Navigating the Entrepreneurial Journey.
Entrepreneurship isn’t just about financial success; it’s about crafting a life that’s uniquely yours.
It starts with a desire to make a meaningful impact in the world. Several factors inspire entrepreneurs to chase their passions—among them, the desire for flexibility and work-life balance, the freedom of being your own boss, the opportunity to give back to your community, and the ambition to build generational wealth that leaves a lasting legacy.
Running a company, whether it is a Small, Medium or Micro Enterprise (SMME) is not for the faint-hearted for sure! On a daily basis business owners of SMME’s find themselves diving into a million different things – finding new business, raising loan funding, addressing customer complaints, negotiating the best possible deals with suppliers and service providers, advertising their goods and /or services etc.
Paperwork and administration tasks are very often moved down the list of things-to-do. The reality is that business owners are not all accountants. In the journey of building a thriving start-up, the excitement of progress can sometimes overshadow critical administrative duties.
Unfortunately, if neglected for too long, you will have non-compliance issues to deal with from SARS and the Companies and Intellectual Property Commission (CIPC).
Does this sound all too familiar?
Sam started up a company in 2023. In the initial stages of the company, it was fairly easy to keep track of paperwork and transactions.
Sam did not take a salary from the company initially and used the company bank account for personal expenses.
Time ticked on and all of a sudden, BOOM, there was an explosion of work. Business started to pick up, the company started doing well, sales hit the R1 million mark, therefore Sam employed a few staff members, and also started taking a salary from the company.
Months rolled by and things were going great, but uh, oh! Sam neglected to keep the company’s financial affairs in order!! Provisional tax returns had not been filed, the company was not registered for PAYE, UIF and SDL, Income Tax returns were outstanding for more than one tax year, and furthermore the company was not registered for VAT!!
Sam started receiving notices from SARS that tax returns were overdue.
While Sam was looking for an accountant to sort out the company’s financial and tax affairs, the Companies and Intellectual Property Commission (CIPC) issued a notice of deregistration due to non-compliance with Annual Returns (AR) and Beneficial Ownership (BO) declarations.
The story of Sam illustrates how initial success can be derailed by a number of factors, including a lack of awareness of compliance requirements, rapid growth that wasn’t supported by adequate systems or support, as well as the struggle to balance priorities.
Here are the key lessons from Sam’s story:
- Separate Personal and Business Finances: It’s crucial to avoid using business funds for personal expenses.
- Stay on Top of Tax Obligations: Filing provisional and income tax returns on time, and registering for required taxes (e.g., PAYE, UIF, SDL, VAT), helps avoid legal and financial penalties.
- Compliance Is Non-Negotiable: Keeping up with obligations like annual returns and beneficial ownership declarations prevents consequences like deregistration.
- Seek Professional Help When Needed: Hiring experts such as accountants can ensure financial affairs and regulatory compliance are effectively managed, avoiding costly oversights.
- Learn from Mistakes: Addressing issues promptly and dedicating time to resolve them helps steer the business back on track.
We live in a world where information is available instantaneously! Knowledge is power, and this could not be truer for entrepreneurs navigating the complexities of the business world while ensuring compliance for their company.
What every company owner should know:
- It should come as no surprise that a company is a Provisional Taxpayer as per Paragraph 1 of the Fourth Schedule of the Income Tax Act No. 58 of 1962.
- Provisional tax is not an additional tax on top of Income Tax. It is merely a way of splitting up the income tax payment over the tax year so that there isn’t a large tax amount that is due to SARS at the end of the year of assessment.
- Companies must file Provisional tax returns 6 months into the tax year (31st August), and at the end of the tax year (28th/29th February). A third top-up payment may be made 6 months after financial year end.
- A company must file its annual income tax return within 12 months of its financial year end.
- If a company makes taxable supplies. “sales” exceeding R1million in a consecutive period of 12 months, it must register for VAT.
- Companies must submit a VAT 201 return based on the Category that they fall under as a vendor as determined by SARS. If submitted manually, this must be done by the 25th of the relevant tax period. If submitted via eFiling, this should be done by the last day of the month in the relevant tax period
- If you employ staff and pay them a salary that exceeds the Income Tax threshold set by SARS for a tax year, the company must register for PAYE.
- Companies are legally required to register with the Unemployment Insurance Fund (UIF) if they employ workers for more than 24 hours per month.
- A company is required to register and pay a Skills Development Levy (SDL) if its total annual payroll exceeds R500,000.
- A company must file an EMP201 to declare their liabilities for PAYE, SDL, and UIF by the 7th of the following month. If the 7th falls on a weekend or public holiday, the submission and payment must be made by the last business day before that.
- Micro businesses with an annual turnover of R 1 million or less may qualify for Turnover tax. The turnover tax system replaces Income Tax, VAT, Provisional Tax, Capital Gains Tax and Dividends Tax. Consult a tax professional to determine if your company meets the criteria.
- Certain allowances and tax benefits are available for companies that qualify as Small Business Corporations. Consult a tax professional to determine if your company meets the criteria.
Key takeaways
It is foolish to think that your company can continue to operate under the radar of SARS and the CIPC.
“I didn’t know” holds no water when it comes to non-compliance with SARS or the CIPC. SARS is exceptionally quick to apply penalties and interest – even if you’re only a day late.
Micro, Small and Medium Enterprises (SMMEs) are not just businesses; they are the heartbeat of our economy, pumping life into communities, fuelling growth, nurturing innovation, and creating livelihoods. Our economy needs you, so please take the necessary steps to keep your company compliant.
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Disclaimer: This article is for informational purposes only and does not constitute professional tax advice. Since individual circumstances differ, it is advisable to seek personalized guidance from a qualified tax advisor.
