CORPORATE TAXATION FAQ'S
Q: When must an entity register as a taxpayer?
Once a company or close corporation is registered with CIPC (South African Companies and Intellectual Property Commission) it is required to register as a taxpayer with SARS (South Africa Revenue Service). An entity needs to open a local bank account before it is able to register, as SARS requires proof of this bank account for the application.
Q: How often must an entity render provisional tax returns?
Any company and close corporation is liable to be a provisional taxpayer. Provisional tax is payable twice in a tax year. The first payment is due 6 months before the year-end and the second payment is due on year-end. A taxpayer can however choose to make an additional third provisional tax payment to reduce the liability of interest levied on the underestimation of provisional tax. The payment must be made within seven months after a February year-end and six months for other year-ends. The provisional tax will be underestimated if the taxpayer's estimated taxable income is less that 90% of the actual taxable income (after offsetting the assessed loss carried forward). SARS has abolished the submission of manual IRP6 returns and all provisional returns have to be submitted via SARS e-filing.
Q: What are the requirements for submission of financials to SARS?
The annual tax return for a company or close corporation is due one year after the year-end. The return is the declaration of the assets, liabilities, income and expenses which are extracted from the financial statements. The taxable income is calculated after certain adjustments e.g. allowance and provisions. Capital gains tax (CGT) will be applicable if the company or close corporation sold assets. The capital gains tax is calculated on 80% of the gain. The gain is calculated as: proceeds less the base cost.
Q: When will SARS issue an assessment?
As soon as the tax return is processed by SARS it will issue an IT34 assessment which will show the taxable income or assessed loss. The assessment will also indicate an amount of tax payable or refundable. It is important to compare the tax calculation of the IT14 return with the assessment, to confirm that the assessment is correct. If the assessment is incorrect the taxpayer has the right to object.
Q: What is the procedure if SARS makes a mistake?
A taxpayer can object within 30 days after the first date on the assessment. Notice of Objection is made via eFiling. SARS has 60 calendar days to process the Notice of Objection and provide a decision. If it is declined, a taxpayer can appeal to the decision within 30 days.
Q: Is my business able to acquire tax clearance from SARS?
South Africans can request their tax clearance certificate online. South Africans are able to:
SARS has implemented the SARS e-filing system to ease the burden of record keeping and electronic payments. Payments for the various taxes, penalties and interest can be made via SARS e-filing.
Q: Is it important to keep the static details of the entity up to date with SARS?
It is important to update the records such as postal addresses, public officer and bank details with SARS in order to avoid issues such as refunds paid into incorrect bank account and vital correspondence not reaching the taxpayer. SARS will only update bank details if the details are confirmed by an original stamped bank statement, certified copy of director/member's identity document and proof of registration of the entity CoR14.3 or CK2.
Once a company or close corporation is registered with CIPC (South African Companies and Intellectual Property Commission) it is required to register as a taxpayer with SARS (South Africa Revenue Service). An entity needs to open a local bank account before it is able to register, as SARS requires proof of this bank account for the application.
Q: How often must an entity render provisional tax returns?
Any company and close corporation is liable to be a provisional taxpayer. Provisional tax is payable twice in a tax year. The first payment is due 6 months before the year-end and the second payment is due on year-end. A taxpayer can however choose to make an additional third provisional tax payment to reduce the liability of interest levied on the underestimation of provisional tax. The payment must be made within seven months after a February year-end and six months for other year-ends. The provisional tax will be underestimated if the taxpayer's estimated taxable income is less that 90% of the actual taxable income (after offsetting the assessed loss carried forward). SARS has abolished the submission of manual IRP6 returns and all provisional returns have to be submitted via SARS e-filing.
Q: What are the requirements for submission of financials to SARS?
The annual tax return for a company or close corporation is due one year after the year-end. The return is the declaration of the assets, liabilities, income and expenses which are extracted from the financial statements. The taxable income is calculated after certain adjustments e.g. allowance and provisions. Capital gains tax (CGT) will be applicable if the company or close corporation sold assets. The capital gains tax is calculated on 80% of the gain. The gain is calculated as: proceeds less the base cost.
Q: When will SARS issue an assessment?
As soon as the tax return is processed by SARS it will issue an IT34 assessment which will show the taxable income or assessed loss. The assessment will also indicate an amount of tax payable or refundable. It is important to compare the tax calculation of the IT14 return with the assessment, to confirm that the assessment is correct. If the assessment is incorrect the taxpayer has the right to object.
Q: What is the procedure if SARS makes a mistake?
A taxpayer can object within 30 days after the first date on the assessment. Notice of Objection is made via eFiling. SARS has 60 calendar days to process the Notice of Objection and provide a decision. If it is declined, a taxpayer can appeal to the decision within 30 days.
Q: Is my business able to acquire tax clearance from SARS?
