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COVID-19 support for South African SMEs: Do you qualify for Tax Relief?

Article provided by Lulalend

If you’re a South African SME, you can apply for the government’s COVID-19 tax relief.

As part of its coronavirus COVID-19 support for South African SMEs, the National Treasury has launched tax relief measures.

In this article, Lulalend’s team of finance experts explains how SMEs can qualify for:

  • Expanded Employment Tax Incentive rebates
  • Deferred tax payments (Provisional tax and PAYE)

Jump to our simple provisional tax calculator to estimate the amount of your deferred tax payments.

COVID-19 tax relief package for South African businesses

On 23 March, President Cyril Ramaphosa announced a national lockdown to curb the spread of COVID-19. Since then, different government departments have introduced coronavirus support packages for SMEs. (Here’s an overview of COVID-19 SME support government funds you can access.)

The National Treasury outlined its tax relief scheme in the Draft Disaster Manager Tax Relief Bill, released on 1 April 2020. You can find more information about the bill on the National Treasury’s site.

The National Treasury explained the reasons for the SMME tax relief scheme in this memo:

“Small and medium sized businesses are the most vulnerable as they are unlikely to have cash reserves and are thus at a higher risk of shedding jobs under these conditions in an attempt to remain going concerns and contain costs while generating very little income.”

In this article, we’ll cover the relief for SMMEs.

Expansion of Employment Tax Incentive

“Under an additional tax subsidy, you may be able to claim an extra R500 per month for each employee”, explained Quentin Daniel, Lulalend’s Head of Finance.

Daniel said “the Treasury has added new criteria to give more SMEs access to the rebate”.

“SMEs will also be able to claim monthly. Previously, you’d get ETI reimbursements twice a year. The goal is to increase cash flow.”

“This one is only open to you if you were already registered with the Employment Tax Incentive programme as at 1 March 2020”, said Daniel.

The existing ETI lets companies claim a rebate for employees who meet the following criteria:

  • Between 19 years old and 29 years old;
  • Earns less than R6,500 per month

It’s a two-year incentive for companies to hire more young people. Companies qualify for a R1,000 rebate per month for the first year, and the next year, the incentive drops to R500.

The new subsidy will support 4 million workers, according to the Ministry of Finance.

Here’s a breakdown of the expanded ETI benefits:

Employee Current ETI benefit COVID-19 ETI benefit Total
Employees who currently in ETI first year R1000 R500 R1,500
Employees who currently in ETI second year R500 R500 R1,000
Employees where ETI claims have been exhausted R0 R500 R500
Employees between 30 years and 65 years who have never been eligible R0 R500 R500

Deferred tax payments (Provisional tax and PAYE)

Do you qualify for deferred tax payments?

“Any SME with an annual turnover of less than R100 million can defer their provisional tax and PAYE payments over the next four months”, said Bernice du Toit, Lulalend Financial Accountant.

Du Toit explained: “You’ll only pay a portion of your tax liability, and you won’t have to pay any penalties or interest when you pay the balance.”

Provisional tax

Here’s how this will affect your provisional tax payments:

  1. You can pay 15% of your total estimated taxable income for the tax year for your first payment. This is due from 1 April 2020 to 30 September 2020.
  2. You can pay 15%% of your tax payment for the second provisional tax payment. This is due between 1 April 2020 and 31 March 2021.

“To avoid interest, SMEs must pay the full tax liability, which comes to 35 in total, when they make their third provisional tax payment,” said Du Toit.

To qualify, SMEs must:

  • Have a gross income of R100 million or less
  • Be fully tax compliant

Here’s an example calculation from the National Treasury:

Provisional tax relief calculator for SMEs

Try our simple provisional tax relief calculator to estimate your payments.

PAYE

You can also defer 35% of your PAYE payments without any penalties.

Daniel said “SMEs can defer their PAYE liability, starting with the payment due on 7 May 2020 and ending with the payment due on 7 August 2020.”

“SMEs will need to pay the deferred tax liability to SARS in equal instalments over six months. The first payment must be made on 7 September 2020,” added Daniel.

The Ministry of Finance estimates this initiative will assist 75 000 SMMEs.

Additional tax measures

On 22 April, President Cyril Ramaphosa announced additional tax measures, including:

  • Four-month holiday for skills development levies
  • Fast-tracking VAT refunds
  • Three-month delay for filing and first payment of carbon tax

COVID-19 support resource for SMEs

For more information, here are a few resources

Editor’s note: This post was originally published on 6 April 2020 and has been updated based on new measures.

Lulalend is a proud Partner of the NSBC