Matsobanemetja Business Consulting Pty Ltd

How to account for your taxes as a small business

Business tax returns can be complicated, and they vary based on the business structure.

Running a small business often requires you to perform a wide variety of tasks you might not have to perform at a large business, one of which is filing small-business taxes.

A business is a Provisional Tax payer thus income taxes are declared twice a year. Which is every 6 months. We therefore have IRP6 and ITR14
IRP6 (Provisional Tax) is the tax liability for the first 6 months of the financial year. The ITR14 is the final income tax liability declaration to close off the financial year end.

Enlist Professional Tax Preparer

If you’re completely clueless when it comes to small-business accounting, you’ll probably be best off hiring a tax preparer. There is a wide range of tax preparers from enrolled agents, to tax preparers, to certified public accountants (CPAs).

Make Sure You Get the Right Advice

If you don’t understand something, consult an expert. Consulting an unqualified individual can lead to costly mistakes later on.

If you are going to pay a professional tax preparer, make sure you can ‘interview’ them before committing to a relationship. You want to make sure they are a good fit for you personality-wise, as well as understanding your business.

Know Your Accounting Process

If you use a firm to file your taxes, chances are that they will help you get prepared for tax season before it actually hits. Many Accounting firms send out tax checklists to make sure you send everything they need to prepare your tax return. You can use these checklists to gather the necessary information and get ready for the firm to prepare your taxes.

Accounting firms also offer bookkeeping services. If you hate keeping up with your books and outsource this task to a firm, the accountants will likely have most of the necessary information to file your return already.

If you’re going to have a tax preparer fill out your tax return for you, do yourself a favor and don’t wait until the last minute. Tax preparers get busier as tax season moves on. If you get in early with organized documents, you’ll likely have a much easier process from start to finish.

Check the business Tax Compliance status on SARS e-Filing

It is important that you check if you have an active e-Filing profile for the business so you can be able to check the tax status of the business. This will ensure that you are aware of which tax periods are outstanding and file on the correct period.

Pay Attention to Timing When Filing Small-Business Taxes

Business owners like their customers to pay them in a timely fashion. Well, you and your company are the SARS (South African Revenue Services) customers. What do you think the tax institutions expects from you when it comes to tax payments? Timeliness.

Entrepreneurs often forget to pay estimated taxes during the year, especially during their first year in business. Most taxpayers focus on the year-end tax returns. In doing so, they forget that states require quarterly estimated tax payments where taxable income exists. Know what is due, to whom, and when.

Don’t Forget Sales Tax!

Sales tax can be a huge penalty hole for entrepreneurs. Don’t start creating a presence in a state and selling your products without ensuring that you’re in compliance with that state’s sales tax requirements. Find out what they are early on to avoid problems later.

Payroll Taxes

While payroll taxes are another biggie, they’re also easily outsourced. Many entrepreneurs outsource them to professional payroll providers whose services include the proper withholding and remittance of payroll taxes. This will not only make life simpler for you, but it will also ensure your taxes are done right the first time.

Establish a Sound Record-Keeping Process

When it comes to documentation and retention of receipts and invoices, there’s no such thing as overdoing it. Every deduction or credit that you take can be challenged by the IRS or a state during an audit. If you have the supporting documentation and can prove that the deductions were business-related, there’s a good chance that you’ll prevail.

As scary as taxes may sound, many others have been in your shoes before you. Learn from their mistakes and successes. Arm yourself with information — and with the support of tax professionals whenever appropriate.

The Bottom Line on How to File Small-Business Taxes

In the end, you’ll have to decide whether it’s worth your time to try to fill out your small-business tax return yourself, pay for tax software, or hire a tax preparer to do it for you. While buying software or hiring a preparer may cost you more money, it can save you a ton of time, which you know is valuable as a small-business owner.

Compiled by Ms. Dikeledi Seoloane on behalf of Matsobanemetja Business Consulting (Pty) Ltd

If you need a consultation with us with regards to your business, any type of business – please reach out to us on email PA@matsobanemetja.co.za

For more information: enquiries@matsobanemetja.co.za

“The hardest thing in the world to understand is the income tax.”
Albert Einstein

Are you thinking of venturing into business this year?

