Sole Proprietor vs. Pty by Chris Farquharson

The Financial Perspective

! Sliding scale

! Starts at zero

! Equates to company rates at +_ R 480 000

income

! Rebate R 12080.00

Income'tax'rates'for'natural'persons'and'special'trusts Year%of%assessment%ending%28%February%2014!

Taxable%income! Taxable%rates!

0!–!165!600! 18%!of!each!R1!

165!601!–!258!750! 29!808!+!25%!of!the!amount!above!165!600!


358!111!–!500!940!! 82!904!+!35%!of!the!amount!above!358!110!


638!601!and!above! 185!205!+!40%!of!the!amount!above!638!600!

! Two tiered tax system

! Initial tax at 28%

! Thereafter dividends tax is withheld at 15%

of remaining reserves which makes the

combined effective tax rate 37.4%

! Introduced by government to assist small

owner managed businesses.

! Applies to companies and CC’s

! Preferential tax rates

! Increased capital asset write off allowances

! In order to qualify

"  Must be the only CC or Pty held by each owner

"  The membership may only be natural persons

"  It cannot provide services of a personal nature

(unless 3 or more unconnected people are

employed full time in the SBC’s business)

"  Turnover must be under R 14 million (qualify)

! The first R 67 111 income is tax free.

! The next band of income between R 67 111 and

R 365 000 is taxed at 7%

! The following band of income between R 365 001

and R 550 000 is taxed at 21%

! Thereafter the normal company rate of 28%

applies

! The effective tax saving between an ordinary

company and an SBC alone is R 94 297

!  Is literally ‘Value Added Tax’ and is a tax that is based on the

value add to a product/service.

!  You have to charge vat on everything you sell and are able to

claim it back on ever

!  i.e. if you buy a good for R 57 (incl vat of R 7) and sell it for R

114 (incl vat of R 14) you are adding value of R 50 (net) and

paying vat of R 7 over on this.

!  The obligatory vat registration threshold is R 1 million per

annum. (This works out to about R 82 000 per month)

!  You are allowed to voluntarily register for vat if your turnover is

under this.

!  It makes sense to register voluntarily if the bulk of your clients

are vat registered as they have no problem paying over the vat

and it will mean that you will be able to claim your inputs.

!  The downside is that you will then need to process your accounts

bi-monthly or at least every 4 months. (if you have been

processing them annually up to this point)

! This is a withholding tax on the employee’s

salary.

! You are paying it over on their behalf.

! It is paid monthly.

! What is an employee for SARS purposes

! Implications of non-deduction.

! Paid over by employees and employers.

! It is based on Gross Salary (limited to R

15 000) – 1% paid the by the employer and 1%

by the employee.

! This is 1% of gross salaries and is payable by

the employer.

! Note that it only applies if your total salary

bill (including wages paid to directors) is in

excess of R 500 000 per annum.

! Then depending on the SETA that you belong

to, you can look to send your employees for

training offered by the SETA concerned.

! Annual Payment

! Based on Gross Salaries

! It varies depending on industry

! For and professional services industry you are

looking at 0.13 of a percent – so with a salary

base of R 1 million, the cost for the year is R

1 300.

! This is often overlooked, but invaluable if

you do suffer a workplace injury.

! Company setup costs

! Processing

! Financials

! Tax return costs

! Personal assets and liabilities and personal

return costs

! Please note that the information provided is

for illustrative purposes only and cannot be

construed as advice. Should you wish to

discuss the specifics of your situation you can

contact Chris:

[email protected]

Tel: 021 510 2350

Business

Sole Proprietor vs. Pty by Chris Farquharson