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Getting tax-savvy for your small business

Article provided by Simply

Has your upcoming tax return got you feeling a bit under pressure? Perhaps you are not sure where to start? We have drafted five quick tips to help your tax return go smoothly and avoid any sudden non-compliance. 

There are plenty of perks to owning your own business: you’re the boss, in charge of your own destiny, you decide when to take a holiday, you enjoy freedom and flexibility, find your own work-life balance, all while you get to do work you’re passionate about – and then be paid for it. Unfortunately, some factors are not nearly as enjoyable – like tax. The words tax, taxman, receiver and SARS are known to strike fear into the hearts of many an entrepreneur. After all, who enjoys preparing tax returns, and worse, being told you owe an amount to SARS you haven’t budgeted? 

Many small businesses are already struggling following the challenges of the last two years, and the thought of parting with any money seems unfathomable. Still, you must get tax filing right to avoid penalties or nasty surprises. SARS’ Strategic Plan for 2020/21 to 2024/25 also spells it out clearly – there will be increased levels of compliance, higher detection of those who don’t pay, and fines or penalties for those that don’t comply.” This means it is increasingly important to understand how to plan appropriately, and stay compliant. 

Luckily, with a bit of planning, you can avoid nasty tax surprises that may be lurking around the corner. Here are five tips to help your small business plan for tax season and ensure it goes as smoothly as possible. 

1. Plan for the worst and hope for the best. 

Few things are as stressful as having to suddenly pay over a sizeable provisional tax amount (or any other tax payment) out of the blue when your small business isn’t cash-flush. To avoid this, make sure you do a rough calculation monthly and set this amount aside into a separate “tax fund” account. For example, if your business is VAT registered, transfer the VAT portion of every invoice that’s paid into a different account so that the money is ready to be paid over every two months without affecting your regular business bank balance.

2. Don’t be afraid to ask for help

While being in the small business environment sees you wearing several hats at once, tax is one area you should consider handing to the professionals. You might be the best entrepreneur, but sometimes doing taxes simply needs the help of a tax practitioner. Consider paying for the services of a bookkeeper or accountant who specialises in tax and small businesses, which can also help with other tasks, like company registration, payslips and BEE certificates. This will help you immensely, especially when you hire more employees and/or service a larger industry. While this added expense might seem unnecessary when you are busy finding your own feet in the game, in the long run, it will pay off to have someone take care of your finances and assist you in avoiding penalties. 

3. Process all business-related expenses through your business

A business takes resources to run. Besides the time and materials needed to create your offering, there are also other everyday expenses, such as transport, office equipment, business entertainment, and an internet connection, to name a few. The good news is that you can put most business-related expenses through your business – in other words, you can pay for these using pre-tax revenue that flows in. SARS has many publications that can help you navigate what’s deductible and what’s not: a good place to start is their Small Business Tax section.

4. Keep your paperwork up to date

While we are moving more and more toward a paperless world in this digital age, it’s tempting to think that tax paperwork has fallen by the wayside. Unfortunately, to stay tax compliant, you still need to keep on top of certain forms of paperwork – even if these are digitally submitted. For example, you’ll need to submit an EMP201 every month, which can be done via eFiling and a VAT return every two months (if your business is VAT registered). Keeping supporting documents such as sales slips, invoices, receipts, bank deposit slips, and other documentation will help you manage your tax matters better and ensure that you remain tax compliant. 

5. Have a proper invoicing system

The best way to keep track of the money coming in and going out of your business is to have a proper invoicing system. These days, you can choose from a range of inexpensive or free web-based accounting tools – such as Freshbooks, Xero, PaySpace and Zoho. If you decide to use an external bookkeeper or accountant, they will also provide you with tools to simplify this process. 

Tax is just one side of your business you need to keep on top of as a small business owner to run a healthy company. Ensure that you stay on top of your tax return through proper planning and a good tax strategy, and the taxman won’t come knocking on your door unexpectedly. 

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