Tax 101 – Does the Small Business Rates Apply to Sole Proprietors

Tax 101 – Does the Small Business Rates Apply to Sole Proprietors

By Nikki Viljoen – Viljoen Consulting (Pty) Ltd.

Please note that this pertains to South African Tax  regulations and Best Practice requirements.

Now here is one for the history books – me writing about tax!

Firstly let it be understood, I am no expert on Tax and I am not a Tax Consultant.  That said, there are issues that even I understand on how we as SMME’s (small, medium, micro  enterprises) can save ourselves some money.

Where-ever we go, we hear people talking about how the tax man is messing with us, how our businesses are being ‘strangled’ by the tax man.  How difficult it is for the small business owner to survive because of the taxes and how Government should assist the SMME.

Well to be quite honest, every year I see evidence of just that!  Government relaxing criteria on the SMME, SARS relaxing tax for the SMME.  What I don’t see, is the SMME taking advantage of what has been offered. Perhaps it is just easier to moan and groan and blame someone else for our misfortune or the fact that we often don’t think about what we are doing.

Small businesses have preferential rates that are applicable, but one of the requirements is that the business must trade either as a (Pty) company or as a Close Corporation in order to qualify.

Now already I can see the eyes moving heaven ward.  Think about it for a moment.  If your company is trading as a Sole Proprietor and not registered as a company, how is SARS expected to know if your personal account is being used for a legitimate business or if on the face of it you have ‘created’ a business – which runs through your personal account, in order to claim the preferential rates?  Come on now be fair – registering your business, tells SARS that yours is a legitimate business.

As a registered business, SARS is now able to award you the preferential rates.  This means that instead of paying maximum of 42% as an individual or Sole Proprietor, you as a registered Close Corporation or Private Company yget to pay a maximum of 28%.  The reality of this is a saving of 14% on your bottom line and I am sure that you will agree with me that that is not to be sniffed at.

Now I can hear all of you saying, “yes, but now I am paying 42% as an individual and 28% as a business!”  Well not really hey, especially if you are doing your books correctly!

Firstly, you should be claiming all of the expenses and allowances that you are entitled to, through your business.  This should leave you in your personal capacity, with only the personal expenses and incidentals that you cannot claim through your business and then this should form the ‘salary’ that your business pays you on a monthly basis.  Now here comes the interesting part – if your ‘salary’ is less than the minimum, then you don’t pay tax as an individual at all.

So I urge you as SMME’s to go and register your business, then register your business as an employer and employ yourself.  Following the rules and the guidelines, will mean huge savings in taxes.  

Huge savings in taxes will also increase your productivity too!  Why increased productivity you may ask?  Well that’s a simple one to answer – you see all the time that you used to spend moaning and groaning about how badly the tax man is treating you can now be used to sell more product or your services.

The bottom line of course is that you – yes you – need to change your mindset and work with the system.  You will find it far more rewarding than the constant butting your head against a brick wall that you all seem hell bent on doing.

Nikki is an Internal Auditor and Business Administration Specialist who can be contacted on 083 702 8849 or nikki@viljoenconsulting.co.za or www.viljoenconsulting.co.za