New year, New ambitions. Are you thinking of starting a business this year?

Here are the basic finance details as far as compliance is concerned

1) I started the business using my money. How do I record that in the business books and how do I identify the funds?
– an obvious fact is that a business is an entity that is built by an individual out of nothing that belongs or owns by it. Thus it is bound to expect funding from various factors for it to start operating and be functional. It may be from funding institutions or from the founder.

The money that belong to the business owner we call it Capital. And it is recorded on the balance sheet section of the financial reports. You are simply indicating to the next person reading your financial reports that as much as the business has certain amount of funds a portion of it belongs to the owner therefore the business is obligated to pay that money back to the owner or shareholders.

Be careful not to capture the funds as an income. Yes the cash injected into the business will definitely have an effect on the business bank account but can never be categorized as income. Should this misallocation happen there will be few errors detected. You will over pay on your taxes, and that is eating on the business profit.

2) Some income from customers are paid into the business account and some into my personal account. Is that practice correct?
– definitely not correct but it is neither illegal. As soon as you decide to start a business and register it you need to make sure that all the transactions that have everything to do with business must reflect into the business bank account.

In the case where the funds are spreading across other accounts it simply mean they will be accounted under your personal tax number. There is no way we can consolidate the two entities even if you try to dig for reasons why such is done. Over and above that, as a finance professional we know that consolidating transactions that do not belong to the same entity is unlawful. Whatever you do, be mindful of these techniques.

4) How do I pay myself a salary as a business owner?
– a business that is started by a qualified, experienced and skilfull individual will not afford you at a go! Thus the concept of market related compensation is almost impossible. You need to make a compromise. You also don’t want to over burden the business cashflow because you want to draw a market related salary from a new small business.

My advice will be that you break down all your personal expenses enough to cover your monthly expenses. As the business progress and grow you can either choose to increase your salary if necessary. In conclusion – your personal expenses will be used to calculate the affordable salary.

5) Which line items are non-taxable in business?
– the business cannot operate without incurring operational expenses. Business overheads are deducted from the gross income. Example of such expenses are rates and taxes, fuel, bank charges, wages and salaries, etc.
Business is taxed based on the profit made, which it is called taxable income.
You cannot be taxed based on only the gross income hence you need to prepare the income statement prior you make the income tax return submission.

Compiled by Ms. Dikeledi Seoloane on behalf of Matsobanemetja Business Consulting (Pty) Ltd

If you need a consultation with us with regards to your business, any type of business – please reach out to us on email PA@matsobanemetja.co.za

For more information: enquiries@matsobanemetja.co.za

“Our goal is to set the gold standard when it comes to compliance.”
Cathy Engelbert

Small Business Bookkeeping Tips

Happy New Year, we wish you a productive and successful new season with lots of profits 😊

I have compiled small business bookkeeping tips that will help you to be successful with processing your day to day accounts and office management.

The tips show you how to do bookkeeping and will increase your ability and knowledge to operate your business with skill.

1. Keep Business And Personal Banking Separate

All new business owners must make it a priority to open a new bank account for their business, preferably an account with online access, to keep business funds separate from personal funds.

Processing transactions for your personal expenses within the bookkeeping of your business is a waste of precious time.

It’s even worse if you are outsourcing and paying a bookkeeper to process your accounts with these personal expenses mixed in.

And they will have to be processed if they are mixed up with the business transactions. They have to be entered into the bookkeeping system and coded to drawings, taking up precious time that the bookkeeper could just spend entering business data.

If you need to use business money for personal expenses, just do a bulk transfer to your personal account on a regular basis like once a week so that the bookkeeper isn’t having to deal with a million small personal transactions and making you pay for their time.

2. Recognize Business Vs Personal Expenses

Drawings (Personal Expenses)

A sole trader or proprietor will most likely withdraw funds from the business account for personal use (drawings). This can be done in place of paying themselves a salary.

A good practice is to transfer one amount on a regular basis, such as once a week, from the business account into the personal account. The personal account is then used to buy the groceries, books, toys etc.

The business account can remain nice and tidy with only business transactions and the one regular drawing amount. This will also avoid the temptation to allocate a private expense to the business.