South Africans can request their tax clearance certificate online. South Africans are able to:
- Request their Tax Compliance Status online via eFiling. This will include a unique PIN which they can provide to a third party who is able to verify their tax compliance status either via eFiling or at a SARS branch;
- Print a Tax Clearance Certificate (TCC) via eFiling if their tax compliance status request is processed and they are tax compliant;
- Request their Tax compliance status via a SARS branch and receive a PIN or if required request a printed TCC where the SARS agent will be able to print or email the TCS PIN or TCC to them.
SARS has implemented the SARS e-filing system to ease the burden of record keeping and electronic payments. Payments for the various taxes, penalties and interest can be made via SARS e-filing.
Q: Is it important to keep the static details of the entity up to date with SARS?
It is important to update the records such as postal addresses, public officer and bank details with SARS in order to avoid issues such as refunds paid into incorrect bank account and vital correspondence not reaching the taxpayer. SARS will only update bank details if the details are confirmed by an original stamped bank statement, certified copy of director/member's identity document and proof of registration of the entity CoR14.3 or CK2.
AUDIT FAQ'S
Q: I have a very small business, do I need Annual Financial Statements?
Yes. All registered entities are required by law to prepare financial statements which report on the result of that financial year. The format of these may change depending on the size of the business as there are small business reporting formats which are less onerous than larger businesses.
Q: I have a (Pty) Ltd, do I still need to be audited?
Not necessarily. The new companies act allows for a review of financial statements as opposed to an audit if your company has a Public Interest Score (PIS) of less than 100.
Q: Are management accounts useful?
Yes. Having frequent management accounts allows you to know on a regular basis what is happening financially in your business and will assist with making educated decisions. For example, monthly management accounts can help with stock buying patterns so that you are not under or over stocked.
Yes. All registered entities are required by law to prepare financial statements which report on the result of that financial year. The format of these may change depending on the size of the business as there are small business reporting formats which are less onerous than larger businesses.
Q: I have a (Pty) Ltd, do I still need to be audited?
Not necessarily. The new companies act allows for a review of financial statements as opposed to an audit if your company has a Public Interest Score (PIS) of less than 100.
Q: Are management accounts useful?
Yes. Having frequent management accounts allows you to know on a regular basis what is happening financially in your business and will assist with making educated decisions. For example, monthly management accounts can help with stock buying patterns so that you are not under or over stocked.
PAYROLL FAQ'S
Q: Who needs to register for PAYE / SDL / UIF, and why do I need to register?
An individual does not need to file a tax return if their total salary for the year before tax is not more than R500 000. Check on SARS’ website: http://www.sars.gov.za/TaxTypes/PIT/Pages/Do-you-need-to-submit-a-return.aspx.
Q: How frequently must a business reconcile and report on its PAYE deductions?
- Every business needs to register for PAYE if it employs staff (including management staff). An employee includes anyone that receives remuneration and acts under the direction of the company. This includes full-time and part-time staff, certain sub-contractors, directors, owners, partners and sole traders.
- On the application for registration of PAYE / SDL / UIF the business has to indicate the Income Tax number of the business, registration number of the entity (if applicable), SETA code and the nature of the main activity of the business.
- On registration of PAYE the UIF details need to be registered with the Department of Labour.
- The SETA code is used to accredit a business for the courses that its employees attended in the development of their skills. This applies to those businesses that have payrolls of R500 000 (or greater). These businesses pay over 1% SDL (Skills Development Levy) on the leviable amount.
- Payment of UIF is made on a monthly basis, directly to SARS, and reporting on staff matters is done to the Department of Labour. The monthly UIF contribution consists of 1% by the company and 1% by the employee on defined salaries.
An individual does not need to file a tax return if their total salary for the year before tax is not more than R500 000. Check on SARS’ website: http://www.sars.gov.za/TaxTypes/PIT/Pages/Do-you-need-to-submit-a-return.aspx.
Q: How frequently must a business reconcile and report on its PAYE deductions?
- SARS has changed the reconciliation system from an annual to a bi-annual submission (EMP501) from the 2011 tax year. The EMP501 reconciliation has to be submitted before the IRP5 certificates can be issued by the business to its staff.
- SARS has implemented stringent requirements for the IRP5 certificates. Details such as addresses, tax numbers and bank details must be completed in full before this reconciliation can be submitted. SARS has abolished the manual submission of EMP501 reconciliations and implemented the PAYE software system.
- All businesses are required to register. The premium payable per year is calculated on the qualifying salaries and the nature of the business activities. Higher injury risk business (e.g. construction or mining) will pay higher premiums. For qualifying salaries and business categories, please click here .
- The Return of Earnings (declared on a WaS 8 document) needs to be rendered by 31 March each year and is payable on assessment. The form distinguishes between earnings of normal employees and those of the business owners.
ACCOUNTING FAQ'S
Q: Must every business keep accounting records?
The Income Tax Act places onerous responsibilities on businesses to maintain accurate accounting records. In addition, other legislation, like the Companies Act, places additional accounting requirements on the business. Therefore all businesses need to keep accurate and compliant accounting records.
