Munya Duvera
2 minute read
17 Jul 2015
8:00 am

You, tax and your business

Munya Duvera

As unpopular as tax may be, it is an integral part of our social system and cannot be avoided, nor misunderstood.

Image courtesy of Stock.xchnge

The key to a small business therefore is understanding; the more you understand, the easier it will become to manage. There are many different types of taxes a business owner must deal with but the first and probably the most common tax type is income tax.

Income tax

First, I’ll look at income tax in relation to a small business which is incorporated as a CC or Pty. An entrepreneur needs to understand that there are two different types of income tax: business income tax and individual income tax.

Since many entrepreneurs are owner-operators, they mistakenly think the tax they pay for their business covers them individually as well. These two are separate and must be dealt with separately. When your business makes a profit, the business must pay tax and when you, the entrepreneur, pay yourself a salary, you must pay tax.

The challenge most entrepreneurs face is that the business may not make enough money yet for them to draw a salary for themselves, so they draw from the business account the amount they need.

This may seem convenient, but it causes many problems in the future when preparing tax returns and financial statements. The easiest way to deal with income tax is to manage separately personnel funds from the funds earned and used for the business.

Have separate bank accounts – one that handles revenue and expenses for the business and a personnel account which you use to pay yourself and later others a salary. Secondly, an entrepreneur’s individual income tax is paid at the same time and in the same manner as every other employee and the amount is dependent on the salary earned over the past twelve months.

Provisional tax

Then there is provisional tax which is actually part of business income tax. It was introduced to help businesses manage their income tax payment. Sars had noticed how burdensome it got for a business to make one lump sum payment of income tax at the end of twelve months. So they decided to halve the payments into a six monthly submission by introducing provisional tax.

Finally, the question all entrepreneurs ask: how much business income tax must I pay? The first answer is that you only pay business income tax when the business makes a profit.

Secondly, if you do make a profit, then according to Sars, a Small Business Corporation (SBC) pays income tax at a percentage of certain profit amounts it made. You can find these percentages here.

Munya Duvera (duvera@duveraanalytics.co.za) is CEO of Duvera Analytics.