Private vs Business Expenses

A business owner needs to know and recognize what type of expenses can be claimed against the profit to reduce tax, and what can’t be.

An expense that is directly related to the operation of the business and towards producing income is usually tax deductible.

An expense that is for the owner’s personal pleasure is not.

3. Organize Your Business Documentation

Keeping the documentation for all business transactions is a high priority. They are called accounting source documents. Keeping them enables:-

Easy tracking for any future queries that might pop up, and

Proof (to an auditor or tax man) of what occurred.

Most tax departments require businesses to keep the documents that back up their tax claims for a minimum of 3 and often 5 years. These are documents such as invoices, receipts, wage records, etc. Search the internet for your local tax department website and type in something like ‘how long to keep records’.

The only way to keep the records is to have a very well-organised filing and archiving system. A box or basket full of randomly placed papers makes it much harder to locate what is needed, and will cause an unnecessary waste of time not to mention frustration.

4. Keep Track Of Cash Payments

Any cash received should be paid into the business bank account or petty cash before spending it.

It can be tempting to take the cash right away to purchase supplies but this might cause a mess in the bookkeeping system.

For example, the bookkeeper/owner might:-

Forget which customer paid the money which can lead to some embarrassment if the customer is phoned some weeks later for payment and they have already paid! It could also appear as tax evasion because the income is not being declared in the system.

Forget to include the purchase in the books – these expenses definitely need to be entered in to the accounts to help keep your taxes down!

Being forgetful about the above will result in the bookkeeping system not reflecting a true record of what has occurred.

5. Learn To Understand Monthly Bookkeeping Reports

It’s surprising how many business owners have no clue if what they are doing is working until it’s too late i.e. they suddenly find themselves with no money and huge debts.

You can avoid this scenario by being pro-active about keeping your bookkeeping system up to date and producing reports at least once a month.

Learn how to read and understand those reports.

If you are going to own and run a business you can’t ignore this aspect.

The two most important reports to start with are the Income Statement and the Balance Sheet.

6. Keep On Top Of Your Sales Invoicing

There is nothing worse than having a job done by someone, like a plumber, and then waiting for months for an invoice. Most conscientious people would like to get the bill paid.

It is extremely annoying having to call up a supplier to ask where the bill is.

This appears as dis-organisation to the customer, and from the plumber’s perspective can be detrimental to the business cash flow.

As soon as a job is complete, or at least by month’s end, prepare and send out the customer invoices so that the income can start rolling in, thus keeping the bank balance healthy and enabling payments to suppliers to be made when due.

The importance of invoicing customers in good time is a lifeline for the business because this is where the money is at. Keep at it and be organized about it!

7. Outsource Your Bookkeeping When It Becomes Too Hard To Handle

If you, the business owner, are also doubling as the office administrator/ bookkeeper and finding the bookkeeping too hard or don’t have enough time to do it, then outsource the whole lot.

Outsourcing is:

Cost Effective: Because you only need to pay for a couple of hours of work a month opposed to paying a regular wage, and

Accuracy: You are getting that necessary professional work done on your accounts so you can be confident they are correct.

You can outsource as little or as much as you want done.

Professional accountants and bookkeepers can further advise you on the actual state of your business finances and give you ideas on how to improve cash flow.

The great thing about experienced professional bookkeepers is that they are usually in a position to give you great business advice over and above your day to day bookkeeping needs.

Attend business meetings with you and your banker and help explain the accounts to the banker if you find it a little difficult

8. Be Involved In Bookkeeping Checks Even If You Employ A Good In-House Administrator

Are you a small business owner employing an office administrator to do the bookkeeping?

Do you think they’re great because everything they says about the books sounds just like they know what they’re doing and at least you don’t have to?

Just because your bookkeeper may know more than you about bookkeeping, doesn’t necessarily mean it’s being done right.

You need to take an active interest in the financial aspects of your business.

Don’t sit back and leave it all to the bookkeeper.

It’s not fair to them and your business could end up in dire financial strife due to incompetence or fraud by the bookkeeper (it does happen).

As your business grows bigger, implement certain ‘checks’ along the monthly bookkeeping cycle so that the burden is not placed on one person.

