Tax and legal aspects for small business in South Africa
Currently, small businesses both formal and informal are the biggest employers in South Africa. Entrepreneurship has great potential to help lift people from poverty. South Africa’s blood runs with an entrepreneurial spirit and we are well known for our innovation and inventiveness. Some of the better-known South African inventions include The CAT scan, The Kreepy- Krauly, Q20 and Pratley putty amongst others https://www.sagoodnews.co.za/top-10-south-african-inventions/
While many people would love to own their own business, finance is an overriding issue, there are also other legal considerations. It is important to find good service providers to become compliant with all legal regulations
Below are the main options about the form your enterprise will take and the bodies with which you need to register
Sole Proprietor:
This is the simplest form also called “Sole Trader” This is suitable if you work this option includes enterprises where there are from 2 to 20 partners where each contributes to the business, and these terms are agreed to. They may be financially otherwise.
Company or Pty Ltd.
This is where the company is registered as a legal entity separate from the owners, where the company has its own legal liability. In this case, should the company fail the owners will not risk losing all their assets. All these entities need to be registered with the CIPC
Financial Intelligence Centre Act (FICA):
There are protocols in place to prevent money laundering In South Africa this is called FICA. The act covers requirements for banks, brokers, attorneys and other financial institutions. This includes insurance companies. Customers are obliged to provide documents before the services can be provided. Small businesses are also required to adhere to these regulations to avoid any legal problems later on.
It is a good idea to speak to a professional with regard to registering your business with SARS and all the other requirements. All businesses need to register with SARS regardless of size. Companies or PTY LTD businesses are automatically registered
CIPC registration Companies and Intellectual Property Commission.
All Pty Ltds must register with the CIPC http://www.cipc.co.za/za/ this is a branch of the Department of trade and Industry. You will get assistance with Registration of companies and IP (Intellectual property). It is advisable to seek advice before selecting the type of legal entity your business will be. If Designs, trademarks patents/copyrights are part of your business’s IP (Intellectual property) these are administered by the CPIC. This registration covers any of your branding, inventions or artistic creations.
Industry Registration:
It is required of some industries they register with the relevant professional association or industry association. Hereby you become part of an association regulating any specific sector.
Labour laws and The Unemployment Insurance Fund (UIF):
When your small business grows and you find that you need to employ people, some certain levies and insurances need to be registered with and paid.
As an employer, you will need to be familiar with the Basic Conditions of Employment Act, as it governs the relationships between employers and their employees, about Working hours, Overtime, Leave and The processes to be followed if you need to dismiss an employee.
UIF
All employees must be registered for UIF. It takes 48-Hours to register; this insurance is to give short-term relief to employees when they are retrenched or become unemployed for other reasons such as illness or maternity leave. https://www.ufiling.co.za/uif/terms-and-conditions
PAYE
Pay as you earn has to be paid if an employee’s salary is over R 40000.00 P/A
COIDA. Compensation for occupational injuries and diseases
The Compensation for Occupational Injuries and Diseases Act (COIDA): or Workman’s compensation. All employees both casual and permanent must be registered with this fund. Employees pay an annual fee based on their earnings and risks. This fund protects employers from being sued in the case of accidents and injuries.
COIDA provides compensation in the case of disablement caused by accidents occurring in the course of employment, it also provides compensation when an employee dies as a result of an injury at work.
COIDA applies to all employees, including casual and full-time workers who, as a result of a workplace accident or disease, are injured, disabled, or killed. If a worker becomes ill, the employer needs to contact to the Department of Labour, and the employee must complete forms and make a statement to claim from the fund.
This insurance is taken for the case of accidents which occur not only in the “workplace” but those which happen in the course and scope of employment
So where a residence is also a place of work there are responsibilities on the company employing such a person? This person also carries responsibilities about their safety in the course and scope of their duties. If an accident occurs, however, in the course of such duties an employee would be entitled to compensation.
There are also guidelines in the Health and Safety Act about protective clothing, first aid equipment, fire safety equipment etc.
Health and Safety
Here two laws apply
Occupational Health and Safety Act OHSA, No. 85 of 1993
and
The mine health and safety act No. 29 of 1996
- The former refers to safety in the workplace and the other to the case of an employee becoming injured or developing an occupational disease for which they can be compensated. All injuries, including fatal ones, will be compensated. All employees regardless of the industry must be covered by this particular insurance. COIDA
- A workplace is defined in section 1 of the OHSA is any place where a person works or performs their duties. A person who is self-employed or is an employee and is acting in the course and scope of their employment, in a space which is also their home, this residence will constitute as a workplace as determined by the OHSA. An employer defined in section 1 of the OHSA is anyone who provides work in exchange for remuneration. An employee is a person who works for said employer in exchange for remuneration.
- Equipment such as computers, sewing machines and food mixers constitute machinery. Some regulations place responsibilities on the user of this machinery.
- Employees who are working from home would therefore be the user and will need to comply with safety regulations. If the machinery is owned by an employer then the employer is responsible for complying with the regulations.
- The responsibilities placed on an employer are qualified however as to be what is reasonably practicable. This is taken to include A) the scope and severity of the risk or hazard. B) How much is known about the hazard or risk C) Means of mitigating such risk D) Cost of mitigating the risk.
- The employer has to take steps that are reasonably practicable to comply. The employer will need to assess typical hazards to which employees may be exposed at home and to discuss these with the employee. It is not necessary to conduct a specific investigation but rather to identify generic hazards and request that the employee be mindful of such hazards some of the responsibility rests with the employees themselves. The employees must take reasonable care of their own health (section 14 of the OHSA.
- While the incident may take place at home, these must be investigated and found to have occurred in the course of a person’s employment.
- The employer must address issues such as Fatigue management, lighting, ventilation, equipment and the state of the building.
- All appropriate procedures and communications should be written and communicated to an employee who is working from their home with regard to possible risks
Skills Development Levy
If the annual payroll is more than R 500 000.00 then employers are required to pay 1% of an employee’s pay to the skills development levy and monies are directed to Sector Educational and Training Authorities (SETA’s). This fund finances training. The levy is paid by the employer and is not to be deducted from the employee’s pay.
Tax and VAT Registration:
As a sole proprietor or you are in a partnership, you have to register as a provisional taxpayer. You will need to register your business and yourself. Plus if you are employing staff you will need to deduct PAYE from their salaries.to pay to SARS.
VAT
If your business is likely to have a taxable turnover of over 1 million P/A it is mandatory to register for VAT. When you reach 1 million you will have to fill in a VAT101 Application to submit to your local SARS branch. You will have to register within 21 days of this milestone. A business can voluntarily register for VAT when turnover is less than 1 million but it must be over 50 000 in the previous 12 months. https://www.sars.gov.za/ClientSegments/Businesses/My-Bus-and-Tax/Pages/Register-and-Deregister-for-VAT.aspx
Turnover tax:
This is an easy way for a small business where the turnover is less than 1 million per year. This is based on taxable turnover. The system is available for sole proprietors, Close corporations, companies, partnerships and co-ops. This is the system to use when you do not select to register for VAT, provisional tax, capital gains tax, income tax, capital gains tax, secondary company tax and dividends tax. This way qualifying businesses pay a single tax, rather than complicate things with other taxes and paperwork.
Conclusion
This all sounds daunting, running your own business can be stressful and very hard work but do not be discouraged the rewards are great.
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