered through the CIPC are automatically registered for income tax with SARS regardless of whether they have begun trading or not. They are also required to submit annual returns.”
The penalties range from R250 to R16 000 per month that non-compliance continues, which is determined by the company’s “tax” size. If you have a dormant company, file your tax and annual returns immediately to avoid penalties.
4. VAT: issuing a second invoice to correct details
SARS routinely disallows input for purchases that have inaccurate or incomplete details on VAT invoices. “Businesses that are registered for VAT need to ensure the validity and accuracy of their VAT invoice details to support customers that are also VAT vendors, to be able to claim input VAT on their purchases. Incorrect details result in many businesses receiving requests to adjust invoice details from their customers,” Cwele warned.
The VAT Act only allows vendors to issue one invoice in respect of a specific supply. This introduced uncertainty for vendors about whether correcting details on an invoice that was already issued would result in more than one invoice being issued for a supply. New amendments to the Act now clarify that vendors have 21 days to correct the details of an invoice which does not affect the timing of the supply and not resulting in more than one invoice being issued for a supply.
“Some old accounting systems do not allow invoices to be updated after the VAT period has been closed, but modern accounting systems such as Xero do not have these limitations; providing more reasons for businesses to embrace cloud-based accounting solutions.”
5. Non-compliance from tax practitioners
In an effort to enhance taxpayer protections, SARS has introduced new regulations regarding non-compliance by tax practitioners. This follows a principle that a tax practitioner whose own tax affairs are not in order,should not be responsible for those of others. It was introduced to combat increasing non-compliance by tax practitioners who sometimes ‘forget’ to submit their own tax returns during the busy tax season, and alleviate the risk for entrepreneurs who may commission services and advice from these practitioners.
On how to ensure that your practitioner is compliant, Cwele said: “It is important to request a tax clearance certificate from your accountant and their firm to not only ensure they are operating under the law but as one of many ways to ensure you are getting accurate support.” Although SARS does allow a reduction in some penalties for taxpayers who relied on bad advice from accountants, the tax liability with interest still remain due and can materially affect the cash flow of a growing business.
Reach out to OutsourcedFinance today if you have any questions regarding your businesses tax affairs or if you are unhappy with the service you currently receive.