09. Pay Your Employees On Time

If you employ people in your business make sure you do the responsible thing and pay their wages or salaries on time. Employees rely on being paid on time to eat and pay their bills.

Make sure you file your payroll returns on time and make the payments on time. Don’t ‘forget’ to do these things. Filing or paying late can incur fines for your business (a real waste of your business funds).

If you need a consultation with us with regards to your business, any type of business – please reach out to us on email PA@matsobanemetja.co.za

Compiled by Ms. Dikeledi Seoloane on behalf of Matsobanemetja Business Consulting (Pty) Ltd

For more information: enquiries@matsobanemetja.co.za

If you really want to grow as an entrepreneur, you’ve got to learn to delegate.
Richard Brandson

How do I know that I need a designated Bookkeeper?

If you’re spending more of your time as a CBO (Chief Bookkeeping Officer) than a CEO, then it’s time for a reality check.

1. Bookkeeping is taking up too much of your time

There’s a finite number of hours in the day so you need to be using them wisely in your business.

It’s not a sensible strategy to be spending the bulk of your time on things that you can outsource to a team member; your job is to focus on maximising profits!

2. You’re trying to scale

Are you bringing in a steady revenue month after month? Have you laid strong foundations for your business and brought in a team that works effectively? Do you feel ready to take your business to the next level?

Then I strongly urge you to outsource your bookkeeping!

Scaling up can be one of the most exciting times for your company – but also one of the riskiest.

I’ve seen businesses fail because they tried to scale too quickly. Or the wrong way. They’ve ended up in a worse situation than they started in – because they didn’t read the data.

So many entrepreneurs leap into scaling without taking the numbers into account. Maybe you’ve got a regular revenue stream. You might have even taken on extra staff in order to manage the increased workload. But if you’ve not considered someone to manage the extra financial reports then there’s a chance your attempts to scale will fall flat.

3. Your bookkeeping isn’t up to date

If you’ve let your books get out of order then I beg of you to hire a bookkeeper!

I’ve managed a ton of ‘cleanups’ for companies over my career and, let me be honest – they’re a pain in the butt. When the numbers haven’t been tracked for months on end, the task of organizing everything is definitely going to eat into your time.

Now, I’m not saying you can’t take on a task like this yourself. If you have the time, if you’re not afraid of some math and some work, then you can absolutely DIY your bookkeeping.

You might not have the budget for a monthly ongoing bookkeeping service, and that’s fine. You can contact me to discuss a one-time job to set you up. But you absolutely must keep on top of your finances if you want to bring home profits.

4. Your decisions are NOT based on your numbers

Whilst bookkeeping can be done yourself, it’s something you need to be consistent with.
Numbers don’t lie, and by consulting your financial data before you make any business decisions, you know you’ll be maintaining a profitable business.

If you’re not in the habit of using the data to guide your decision-making, then it’s time to outsource to someone who will.

5. You’re scared of the IRS!

I know, I know. Audits are never fun and most business owners dread them.

If you’re scared of what might be uncovered through an audit – then you need to hire a bookkeeper. Staying on top of your income and expenses – legally and legitimately – will keep you clean when the IRS comes to visit!

Owning a business can be hugely rewarding. But if you find that any of these signs apply to you then you need to consider outsourcing to a bookkeeper before the joy gets sucked out of what you do.

While you don’t need to outsource, and can take care of the books yourself, you must remember that bookkeeping is a necessity not a luxury.

If you need a consultation with us with regards to your business, any type of business – please reach out to us on email PA@matsobanemetja.co.za

Compiled by Ms. Dikeledi Seoloane on behalf of Matsobanemetja Business Consulting (Pty) Ltd

For more information: enquiries@matsobanemetja.co.za

“Bookkeeping is the art of recording and organizing financial transactions – it is the foundation of any successful business.”
– Unknown

Capricorn FM Interview – #TaxMatters

I was again invited by the Capricorn FM for an Interview to discuss few compliance issues

1. I received an SMS from SARS that I am required to submit the business tax returns for a dormant company, what do I do?
Please note that if the business is registered, it is liable to submit the annual returns every financial year end. Sars will not know the activities happening in business unless the business is under an audit. Therefore as the business owner you are responsible to communicate the status of the business with the institution. In case where the business was economically inactive, you will submit the nil returns.

