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UNDERSTANDING SARS: A BEGINNER’S GUIDE TO TAX COMPLIANCE FOR SMALL BUSINESSES

Article Written By Uaripfa Peter Nemukula, Chartered Business Accountant in Practice (CIBA – Chartered Institute of Business Accountants)

Navigating taxes can feel overwhelming for small business owners – especially when you’re juggling running operations, managing cash flow and ensuring compliance. But having a solid grasp of how SARS (South African Revenue Service) works means fewer surprises, fewer penalties, and better financial planning. This guide breaks down the basics of how tax works in South Africa, focusing on PAYE, VAT, Provisional Tax and more – as well as key deadlines and practical tips.

How Tax Works for Small Businesses in South Africa

Here are the main tax types a small business owner might need to know about:

1. PAYE (Pay-As-You-Earn)

  • This is the INCOME TAX that employers deduct from EMPLOYEES’ SALARIES.
  • If you have staff, you’re responsible for registering for PAYE, deducting the correct amount from each pay period, and paying it over to SARS.
  • Payments are typically due monthly, on or before the 7th of the month following the pay period.
  • You also need to submit EMP201 declarations to SARS (this is your monthly PAYE return).
  • At certain times of year (reconciliation – BI-ANNUALLY), you will need to reconcile what you withheld vs. what SARS expects. For example, for small businesses the EMP501 reconciliation is due at the end of October (interim) and end of May (final) for many employers.

2. VAT (Value-Added Tax)  

  • VAT is a tax on goods and services. If your business is a “vendor” (i.e. VAT registered), you must charge VAT on your sales (if they are “taxable supplies”) and can reclaim VAT paid on business expenses.
  • You MUST REGISTER FOR VAT if your business’s taxable turnover exceeds R1 million in a 12-month period.
  • You MAY ALSO REGISTER VOLUNTARILY if your turnover is more than R50 000 in 12 months.
  • Once registered, you need to submit a VAT return (VAT201) and make a necessary payment (or receive due refund after verification process that SARS may request). For many vendors, these are due every two months, before the 25th (or last business day of the month if registered for e-filing).

3. Provisional Tax (IRP6)

  • This is not a new tax – it’s a way of paying INCOME TAX IN ADVANCE, spread over the tax year, so you don’t hit SARS with a huge lump sum at the end.
  • Provisional taxpayers include: companies automatically, and individuals (e.g. sole proprietors, freelancers) who earn income beyond their salary.
  • It’s based on ESTIMATED TAXABLE INCOME. You estimate how much you’ll earn for the full year, pay in two (or optionally three) installments, and then reconcile when you do your annual return.
  • Deadlines:
  • First Payment: Within six months of the start of your tax year. For many businesses, this is around end of August (depending on how their year is structured).
  • Second Payment: No later than the end of the tax year (typically last business day of February for many businesses).
  • Third (optional) Top-up Payment: To correct any under-estimation. For many businesses, due by end September (or six months after year end, depending on financial year) if needed.
  • If you underpay your provisional tax by too much, SARS can charge penalties and interest.

4. Corporate Income Tax / Income Tax

  • Your business (if a registered company) MUST submit an annual company income tax return (ITR14).
  • For individuals who run a business as a sole proprietor or partnership, you’ll include business income on your personal tax return (ITR12).
  • The rate depends on your business structure: for Small Business Corporations (SBCs), there are special rules.
  • It is filed once a year
  • Depends on filing season / financial year: companies file ITR14, individuals file ITR12  

Practical Tips for Small Business Owners

Here are some actionable tips to help you stay tax-compliant and make your life easier:

1. Use SARS e-Filing

  • Register on SARS e-Filing if you haven’t already – it’s the most efficient way to file returns (IRP6, ITR, VAT, etc.)
  • Through e-Filing, you can estimate your provisional income, submit returns, and make necessary payments.

2. Forecast Your Income

  • Since provisional tax is based on estimates, try to do a REALISTIC FORECAST of your income and expenses for the year. Underestimating significantly can cost you penalties, while overestimating may make cash flow tight.
  • Review your estimates mid-year (before second provisional payment) and adjust if necessary.

3. Keep Good Records

  • Maintain clear records of all income (sales, freelancing, investments) and expenses (overheads, business costs).
  • Use accounting software (Xero, QuickBooks, etc.) to simplify tracking – makes your provisional tax calculations and annual returns much smoother.

4. Pay on Time

  • Missing deadlines for PAYE, VAT, or provisional tax can trigger interest and penalties.
  • Consider setting reminders well before key dates (e.g. in your calendar or accounting software).

5. Consider Cash Flow

  • Before provisional tax payments are “advance” payments, plan your cash flow to ensure you have enough liquidity when those due dates come around.
  • If your business is seasonal, you may need to save in “high months” to cover tax in “low months”.

6. Get Professional Help

  • As a small business owner, working with an ACCOUNTANT or TAX PRACTITIONER can save you time and reduce risk.
  • A professional can help you estimate your provisional tax, optimize your VAT strategy, and plan for deductions.

7. Stay Informed

  • SARS periodically updates rules, rates, and deadlines. For example, income tax rates changes.
  • Attend SARS webinars (they offer taxpayer education for small businesses) to keep up to date.

Why Compliance Matters

  • Avoid Penalties & Interest: Not paying or filing on time can cost you. Provisional tax under-payments can lead to penalties of up to 20% + interest.
  • Better Cash Flow Management: By paying tax in instalments (via provisional tax), you’re smoothing out your cash flow burden.
  • Build Credibility: Being tax-compliant boosts your reputation with suppliers, customers, and even financiers / investors.
  • Peace of Mind: Staying on top of your tax obligations means fewer surprises when SARS issues assessments.

In Conclusion:

Understanding how SARS works is essential for any small business owner. While taxes like PAYE, VAT, and provisional tax might seem complicated at first, breaking them down and planning proactively can make a big difference. Use the tools available (like e-Filing), forecast wisely, keep solid records, and don’t hesitate to lean on professional expertise when needed.

Complying with SARS isn’t just a legal requirement – it’s part of running a healthy, sustainable business.

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