Q: What are the accounting requirements of a trust?
A trust needs to maintain accounting records that underpin the intentions of the trust deed. These would differ from case to case - from simple records to highly complex ones.
Q: If a business trades as a partnership do individual accounting records need to be maintained for each partner?
A partnership is treated as one business entity with the resulting profit or loss at the end of the financial year being apportioned to each partner in their profit sharing ratios; this share then being reflected in each individual partner's tax return.
Q: Does the business need to register for VAT?
Any business, regardless of the entity that that business trades under, will be required to register for VAT if its turnover exceeds more than R1 million per annum. Businesses that have a turnover of below this threshold can volunteer to register for VAT.
Q: When would a business need to deregister as a VAT vendor and what consequences will this decision entail?
If a business's turnover falls below the R1 million per annum threshold it may choose to deregister as a VAT vendor. At this point in time the VAT that the business has claimed on its assets held at the time of deregistration would need to be repaid to SARS. If a business disposes of a portion of the business, a similar position may arise.
The Income Tax Act places onerous responsibilities on businesses to maintain accurate accounting records. In addition, other legislation, like the Companies Act, places additional accounting requirements on the business. Therefore all businesses need to keep accurate and compliant accounting records.
Q: What are the accounting requirements of a trust?
A trust needs to maintain accounting records that underpin the intentions of the trust deed. These would differ from case to case - from simple records to highly complex ones.
Q: If a business trades as a partnership do individual accounting records need to be maintained for each partner?
A partnership is treated as one business entity with the resulting profit or loss at the end of the financial year being apportioned to each partner in their profit sharing ratios; this share then being reflected in each individual partner's tax return.
Q: Does the business need to register for VAT?
Any business, regardless of the entity that that business trades under, will be required to register for VAT if its turnover exceeds more than R1 million per annum. Businesses that have a turnover of below this threshold can volunteer to register for VAT.
Q: When would a business need to deregister as a VAT vendor and what consequences will this decision entail?
If a business's turnover falls below the R1 million per annum threshold it may choose to deregister as a VAT vendor. At this point in time the VAT that the business has claimed on its assets held at the time of deregistration would need to be repaid to SARS. If a business disposes of a portion of the business, a similar position may arise.
CORPORATE SECRETARIAL FAQ'S
Q: What details are required on formation of a company?
At the inaugural shareholders meeting the shareholders of the company record the share capital (type of shares, value of each share, number of shares), select the year-end (the last day of the month that the company's financial year will end), the directors, the auditors, the public officer (this is the person who has been approved by the Commissioner and is the representative of the company), and the registered and postal addresses.
Q: What is the process of changing the company's auditor?
On the possible change of auditor the proposed auditor needs to communicate with the incumbent auditor to ensure there are no professional reasons which prevent the proposed change. Should clearance be given, the company representative needs to sign a resolution recording the change and lodge change with CIPC.
Q: Can I change the company's share capital?
The authorised share capital may be increased, decreased, split or consolidated to accommodate the structure required by the shareholders and directors of the company. The issued share capital may be changed by issuing new shares, buying back existing shares, splitting existing shares or consolidating existing shares.
Q: Can I change the company's year-end?
The current financial year-end may be changed, but can only be extended by six months or brought forward by six months. This cannot be done retrospectively - that is, after the year-end has already passed.
Q: What is Annual Return and how is it calculated?
Annual Return is a charge by CIPC for the maintenance of each company's statutory records held by it. This is due by the end of the month following the anniversary of the month that the company was formed and is calculated on the turnover of the company as follows:
At the inaugural shareholders meeting the shareholders of the company record the share capital (type of shares, value of each share, number of shares), select the year-end (the last day of the month that the company's financial year will end), the directors, the auditors, the public officer (this is the person who has been approved by the Commissioner and is the representative of the company), and the registered and postal addresses.
Q: What is the process of changing the company's auditor?
On the possible change of auditor the proposed auditor needs to communicate with the incumbent auditor to ensure there are no professional reasons which prevent the proposed change. Should clearance be given, the company representative needs to sign a resolution recording the change and lodge change with CIPC.
Q: Can I change the company's share capital?
The authorised share capital may be increased, decreased, split or consolidated to accommodate the structure required by the shareholders and directors of the company. The issued share capital may be changed by issuing new shares, buying back existing shares, splitting existing shares or consolidating existing shares.
Q: Can I change the company's year-end?
The current financial year-end may be changed, but can only be extended by six months or brought forward by six months. This cannot be done retrospectively - that is, after the year-end has already passed.
Q: What is Annual Return and how is it calculated?
Annual Return is a charge by CIPC for the maintenance of each company's statutory records held by it. This is due by the end of the month following the anniversary of the month that the company was formed and is calculated on the turnover of the company as follows:
- For a company with a turnover of less than R10 million - R450.00
- For a company with a turnover of more than R10 million but less than R50 million - R2 500.00
- For a company with a turnover of more than R50 million - R4 000.00