2. What to do after registering a company?
After the business have been registered, you will receive the company registration documents – CK. From the documents you need to identity the details reflecting on the docs. But most importantly the company registration date and the company ‘s financial year end. Every anniversary of the business you must file the CIPC Annual Returns. Every financial year end you are required to submit the financial reports of the business to account for the business taxes.

3. What are my expectations as a small business owner?
Beside operating the business, you need to be aware of all the legislative laws governing the companies of the country – SA. You don’t want to find yourself and the business at the wrong side of the law, as the defaults might cause the business not to be recognized, renders the entity non-compliant or accumulate penalties. Many businesses and institutions may not want to work or be affiliated with a company that do not follow the law. This will affect the growth of the business as many opportunities might be lost as a results.

4. What is the threshold for a business to declare their taxes?
As long as a business is registered, please declare the business income. It will be up to the information filled / exported into Efiling that will determine whether the business is paying any taxes or not. The tax brackets as well as the threshold to be applied.

5. How often do we file the business tax returns?
A business is a Provisional Tax payer thus the returns are filed twice a year. We file the Income tax and the Provisional tax. Short answer is we declare our taxes, every 6 months.

6. For an operating business, what is required to submit the annual tax returns?
In cases where the business is operating, as it should – we prepare the financial statements so we can be able to submit the tax returns. The most important reports for filing purposes is the Income Statement and the Balance Sheet.

7. What happens if I do not comply with the country’s legislative tax laws?
As indicated on the text messages that were sent out by the receiver of revenue, it is a criminal offence not to submit the tax returns. The institution responsible for the tax collections can choose to exercise their rights to persuade every tax payer to pay their taxes, to impose penalties on the entity, and any other options available at their disposal.

8. I have not been filing my tax returns, how do I remedy this?
By all means if you have any outstanding returns make sure that you file your returns so that you can be up to date. Where there are penalties to pay, please process the payments so that your entity status can be compliant.

9. I have not been using the business and the tax returns are not up to date. Can I opt for business deregistration?
Prior you deregister the company, you need to make sure that all the returns are up to date. In this case – both the tax returns and the CIPC AR. There is no short cut about it 

If you need a consultation with us with regards to your business, any type of business – please reach out to us on email PA@matsobanemetja.co.za

Compiled by Ms. Dikeledi Seoloane on behalf of Matsobanemetja Business Consulting (Pty) Ltd

For more information: enquiries@matsobanemetja.co.za

“Paying tax is not a punishment. It’s a responsibility.”
— Chris Matthews

The Components of the Annual Financial Statements

When I teach small business owners the importance of Bookkeeping, I always highlight that they know the following categories by heart. That is: Assets, Liabilities, Income, Expense and Owners ‘s equity.

The reason I do that is because, the above-mentioned categories play a huge role in preparing the company Annual reports known as Annual Financial Statements – AFS.

Briefly, the importance of AFS is that you want to know the performance and the position of the business after a certain period. I also urge the business owners not to wait for a 12 months period before they prepare the reports. Preferably on a monthly basis. That way you also understand the business, risks to mitigate if any as well as improvements to be made. You do not want to wait for a year. It will be a little too late and so much would have been lost.

The four primary parts that forms the Annual Financial Statements are: Income Statement, Balance Sheet, Cashflow Statements and Statement of owner’s equity.

1. Income Statement
– explains the performance of the business. Consists of the operating and non-operating section. This report have all the the details of the company earnings as well as the company spending. Earnings in the form of sales generated/ revenues. Spending is operational expenses incurred in order for the business to operate. However prior we list the expenses we also have to take into account the COS – Cost of Sales. To simplify it, COS are the raw materials that are needed to be put together in order to have the end product. They are known as the non operational section of the report. Not all businesses will have this part of the report. It depends on the nature of business. The reason to minus the expenses from the business sales it is so that we can determine how much profit we are left with. That is the net profit of the business. The figure is also known as the taxable income by the receiver of revenue. From this report, you will be able to see if the business is profitable, stagnant or non-profitable, thus the performance.

