Common SMME Tax Errors
31 October 2011
Posted by: Author: Steve Curr
Common SMME Tax Errors
In between answering the ‘phone, getting orders delivered,and struggling with cash flow, the smaller business often forget about tax—to its peril
Tax nightmares among owner-managed businesses and SMMEs are costly and time consuming, particularly relating to tax queries and disputes with SARS.By simply implementing key preventative administrative steps,business owners can actively avoid or at least reduce the risk of these tax mistakes from arising.
Mistake 1: Inaccurate accounting information
The accuracy of the underlying accounting information and supporting documentation is directly responsible for the integrity of a taxpayer’s income tax return.In the case of SMMEs, this integrity is often queried as a result of a lean accounting function and confusion in distinguishing between the financial affairs of the business owner and the business.
SARS tax auditors are first and foremost focused on testing the reliability of accounting books and records, by, for example, reviewing cash accounting records for unusually large or ad-hoc payments, on the basis that these often represent private expenses such as:
• Quantification and reporting of taxable fringe benefits provided to employees or directors. An example here includes the use of company owned cars, the use of assets, low / no interest loans,and the payment of employee debts.These cash-free benefits provided to employees /directors require monthly PAYE withholding tax as well as monthly / annual tax reporting to SARS.The failure to attend to these brings substantial penalties and interest to a business; and
• Low interest loans or even "no interest” lending advanced by a company to shareholders or related parties may attract Secondary Tax on Companies(STC) of 10% (or dividend withholding tax of 10% with effect from 1 April 2012).Recommended preventative steps Steps which a business owner could take to avoid the above:
• Ensure all employment-related expenditure is identified in the cash payments records and reported for payroll tax purposes;
• Taking professional advice in advance of entering into possibly complicated or unusual transactions; and
• Engage an external tax advisor to carry out a bi-annual PAYE/remuneration tax ‘health-check’, to ensure that all employment benefits are identified, quantified and reported for tax purposes
Source: By Steve Curr (Tax breaks)