When we talk to small business entrepreneurs about their challenges, funding and access to markets are probably the top issues they mention, not the national budget! Their interest in the annual Budget, delivered by the Minister of Finance, is mostly limited to how red tape and taxes will impact business going forward.
Naturally, the Budget is about much more than taxes, it is also about spending priorities, including stimulating economic growth, which may create opportunities for small businesses.
As business advisers we are not tax specialists, but we do have a responsibility to know enough to guide our clients to the right solutions and resources. This is why the recent episode of the IBASA & EPI Webinar Series covered the topic “Tax & Other Implications of Budget 2019 — All you need to know to offer your small business clients up-to-date advice” with Mahomed Kamdar, tax expert at SAIPA, and Joseph Tshiwilowilo, Certified Business Adviser and IBASA’s partnerships and education executive.
Mahomed kicked the webinar off by reminding us that government is very committed to give small and micro business some tax relief. The three basic business tax regimes are a commitment from government to enable the small business to grow by reducing their tax liabilities.
Mahomed explained the tax options for “Companies”, “Small Business Corporations” (SBC) and “Micro Businesses” at hand of a table setting out the criteria for each. Below a summary of the requirements and relevant taxes impacting on the three business categories.
Even if a business adviser does not specialise in tax, it would be important to at least understand the implications of the tax options in the three categories above to ensure your clients do not make obvious mistakes that would increase their tax burden.
While the income tax rate for Companies, Close Corporations and Personal Service Companies remain 28%, Small Business Corporations benefit from being taxed differently.
For the financial year starting 1 April 2019, no change in the rate for SBCs were announced, as explained in the table below.
The tax rate for Micro Businesses was also not changed in the 2019 budget and is explained in the table below for each turnover category. It is important to note that Micro Businesses are taxed on their turnover and not taxable income, that is why it is sometimes referred to as “turnover tax”. It is ideal for very small businesses with a turnover of less than R1 million a year.
Mahomed also shared that it would be worthwhile for business advisers to be aware of Schedule 11 of the Income Tax Act. This schedule lists the various government grants available to business that are exempt from normal tax.
Joseph started off with the six fundamental prescripts on which the Budget is built, stating that the “2019 Budget was the most difficult one since the dawn of our 25-year-old democracy”.
Quoting Minister of Finance Mr Tito Mboweni saying that “it will not be easy”, Joseph listed the budget objectives as:
- Achieving a higher rate of economic growth;
- Increasing tax collection;
- Reasonable, affordable expenditure;
- Stabilising and reducing debt;
- Reconfiguring state-owned enterprises; and
- Managing the public sector wage bill.
Business advisors can give savvy advice
Echoing Mahomed’s plea to be informed of the tax regime, Joseph stressed that business advisors should have some tax knowledge or at least have a basic understanding of the following information to help them in giving clients savvy advice:
- Small Business Corporation (SBC) tax incentives & rebates;
- Implications of Turnover Tax for Micro Businesses;
- Usage of the Tax Guide as amended annually;
- Who qualifies to be registered as a provisional taxpayer;
- Treatment of dividends payable to Individuals and companies;
- Individuals and company allowable deductions; and
- Tax avoidance against tax e
He emphasised that business advisors should familiarise themselves annually with details in the Budget relating to their clients and that they should attend Tax Update Seminars each year.
It is clearly important for business advisers to at least understand the business impacts of the Budget and how it will affect taxpayers such as their clients who may benefit from understanding regarding tax thresholds, rebates, subsistence allowance for meals and Incidental costs.
Even though the details covered in the webinar were mainly about income tax, VAT and PAYE, Joseph reiterated that business advisors may also encounter challenges with Capital Gain Tax (CGT), Transfer Duty, Estate Duty, Donations Tax, Dividends Tax and Green Tax (Carbon Fuel Levy) in the cause of advising businesses. This is why business advisors need to stay informed on what is covered in Budget 2019.
He remarked that trusts are currently the main estate planning entity in South Africa. It is therefore also important that the business advisor have a good understanding of taxation treatment for trusts.
While business advisors are advised to attend CPD workshops on various tax topics, Joseph emphasised that it is important to know your limits and when to refer your client for expert tax advice.
An easy-to-read Budget 2019 Tax Guide, available n English, Afrikaans, IsiZulu, Sepedi, Sesotho, and Xitsonga, is available on the SARS website. << CLICK HERE >> to download the guide.
- The next IBASA-EPI Webinar, scheduled for 18 April 2019, will cover the important subject:
“Equipping yourself as BA in supporting shareholder-owners directors”.
<< CLICK HERE >> to register for the next episode in the IBASA & EPI Webinar Series.
- To view a recording of the last webinar, << CLICK HERE >>.