2. Balance Sheet
– explains the position of the business. It consists of the Assets and Liabilities.
Assets are the items that the business owns. The use of assets is to generate an income. We have current assets and non-curremt assets. Current Assets are those items that change their position at anytime. For e.g. cash, stock,etc. While non-current Assets have a long time span in the business. For e.g. vehicles, machinery, property, etc. Though they lose their value over time but they help in generating income for the business over and over again. Liabilities are the people that the business owes. Such as loan, suppliers, tax, etc. We call them liabilities because you are obligated to pay back.

3. Cashflow Statements
– it pertains the inflow and outflow of cash in the business. The person reading this report they are able to determine your relationship with the money. As money comes into the business as sales/revenue or a loan – we also scrutinise the manner in which it leaves the business. The business funds must be used for the following reasons: Operational use, Investing and Financing. If anyone reads the cashflow statement and they find the discrepancies that are not of the above-mentioned reasons, they can conclude that you are then careless with the money. And this conclusion may block many opportunities for you. No one would like to risk doing business with an irresponsible individual. Thus, seriously be in check the relationship you have with the money.

4. Statement of Owner’s equity
– the main objective of this report is to indicate how much of the business owner is stored in the business. For e.g. the money that the owner inject into the business is called Capital. The transaction can be allocated on the balance sheet section of the financial statement. As it has the same effect as those of liabilities.

Let It be known that all these reports combined are called Annual Financial Statements. You cannot prepare one and name it AFS. They each give a specific status of the business.

These reports are also important to external parties such as the banks, Sars, investors, funding institutions, government, and many others.

If you need a consultation with us with regards to your business, any type of business – please reach out to us on email PA@matsobanemetja.co.za

Compiled by Ms. Dikeledi Seoloane on behalf of Matsobanemetja Business Consulting (Pty) Ltd

For more information: enquiries@matsobanemetja.co.za

“You have more independent eyes scrutinizing the decision-making and financial statements of companies.”
Steve Odland

#TaxMatters |CAPRICORN FM INTERVIEW

1. My employer deducts tax from my salary every month, why am I expected to file the tax return every tax season?

– The employers are obligated to collect the tax monies from the employees every month in the form of Pay As You Earn. Individuals are further required to validate the information submitted to the receiver of revenue every tax season that takes place in July every year. The employer will issue the tax certificate called – IRP5 to use to cross refer the information submitted against the SARS portal. It must also be added that it is not only the IRP5 that may be required but other third parties tax certificates such as medical aid tax certificate, retirement annuity tax certificate, logbook if the employee receives travel allowance from the employer, and many others applicable to an employee.

2. I received an auto assessment from SARS, and I had a refund that is already paid into my bank account, is there anything that I am expected to do?

– Receiving an auto assessment does not necessary mean that you should not verify the submitted information. You are still required to log into your SARS e-filing profile and check all the details if they are correct. Should you be satisfied, no further action is required. However, should there be any corrections required to be made, you may please go ahead and request the correction to re-submit the assessment. The new assessment will override the initial one made. You may be required to upload the supporting documents to validate the change on your return.

3. I am employed full time however, I have a property that I own that I am receiving a rental income from, do I need to declare the extra income and how?

– All the other extra income that is received by the taxpayer needs to be declared to the receiver of revenue. Under a normal circumstance the employer is the one deducting on your behalf, but in the case that you still need to declare the extra income on your own, you please need to prepare the recon / financial statement to this regard. The recon must include the income less all the expenses incurred because of the operation during the tax period. The individual Tax period runs from March to February every year. When submitting the return on e-filing you must indicate on the question wizard that you have received an extra income so the additional form can be created for you to submit the information as per your reconciliation.

4. What happens when I do not declare the extra income? And how will they know?

– Let it be known that SARS is a very powerful entity. Thus, they can exercise their powers to request from all the third parties your information pertaining to your earnings and contributions. They can request your bank statement from the bank without your knowledge and prepare their own recon to build a strong case against you. You will be given an opportunity to dispute, just as long as you have all the relevant information and supporting documents. I did not know – is not an acceptable defense! J

5. There are scenarios where I receive a refund from SARS and there are cases where I may owe SARS – what could be the reason for these discrepancies?

