If you own a business the Income Tax Act says that you must register yourself as a provisional taxpayer. In other words, any person who operates as a sole trader, partner in a partnership, member of a CC and director of a company needs to register as a provisional taxpayer.

Sole traders and partnerships need only register in the name of the sole trader or of the partners because the law does not make a distinction between the debts and assets of the people who own the business and the debts and assets of the business.

Close corporations (CC) and companies must be registered in the name of the CC or company. (The members of a CC, and the shareholders and the directors of a company still have to pay their own personal tax, so they would also be individually registered as taxpayers.) (See Types of businesses)

The CIPC (Companies and Intellectual Property Commission) controls the registration of companies. A Company will automatically be registered as a taxpayer when CIPC informs SARS of the registration of the company. A sole trader must register, but a Company will automatically be registered.

EXAMPLE

Lena Jacobs and Susan Smith own a business called KwikSave. KwikSave is a partnership. When they register for income tax, they would each have to register as taxpayers in their own names. If KwikSave was a CC, then they would register the business as a taxpayer, in the name of KwikSave CC.

Individuals who are provisional taxpayers (the sole trader, partners, members and directors) must submit a provisional tax return twice a year. If a payment is due, the first provisional tax is paid before the 31st August and the second on or before 28/29th of February of each year.

IRP 6 returns are done through SARS e-Filing. Taxpayers can pay through a bank by using the account details on the IRP6 Provisional Returns, or through the SARS e-Filing service. Go to www.sarsefiling.co.za or www.sars.co.za for more information. The reference and account details must reflect on the IRP6 and must be used when making the payment.

A sole trader or partner calculates the tax to pay by taking her or his income and subtracting all the money spent on the business. Business expenses are things like:

• Money spent on buying whatever you need to run the business
• Rent for the place where you run the business
• Water and electricity
• Transport costs
• Salaries and wages for employees and casuals
• Money paid for compensation for occupational injuries and diseases
• Money you pay someone to help you with the books for the business
• Bank charges, if you have opened a bank account for the business

CCs and companies pay tax on the income brought into the business, after the expenses of running the business have been deducted. One of the expenses that a CC or company can subtract is the salaries paid to members or directors. Members of CCs and directors of companies cannot subtract the business’s expenses from their own salaries. The CC or company will subtract these expenses when it pays CC or company tax.

The Income Tax Act specifies that all expenses incurred in the production of income must be deducted. These are some of the things that can be deducted:

• If people buy on credit and they do not pay you, this is called a ‘bad debt’. Bad debts can be subtracted from the amount of income on which you can be taxed
• If you repair your business premises, these costs can be subtracted. You cannot subtract the cost of improving your premises
• If the business is run from home, then you work out the percentage of floor space the business takes up and subtract that percentage from costs such as electricity and water; rates; repairs and so on.

EXAMPLE

Sara runs a sewing business from her 3-roomed house. She uses about one third of one of the three rooms, which is 10% of the floor space of the house. Sara sold R50 000 worth of clothes and duvets during the year. From this amount, she can deduct:

• All the costs of her materials and the repairs to her sewing machine which is an asset to her business
• The money she pays her sister to help her sell clothes
• Taxi fare to town to buy materials
• Cost of tea and milk she serves to her clients, plus cleaning materials for her work space
• 10% of water, electricity and rates
• 10% of the cost of repairing the roof and broken window

Even if the directors or members are provisional taxpayers, PAYE must still be deducted every month.

It is complicated to work out tax. The local SARS will help people to fill in their tax forms. A CC or company should ask an accountant to help with its tax.

ASSESSMENT

Once a year all taxpayers have to submit an income tax return. On this return, the taxpayer must indicate all income and deductions. SARS will then determine what the final income tax payable is. This is called an Assessment. On the assessment, SARS will consolidate all provisional tax paid as well as tax credits and PAYE. The difference between what was paid through provisional tax etc, and the final amount will show as the result of the assessment, If not enough tax was paid the taxpayer must pay the difference to SARS. If there was an overpayment SARS must refund the taxpayer.