Article by Centurion Chartered Accountant, Riaz Mohammed Alli CA(SA)
There are generous tax allowances and deductions that small businesses can take advantage of to improve cash flow and stay afloat. SARS grants generous tax allowances on buildings, machinery, furniture and fittings, leasehold improvements etc. Initially, at the beginning of the Covid lockdown, SARS allowed affected businesses to deter a percentage of their VAT and PAYE returns as well.
Chartered Accountants are equipped with the skills and knowledge and can assist by scrutinising your management accounts or financial statements and advising you on how to improve controls in your business and overall financial health of your business. For example by restructuring your business as a small business Corporation you can pay tax at a very affordable rate of 7% instead of a rate of 28%. To ascertain whether your business qualifies for small business tax ask yourself these questions:
> If you have answered YES to all the above questions, your business could be making massive Income Tax savings.
Other important benefits of a Small Business Corporation is that the depreciation rate is accelerated compared to other Companies. Chartered Accountants can advise owners / shareholders of business of the optimal mix to use between dividends and salaries to maximise shareholder wealth!
Covid 19 has done serious damage to the South African economy and business need to be tax savvy and maximise return on investment. As a result of many people not being able to travel, the 183-day exemption requirement has been reduced to 117 days for section 10, although the
60 consecutive day requirement remains intact. This is still for a given 12-month period. These changes relate to section 10(1)(o)(ii) of the Income Tax Act, which provides a tax exemption for residents who render services outside South Africa for more than 183 full days in a given 12-month period, of which 60 of those days need be continuous.
South African tax residents are taxed on their worldwide income but the first R1.25 million of foreign employment income is now exempt from tax liability, based on recent tax amendments. Any income earned above the threshold will then be taxed.This limit applies from 1 March 2020, and before that time, the entire portion of income for services rendered abroad was exempt.
In addition to the above tax guidance business should keep management accounts in place to monitor good working capital ratios, profitability, average stock holding, gross profit percentages and many other ratios to keep a consistent and stable growing business during these turbulent times!