– Few technicalities may lead to the discrepancies, especially the miscalculations with regards to the employee ‘s pay as you earn. Under payments results to payable by you to SARS & over payments may lead to a refund to you. Other discrepancies may derive from the third parties such as own medical payments that you have paid for yourself were the medical aid could not pay for your medical bill – SARS can refund you the portion of that ‘own payment’. But there are may technicalities to this effect.

The interview took place on Capricorn FM with @mrmao_AF #CapricornSunrise and Ms. Dikeledi Seoloane – Chief Accountant and Tax Practitioner at the accounting firm Matsobanemetja Business Consulting (Pty) Ltd – http://www.matsobanemetja.co.za

For more information, please contact us: enquiries@matsobanemetja.co.za

I did not know, it is not an acceptable reason not to comply with the taxman
Dikeledi Seoloane

AVOID SHORT CUTS TO COMPLIANCE

There is no doubt that compliance plays a significant role in every entity. For smooth operation and other advantages that comes with it.

Compliance will help your company avoid legal risks. Lawsuits and settlements can easily cost you millions of rands. Fines and other compensatory payments can also add up.

Even if you are able to pay these costs, you might see your sales drop dramatically. Some tenders or job applications require that you comply before they approve your application. The banks, funding institutions, etc.

Damage to your company’s reputation can take years to repair. It’s impossible to estimate just how much monetary damage it can do. It’s better to practice compliance and avoid a breach altogether.

Do not seek short cuts to Compliance.
Please be in the know what makes a business to comply. In this case we refer to Tax compliance. As a business owner make it your primary duty to understand what it takes for a business to be Tax compliant.

I mean, you cannot just comply automatically especially if the business is in operation. To be Tax compliant you need to have financial statements for the business prepared so you can submit your tax return. I am referring to Income Tax here. After submission, if the business was profitable, you will have the tax calculated then pay the funds to the receiver of revenue – SARS. Once the payment is allocated against your business tax account then your status will become compliant.

When you are a VAT registered vendor, you are expected to submit the VAT returns every two months.

If you have other statutory taxes registered such as PAYE, UIF, etc you are expected to file their returns every month, before the 7th of every month.

I am writing this blog in hope to caution you against the religious force of compliance without following all the necessary steps. Such as capturing the transactions, preparing the reports and having them ready for submission to the taxman. First and foremost prior to the submissions as the business owner you need to make sure that you approve all that has been prepared for the business so you can understand your business position and performance. This will make you understand why you are paying the figure that you are paying.

Force compliance can be in the form where your tax returns are submitted but as zero returns. Which means you are saying the business is dormant. This cannot be the case if there is movement of funds in the business bank account.

If you need a consultation with us with regards to your business, any type of business – please reach out to us at PA@matsobanemetja.co.za

Compiled by Ms. Dikeledi Seoloane on behalf of Matsobanemetja Business Consulting (Pty) Ltd

For more information: enquiries@matsobanemetja.co.za

If you think compliance is expensive, try non-compliance
Unknown

Individual tax season, provisional tax payers and SARS auto assessment.

Individual tax season has opened, the official filing resumes on 07 July 2023. From 30 June to 07 July SARS will be issuing communications to all the tax payers that have at least less complicated tax affairs auto assessment via text or email.
If you have not received one yet, please wait a bit till the 07th July.

If no auto assessment has been received still then you may proceed submit the tax returns manually on e-Filing.

A reminder that it is your responsibility as the tax payer to make sure that all the tax returns for all the periods have been submitted to avoid late submission or non submission penalties being imposed on your account. Tax is an obligation.

SARS Auto assessment:
It is generated automatically when the tax authority believes no additional input from the taxpayer is required. The assessments are based on data from your employer, medical scheme, financial institution and any third-party data providers. All these institutions are obliged to submit your contributions for the past 12 months to make sure that all are taken into account.

If I receive an auto assessment do I just accept it?
No! You MUST check the SARS auto assessment carefully before accepting or rejecting it. No one knows your tax situation better than you, and due to the assessment being automatically generated, there is every chance it could be inaccurate and that can result in you paying monies to the tax-man as a result of such omissions. Because of this the issue of underpayment or overpayment may arise.

