Optimizing Tax Efficiency for Small Businesses

Going Beyond Accounting, Taking Your Business Forward Monique Sharland CEO Business Accounting Network

Introduction and Welcome Presenter: Monique Sharland CEO and founder Business Accounting Network Professional Accountant, SME Tax Law specialist and Franchising expert Professional body: SAIT

Disclaimer: THE INFORMATION IN THIS WEBINAR IS FOR GENERAL PURPOSES ONLY AND IS NOT A SUBSTITUTE FOR PROFESSIONAL ADVICE. WE TAKE NO RESPONSIBILITY FOR ANY ACTIONS TAKEN OR NOT TAKEN ON THE BASIS OF THE INFORMATION IN THIS WEBINAR. Tax Tip #1: Only obtain tax advice from a reputable and knowledgeable registered Tax Practitioner. Never listen to freeadvice , especially from unqualified friends and family it s all hearsay and can get you into serious financial distress!

A Webinar for Small Business Who Want to be More Tax Efficient Type of Tax Income Tax Corporate Tax Pay as You Earn/Provisional Tax Fringe Benefits tax Capital Gains Tax Dividend Withholding Tax Donations Tax Type of Tax Value Added Tax (VAT) Transfer Duty Customs & Excise Duty Estate Duty Securities Transfer Tax Ad Valorem Excise Duties Sugar Tax Skills Development Levies & UIF Municipal rates

A Webinar for Small Business Who Want to be More Tax Efficient Common tax mistakes that small and medium businesses make, and how to avoid them; Ignorance of the law is not an excuse tax and VAT stuff to watch out for! What SARS knows about you, that you need to know! How to pay less tax made simple;

Common Mistakes Businesses Make and How to Avoid Them! Income Tax: Beware of deducting home office expenses on owned primary residence : Don t risk losing primary residence exemption up to R 2 million on Capital Gains

Common Mistakes Businesses Make and How to Avoid Them! Income Tax What to Watch Out For! Company payments to shareholders/directors or members: What happens when a director does not have monies owed to it by the company (loan account) and draws out more money from the company than his/her net salary amount? = = contingent liability of the company! Deemed dividend and dividend tax (20%)

EXAMPLE: Deemed dividend and dividend tax contingent liability! Assets Balance Sheet Property Plant and Equipment R 500 000 Shareholders loan account Current Assets R 750 000 R 150 000 R 1 400 000 Liabilities Retained Income R 940 000 Long term loans R 350 000 Current liabilities R 110 000 R 1 400 000

Tax and Vat Stuff to Watch Out For! (Ignorance of the law is no excuse) Employees tax (PAYE): Taxation on Fringe Benefits

Tax and Vat Stuff to Watch Out For! (Ignorance of the law is no excuse) VAT law: Clawback VAT VAT output payable on Fringe Benefits: Determined value of motor vehicle (excluding VAT) x 03% or 06% x 15/115 = monthly output VAT other .

Tax and Vat Stuff to Watch Out For! Example: VAT output payable on Fringe Benefits: Vehicle Cost VAT inclusive: R575 000 Determined Value : R500 000 Monthly VAT output to declare and pay: 0.3% = R195.65 (motor vehicle as defined) 0.6% = R391.30 (delivery vehicle or motor cycle)

Watch Out! Know the Law! Taxpayers are held personally liable! Criminal offences: Fails or neglects to register with SARS under a tax act Fails or neglects to notify SARS of a change in registered particulars Fails or neglects to retain records as required by any tax law Issues erroneous, incomplete or false returns Refuses or neglects to reply to or answer any questions put by a SARS official Fails or neglects to disclose to SARS any material facts under the tax act Fails or neglects to notify SARS of anything which is required to be notified to SARS under the tax act

What SARS Knows About Your Business That You Need To Know! IT14 SD = Supplementary Disclosure to a company tax return 1. 2. 3. Turnover per VAT201 returns and the IT14 tax return VAT input claims per VAT201 returns and the IT14 return Salaries and wages claimed on the IT14 tax return compared to the IRP5/IT3(a) certificates Income tax per balance sheet line item on IT14 reconciled to tax payable to/due by SARS Registerable assets, e.g. motor vehicles, caravans, motor bikes, properties. 4.

Watch Out! Know the Law! SARS will raise an assessment on a an estimate (based on information readily available to it) if the taxpayer fails to submit a return as required! (Reference: Tax Administration Act) Tip: Keep your returns up to date! Otherwise .. [see next slide]

Watch Out! Know the Law! SARS can dip into your bank account to help itself to outstanding tax debt! Tip: Keep your contact details up to date with SARS! (and now for some good tax tips and news!)

Tips! Apply for a tax clearance certificates every year! Good Financial Management tips: Open a call or money market account to save VAT monthly! Open a call or money market account to save TAX monthly!

Some Good News Amongst the Gloom Tax Saving Tips

How to Pay Less Tax Made Simple Get your business structure right! If your business qualifies as a Small Business Corporation (SBC) Your business can save up to R 95 070 in Tax per annum!

