Taxpayer education and the cost of tax compliance remain significant challenges for small and medium-sized enterprises (SMEs), which in their early stages of business often survive from month to month.
With tax filing season under way, small businesses need to ensure they have sufficient cash flow to make the necessary provisional tax and assessed tax payments.
Not having enough working capital is the biggest concern for small businesses wanting to remain tax compliant. It is tempting to use money owed to the South African Revenue Service (Sars) to bridge shortfalls between invoicing clients and receiving payments, but this is not advised. Proper financial preparation needs to be put in place.
SMEs, like all businesses, need to comply in full with their tax obligations.
Fintech can improve SME tax compliance. By automating the administrative work needed for tax returns, businesses find it easier to stay on top of the requirements put forward by Sars.
Here is some advice on how to remain tax compliant:
* Register your business. Failing to register with Sars can have a negative impact on obtaining financing, overdraft facilities and business credit. Failing to register your business can have severe legal implications. It is best to stay on the right side of the law.
* Know your deadlines. To avoid penalties, small businesses need to ensure that their tax payments and tax returns are submitted on time. Sars charges a penalty of 10 percent on late payments, which adds up over time.
* Type of tax. The size of your company and its annual turnover determine whether you are liable for value-added tax (VAT), income tax or Pay-As-You-Earn (PAYE) tax. The Sars website has a comprehensive breakdown of what types of tax SMEs are accountable for.
* Supporting documents. Collate all supporting documents for income earned and expenses claimed. It is recommended that SMEs keep hard copies and electronic versions of all documentation for a minimum of five years.
* Know what you can deduct. Be aware of the rebates available to your business. This is company- and industry-specific and ensures that you don’t pay more tax than you need to.
* Account for VAT. SMEs with an annual turnover of R1 million or more are required to pay VAT to Sars on a monthly or bi-monthly basis. Companies should consider using short-term financing from digital lenders when cash flow is a concern to settle VAT bills.
* Introduce cloud accounting. There are many apps and tools that simplify and automate tax compliance. Payroll apps manage PAYE for your employees, and receipt management apps are available for tracking expenses and obtaining VAT refunds.