Wow, what a serious topic but let’s not get too technical here but rather give a brief overview of the more pertinent issues relating to taxes.
You or your company are taxed on your net profits. In other words: sales less expenses. This sounds easy enough however it is much more involved and technical than you may think.
For instance, sales include the amount when you received it or simply when it accrued to you. So in other words you must include in your sales amounts not yet physically received. Crazy right!
For expenses, not all types of expenses can be taken into account. In laymen’s terms, you may deduct from your turnover any amount actually incurred in the production of your income and even then there are limitations on what you may deduct.
Calculating your net income on which tax is calculated is technical and should preferably be left for the professionals.
Employees
If you have been employed before, you are familiar with the pay-as-you-earn (PAYE) system. You should have received a weekly, fortnightly, or monthly payslip from your employer (depending on how often you got paid) showing the deductions from income tax.
At the end of the tax year, you should have received an IRP5 from your employer which outlines the wages or salary earned as well as the total tax during the tax year. This is convenient for the employee because the employer handles all administrative work.
By default, an employee’s tax year is from March each year to February the following year with the tax season usually opening in July and running to November or February the next year if you are a provisional taxpayer.
Self-employed or Sole Proprietors
For the self-employed, the system works differently. Income tax is calculated annually on your net profit.
You will have to keep accurate records of your income and expenses. This is to be included on your tax return resulting in a net profit on which you are taxed at your marginal tax rate.
You will also be required to submit two provisional tax returns during the year as well as a final tax return referred to an IT12.
By default, a self-employed tax year is from March each year to February the following year.
Companies
The tax year of a company correlates to the financial year-end of the company. This can therefore be any of the 12 months during the year. We however propose that you keep the tax year of the company from March to February each year as this period is in line with most other dates referred to by SARS.
Companies must file their tax returns within 12 months after their year-end and are also subject to the requirements of filing two provisional tax returns per year.
Filing your tax returns with SARS
The best advice for either a self-employed person or a company is to ensure that your books are kept up to date during the year.
Filing your provisional tax returns would require you to at least have an idea of what profits you will be making on a monthly basis and therefore having accurate figures is paramount.
To file your final tax return, you need to compile annual financial statements (AFS) at the end of each year. These statements are used to complete your tax return. In some instances, it is also required that you file your AFS with SARS upon the lodgement of your final tax return.
The accountant will charge you for this work, but if you keep good books, have your bank statements in a file, and are able to give receipts and other evidence of spending, their charge is likely to be more reasonable. Remember that you pay them for their time and expertise.
Tax returns and e-filing
SARS encourages businesses to file their tax returns online. If you want to do it yourself you will need to register for e-filing with SARS. Revenue commissioners will assist clients at any SARS office or may even give instruction to clients at their workplace.
Provisional tax
If you are a salaried employee you are not required to register for provisional tax. If however, you earn an income of more than R20 000 per year from sources other than your employer, you will be required to register.
Sole proprietors, partners in a partnership, and companies will be required to register as provisional taxpayers.
Provisional tax is effectively a down payment and comprises your estimate of your final liability for the year. SARS now requires that taxpayers with a taxable income of less than R1 million per year must be 90% accurate when filing their second provisional tax return. Should your taxable income be more than R1 million per annum then you are allowed a 20% misstatement without incurring penalties and interest.
