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As the 2019/2020 financial year-end approaches, entrepreneurs will be evaluating income over the past year — and with that, the possibility of a good tax refund.
Daniel Baines, an attorney who also boasts a MCom in taxation, has set out to help small business owners navigate the world of tax.
In his 2019 book, How to Get a SARS Refund for Small Businesses, Baines explains small-business tax in easy-to-understand language.
Introduction to different types of tax
He covers different types of tax that a small-business owner may encounter, including income tax, VAT, pay-as-you-earn (PAYE) and dividends tax. The book also clarifies how different types of entities are taxed, such as a private company compared with a sole proprietor.
Baines aim to guide entrepreneurs on how to be responsible tax-paying systems, but also on how to get a better tax refund.
Turnover tax system
One possible and legal method, is to register your enterprise for a type of tax called turnover tax.
“The purpose of this tax option is to simplify the tax process for anyone who runs a small business,” writes Baines.
“The turnover tax system enables a qualifying micro-business to pay tax on its turnover instead of in the usual way, which, generally speaking, is to pay tax on the income of the business after business expenses have been deducted.
“This means that with turnover tax you as the business owner do not need to keep detailed records of applicable business expenses because these are not taken into account in determining the tax payable. Note that the business must however keep detailed records of income, dividends declared, assets and liabilities.”
Government allows certain enterprises to register for turnover tax in a bid to encourage the development of small business.
However to get access to reduced tax rates, you need to meet certain criteria, which includes the following:
Your business operates as a sole proprietor, company, partnership, close corporation or co-operativeThe qualifying turnover of your business is less than R1 million for the tax year;The year of assessment for your business ends on the last day of February;If your business runs as a sole proprietor/ partnership, income from professional services cannot constitute more than 20% of its income; andIf your business operates as a company, close corporation or co-operative, not more than 20% of income may come from professional services and investment income.
If your business meets these requirements, you may be able to register it with the South African Revenue Service (SARS) for turnover tax.
To qualify, Baines says you need to submit a TT01 form which is available on the Sars website.
