Complying with taxes for a small business in South Africa involves several key components, dependent on the business’s structure and turnover. It is crucial for entrepreneurs to be aware of their tax obligations to ensure smooth operation and avoid penalties. South African small businesses must choose a legal structure, register correctly with CIPC and SARS for various tax types (especially if employing staff), diligently manage their monthly and annual declarations, understand and apply any available tax incentives (like SBC or Turnover Tax), and maintain thorough and accurate financial records.

Here’s a summary of what a South African small business needs to do to comply with taxes:

What type of business do you have?

Do you have people working for you?

If your small business employs staff, you incur additional tax responsibilities and must register as an employer.

Required Registrations: You will need to register for:

2. Employer Registrations and Declarations

If your small business employs staff, you have additional tax responsibilities:

• Registration: An employer must register with SARS within 21 business days of becoming an employer, unless none of the employees are liable for normal tax. This includes registering for:
  • Pay-As-You-Earn (PAYE): This is for deducting employees’ tax from their salaries. You can register for PAYE on eFiling by navigating to “SARS Registered Details” and selecting “Add new product registration” under “Payroll taxes”.
  • Unemployment Insurance Fund (UIF): This provides short-term relief to workers in certain situations (e.g., unemployment, maternity). All employers must register for UIF contributions if they are liable to pay them.
  • Skills Development Levy (SDL): This promotes learning and development in South Africa. Employers liable for SDL must register with SARS and indicate their Skills Education and Training Authority (SETA) jurisdiction. Even exempt employers must register.
• Monthly Employer Declaration (EMP201): Employers must submit this declaration monthly to SARS, detailing the total PAYE, SDL, UIF, and/or Employment Tax Incentive (ETI) deducted or withheld. The declared amounts must be paid monthly using a unique Payment Reference Number (PRN).
• Employer Reconciliation Declarations (EMP501, EMP601, EMP701): Employers need to submit an accurate Employer Reconciliation Declaration (EMP501) and issue Employee Tax Certificates [IRP5/IT3(a)s] for both the interim period (1 March to 31 August) and the annual period (1 March to 28/29 February). The IRP5/IT3(a) certificate discloses the total employment remuneration and tax deducted for the assessment year.
• Employment Tax Incentive (ETI): This incentive encourages hiring young and less experienced work seekers by reducing the employer’s cost through a cost-sharing mechanism with the government. Qualifying employers can claim ETI on their EMP201 submission.
• Audits: Employers subject to a PAYE audit can view audit letters on eFiling or e@syFile™ and upload supporting documents or submit requests for correction.

Do you qualify for special relief or tax benefits?

3. Income Tax and Special Relief

• Small Business Corporation (SBC) Incentive: If your private company, close corporation, or co-operative qualifies as an SBC, you may benefit from preferential tax rates and certain tax incentives. For years of assessment ending on or after 1 April 2019, SBCs pay no income tax on the first R79,000 of taxable income, with progressive rates applying thereafter.
• Turnover Tax: This is a simplified system designed for micro businesses with a qualifying annual turnover of R1 million or less. It replaces Income Tax, VAT, Provisional Tax, Capital Gains Tax, and Dividends Tax for these businesses, though they can elect to remain in the VAT system.
  • Qualifying Entities: Individuals (sole proprietors), partnerships, close corporations, companies, and co-operatives can qualify for Turnover Tax.
  • Calculation: Tax is calculated by applying a low, progressive tax rate to the taxable turnover.
  • Payments: Turnover Tax has three payment dates: a first payment in the middle of the tax year (last business day of August), a second payment at the end of the tax year (last business day of February), and a final payment after the annual TT03 Turnover Tax Return is submitted (between 1 July and 31 January of the following year). Payments can be made at banks or electronically, quoting the Beneficiary ID and Payment Reference Number from the TT02 payment advice.
• Accelerated Depreciation (Urban Development Zones – UDZ): Until 31 March 2021, businesses could claim an accelerated depreciation allowance for the cost of erecting, acquiring, or improving commercial or residential buildings within an approved UDZ, provided the building was used solely for trade.
  • Allowable Amounts: This deduction varies: 20% straight-line over five years for refurbishment (where existing structure is preserved), or an 11-year write-off for new construction (20% in the first year, 8% per annum for the next 10 years; prior to 2008 it was 5% per annum instead of 8%). Specific allowances were also available for low-cost residential units.
  • First-Time Buyers: A deduction was also available for first-time buyers from a developer: 30% of the purchase price for refurbished buildings and 55% for new buildings.
  • Record Keeping: UDZ1 (for erection/extension/improvement) and UDZ2 (for purchase) forms must be completed and retained for five years after the return submission date.

Are you keeping records correctly?

4. Record Keeping

• General Requirement: All persons, including businesses, must keep records, books of account, or documents to comply with the Tax Administration Act and satisfy SARS. These records should be kept in their original form, in an orderly fashion, in a safe place, and be open for inspection, audit, or investigation by SARS. Electronic records are permitted but may require SARS authorisation if kept in a different form or outside South Africa.
• Retention Period: Records must generally be kept for five years from the date of return submission. If a return has not been submitted when required, records must be kept indefinitely until submitted. For audits or investigations, records must be kept until the conclusion of the process.
• Turnover Tax Specifics: Businesses on Turnover Tax have reduced record-keeping requirements. They only need to keep records of:
  1. All amounts received.
  2. Dividends declared.
  3. A list of each asset with a cost price of more than R10,000 and liabilities exceeding R10,000 at the end of the year of assessment.

Learning about taxes and getting professional help

5. Learning About Taxes and Seeking Professional Help [18, 46, I]

• SARS Resources: Small business owners can learn about taxes through SARS Tax Workshops and Mobile Tax Units (MTU) / Pop-up Branches which offer services in various locations across South Africa.
• Professional Guidance: It is highly recommended to deal with registered and reputable tax practitioners for tax matters. From our conversation history, we know that seeking professional guidance from accountants or financial advisors is advisable, especially for those with limited financial literacy [I, 74, 149, 156, 264, 283, 306, 341, 497, 503]. They can provide strategic advice, ensure compliance, and assist with complex financial decisions [I, 264, 341, 497, 503].
• SARS Contact Centre: For more information or assistance with specific queries, businesses can call the SARS Contact Centre.

In essence, South African small businesses must strategically choose their legal structure, register correctly with CIPC and SARS for various tax types (especially if employing staff), diligently manage their monthly and annual declarations, understand and apply any available tax incentives (like SBC or Turnover Tax), and maintain thorough and accurate financial records.