Another aspect that you need to take into careful consideration is, if you are a full time employee and also receive an additional income other than that of your employer – you need to make sure that you account for it. For e.g. Rental income, locums, network marketers,etc. When submitting your tax returns using your employer’s Irp5 – you need to declare the extra income received in the past 12 months period. Keep records of all your earnings and expenses so that they can be used to calculate the taxable income. Failure to do so, you are opening up yourself for audits that will drag and exhaust to you. We all wish for a seemless experience with the taxman.

Provisional taxpayer
– are people who earn income other than a salary / remuneration on which no income tax has been deducted/withheld. They will need to declare their total estimated taxable income on their provisional tax returns (IRP6) and pay the applicable tax thereon. Under normal circumstances, your employer will deduct tax on your behalf as PAYE but should you be in contractual agreement that requires you to take care of your taxes, you then fall under this category!

N.B. If you are to use anyone for the submission of your tax returns, be sure to use registered consultants. SARS is in the business of collecting money from the citizens. Please do not withdraw money that you are not sure how they came about. Do not let anyone perform fraudulent activities using your account.

Compiled by Ms. Dikeledi Seoloane on behalf of Matsobanemetja Business Consulting (Pty) Ltd

For more information: enquiries@matsobanemetja.co.za

“The hardest thing in the world to understand is the income tax.”
Albert Einstein

What happens when I don’t make use of the business bank account yet the business is trading?

I am not sure how best to respond to the above question other than say “it is a self sabotage”

When a business is registered, it is given its own legal entities. Name of operation, registration number, tax number and must have it’s bank account opened for it so that all the business transactions can take effect from. Which means, it is a legal entity beyond it’s owner.

In instances where you have a business that is operating and do not utilise the business bank account, but use the personal account instead please note that you are merely saying the business is not trading thus you must file zero returns on the business financial year end. It means the business is dormant.

The Business that operates under the sole owner ‘s name is called a sole proprietor.

What is meant by a Sole Proprietor?
– is a business that is owned and operated by a natural person (individual). This is the simplest form of business entity. The sole proprietorship is not a legal entity. The business has no existence separate from the owner who is called the proprietor.

Which means for the sole proprietor to account for its taxes, it will do so under the individual tax number, not the company tax number.

You cannot even request that the transactions that happened under your personal account be transferred to the business account especially when all the transactions, including sales and purchases were transacted from personal account.

I know there are scenarios where some business owners would like to make it easier for their customers that prefers to transact from personal account. This can be done however – the transaction has to carry an equal debit and credit. Meaning as soon as the money comes into your personal account, it is transferred to the business account as it belongs there.

As an accountant, I wouldn’t advise on this method of transacting. It has elements of complications as it creates unnecessary administration for you. As much as you transfer all the money to a business account, you are still required to reconcile the individual account. To show that it is at zero. Meanwhile you do that, the bank also charges for utilising the facility- bank charges. Which means you pay bank charges on both the accounts. Is it worth it? I think not!

Let us stretch it further. What happens when SARS decides to raise an audit on all your bank accounts?
SARS doesn’t raise an audit without them having done their own reconciliation. Bear in mind, they have the powers to obtain your Bank accounts details without your permission. Yes they do that. They can even debit your account or raise a garnishee orders from your employer. That’s how powerful they are.

Thus if you are serious about building your business, why would you want to mess with such a powerful state entity? I advise that you keep things clean.

When you have a registered business, please use it to receive your salary that you will get from the business and transact all your personal activities from there.
SARS do not entertain the “I did not know” type of defense. They will still want to penalise you so that you do know for the future. Do not forget that SARS is in the business of collecting money, that’s their revenue thus they wouldn’t let you go easily!

You can consult with us if you need a more detailed clarity. Our email adress is enquiries@matsobanemetja.co.za

Compiled by Ms. Dikeledi Seoloane – Accountant, Tax Practitioner and Owner at Matsobanemetja Business Consulting – The Accounting Firm

http://www.matsobanemetja.co.za

He who buys what he does not need, steals from himself.
– Swedish Proverb