Small business tax: how to understand and manage your portfolio

1st June 2022

Tax can be confusing and scary if you’re not familiar with how it works. If you aren’t an accountant, navigating small business tax can seem like a foreign language. That said, it’s a crucial part of running a business and it needs to be done properly if you don’t want to land yourself in hot water. You don’t want tax season to come around when you haven’t got everything up to date – so let’s go through everything you need to prepare for that day.

What is the tax threshold for sole proprietors?

A sole proprietor is the term that’s used for businesses that have one owner. As the owner, you and your business are seen as the same legal entity. This means that you have to include your business’ profits in your personal income tax return and will be taxed according to the applicable personal income tax rate. 

The tax threshold for you and your business will then be the same as it would for just you. The South African Revenue Service (SARS) tax thresholds for the current tax year (1 March 2022 – 28 February 2023) are the following:

  • R91,250 if you are under 65 years old
  • R141,250 if you are between 65 and 74 years old
  • R157,900 if you are 75 years old and up

These tax thresholds mean that you will only pay income tax on amounts that exceed those above – this is called taxable income. For example, let’s say that you are 40 years old and qualify for the first threshold listed. If you earn R100,000 in the tax year, the taxable income will be R8,750. On the other hand, if you earn an amount below this threshold, you won’t pay income tax. Since a sole proprietor includes both you and your business, you’ll need to include both sets of income for this calculation.

The process is different if you’re registered with the CIPC

If you aren’t a sole proprietor, you’ll need to register your business with the Company and Intellectual Property Commission (CIPC). This needs to happen before you register your business with SARS as the CIPC automatically generates an income tax reference number for your business when you register with them. You can then use this reference number to register with SARS.

How to register your small business for SARS eFiling?

The next step to paying tax as a small business is to register it for eFiling with SARS. This will give you access to their online system where you can submit any tax-related documents and then pay any tax due. Making use of eFiling is a handy alternative to going into a SARS branch when you have so many things on your plate. Once you’ve finished the registration, you can submit the supporting documents in the easy-to-navigate system.

What you should know about filing small business tax

There are different types of tax that might apply to your business too. For example, a business that makes more than R1 million per year needs to register for Value Added Tax (VAT). You can also choose to register for VAT if you made more than R50,000 in the last 12 months. 

But small businesses that have a turnover of less than R1 million per year have another option: Turnover Tax. This is basically a much simpler system that you can pay instead of all the other types of business tax (and there sure is a lot!) Instead of a boatload of them to remember and remain compliant to, you can just focus on one form of tax that covers it all. The advantages of registering for turnover tax boil down to convenience and lower tax rates. But this only applies to businesses with an annual turnover of less than R1 million, so if you make more you unfortunately won’t qualify for it. 

We know that small business owners have a lot of responsibilities and it’s often difficult to juggle them all. If you don’t have a lot of time or experience at your disposal, you can also consider having an external tax advisor help get everything in order. 

It’s always a good idea to read up on topics like this to make sure you’re on the right track. One of the best places to double-check what you’re supposed to do is the SARS website. You’ll find up-to-date pages about many important tax questions, such as information about small business tax and VAT.

Useful tools for calculating your small business tax

To make the process easier, you can use some of the free online tax calculators available to give you an idea of how much you should be paying. The most popular tax calculators are from TaxTim, which has a personal income tax calculator that sole proprietors can use and another one for small business corporation (SBC) income tax for registered business owners. 

The only thing you need to do to operate these calculators is enter the tax year you want to check and the taxable income (for SBC tax) or the income before deductions (for personal income). The built-in tax tables will do the rest!

Tax season, here we come!

Running a small business is a brave venture – and concerns about tax shouldn’t slow you down. If you keep all of these points in mind and make sure that you’re tax-compliant along the way, tax season won’t have to be a scary experience. Good luck!

This content is for informational purposes only, you should not interpret any such information or other material as legal, tax, investment, financial, or other advice.