How to Pay Less Tax Made Simple How can you qualify as a small business corporation for tax purposes? Gross income (turnover) must not exceed R20 million per annum Applies only to companies and close corporations All shareholders must be natural persons The shareholders or members may not hold shares or members interest in any private or unlisted companies apart from certain exceptions Not more than 20% of total receipts may consist collectively of investment income and the income from rendering of personal services. The SBC may not be a personal service provider

How to Pay Less Tax Made Simple Have your business pay interest on your credit loan account Save 28% tax on the interest paid in the company Get R23 800 interest exemption in your personal hands .. that is tax free!

How to Pay Less Tax Made Simple Claim notional VAT input on change in use of assets and on the purchase of second-hand goods That s cash in your bank for nothing!

How to Pay Less Tax Made Simple Turnover Tax (Micro Businesses): Does your business qualify? Individuals and companies All natural persons own the business (companies) Gross income under R1 million p.a. Providers of professional services, personal service companies and labour brokers cannot elect to register. Apply for registration prior to beginning of financial year Less than 10% of total receipts or accruals consist of investment income Disqualified if shares or interest held in the equity of other private companies or close corporations

How to Pay Less Tax Made Simple Tax Calculation on Turnover versus Profit Comparison: Company Tax 28% Company SBC Tax Sole Micro Entity Proprietors Turnover Tax Company Tax Individual Tax PROFIT PROFIT PROFIT TURNOVER Tax based on: R 140 944 R 11 150 R 238 350 R 11 150 R 39 821 R 11 150 R 900 000 R 11 150 Tax Payable: Conclusion: To analyse whether registering a micro business for turnover tax or not is based: 1. entirely dependent on the consistent annual taxable profit of the entity, and 2. on the nature of the turnover, if the entity is a company, e.g. consulting business versus a retail outlet and whether the entity will qualify for SBC tax.

How to Pay Less Tax Made Simple Tax on Company Car versus Travel Allowance Comparison: Vehicle determined value R 200 000 R 540 000 R 84 000 Annual taxable remuneration Value of fringe benefit and travel allowance 12 000 Business km 2 400 Private/personal km Total km 14 400 20% R 6 078 Allowance 80% R 25 749 Fringe benefit Additional tax (fringe benefit and allowance) Actual Tax on private/personal use R 5 037 R 5 816

How to Pay Less Tax Made Simple Tax on Company Car versus Travel Allowance Comparison: Vehicle determined value R 500 000 R 210 000 Value of fringe benefit and travel allowance 20% R 15 932 Allowance 80% R 65 087 Fringe benefit Additional tax (fringe benefit and allowance) Actual Tax on private/personal use R 13 186 R 10 287 The higher the cost of the vehicle the higher the tax on the fringe benefit compared to a travel allowance. The lower the cost of the vehicle the lower the tax on the fringe benefit but the higher the tax (only marginally) on the travel allowance

How to Pay Less Tax Made Simple Deciding Factor is NOT tax but cash outflow! R 200 000 vehicle Fringe benefit Allowance R 78 184 allowance after tax Tax on personal km R 5 816 R 5 037 Motor Vehicle repayments R 55 284 0 Fuel 0 R 12 000 Insurance Maintenance 0 0 R 7 200 R 14 000 Total (if an employee) R 5037 R 94 300 Total (if owner managed company) after 28% tax deduction R 63 708 R 94 300

How to Pay Less Tax Made Simple Tax free travel reimbursement (2020) = R 3.61 per km unlimited km s Compare travel allowance tax free portion to maximum tax free travel reimbursement: R 3.61 x 12 000 = R 43 320 annual tax free travel

How to Pay Less Tax Made Simple Tax free travel reimbursement Vehicle R 200 000 Value of travel allowance and fringe benefit R 84 000 Cash value of travel allowance after tax before expenses R 78 184 Cash value of travel reimbursement (tax free) R 43 320

How to Pay Less Tax Made Simple Buying a vehicle in the company wins all round!

How to Pay Less Tax Made Simple Paying a dividend versus paying a bonus Comparison: R 720 000 R 300 000 Shareholder/Member s remuneration Company makes a taxable profit Dividend R 198 021 R 84 000 Bonus Tax on remuneration Tax on company profit (28%) R 321 021 R 0 R 0 Dividend Withholding Tax: R 60 000 Total taxes paid by an owner managed company: R 321 021 R 342 021 Small Business Corporation: SBC Tax on profit: R 0 R 15 470 Total tax payable by a SBC: R 321 021 R 273 491

How to Pay Less Tax Made Simple Bonus tax saving tip! Save anything up to R 143 500 tax per year by investing 27.5% of taxable income in a retirement fund up to a maximum of R 350 000 = taxable income maximum R 1 272 700

How to Pay Less Tax Made Simple And one last important thing! Don t use tax practitioners who break the law . .. it is a criminal offence for any tax practitioner who neglects or fails to register as a tax practitioner with a Controlling Body and with SARS (up to 2 years imprisonment or a fine).

Join us for the next of our Business Webinar series: LABOUR RELATIONS 101: Getting the Basics Right Presenter: Justine Del Monte A webinar made simple for the SME business sector 31st October 2019 09h00 10h00

Questions?