With the many challenges small business owners face every day, being tax compliant is often not at the top of the list and tax deadlines often come and go in the struggle of trying to keep the business afloat.
When they do get around to completing their tax returns, they often go it alone, often not realising that business tax returns are far more complicated than individual returns.
Research conducted by TaxTim shows that 58% of small businesses do not get professional help when submitting their annual tax returns. In fact, only 13% handed the role over to an outsourced professional.
Marc Sevitz, co-founder and CFO of the online tax return tool TaxTim, says that SMEs do not have one standard deadline for submission to SARS.
SMEs must complete their annual tax returns within 12 months of the end of their financial year, which can be any time from January to December.
Sevitz, a Chartered Accountant and registered tax practitioner, offers TaxTim’s top tax tips for SMEs:
1. Record every cent earned or spent
Whilst it may sound like an administrative headache, keeping an accurate and up-to-date record of your business’s income and expenses, allocated to their various categories, is critical to ensuring a smooth tax return. The nature and size of your business will determine whether you’d want to look at investing in an accounting software or package, or if a basic spreadsheet record will suffice.
2. Keep all your slips
Keep all documents relating to income and expenses, such as invoices and receipts, and file them in a logical order. Should SARS request verification on your business’s tax return, you’ll easily be able to supply these. Scrambling around to find slips from the past year can easily be avoided.
3. Make copies of documents
It’s best to keep both a hard copy and electronic version of documents. Scanned copies can be stored online using cloud services like Google Drive or Dropbox, which ensures they’re safe, even if the originals get lost or if your computer is damaged or stolen.
4. Store documents for five years
Don’t toss away your documents once you’ve filed your business tax return. Legislation requires that SMEs keep all relevant documents for a minimum of five years. SARS may request a review of previous tax returns and you don’t want to be missing vital documents that impact your business’s tax liability.
5. Use the correct rates for depreciation
If your business owns assets that devalue over time, be sure to use the correct wear and tear rate from SARS’ list of different asset types. For example, computers depreciate at a different rate to vehicles. Also, check whether your business qualifies for the Small Business Corporation or Section 12C Manufacturing Assets special wear and tear allowance.
6. Know all the allowed deductions
There are numerous deductions and allowances available to SMEs. It is in your best interest to familiarise yourself with them to ensure you never pay more tax for your business than necessary. For example, a business can claim an allowance for a building that it owns, or special tax deductions for leased assets.
7. Provide properly for provisions
Remember that accounting provisions are treated differently for tax purposes. Ensure you reverse the Provision for Leave Pay and Provision for Employee Bonuses in your business’s tax calculation as these are only deductible for tax once they’ve been paid.