Tax considerations to move your business forward in 2021

As with all things small – such as a puppy, a baby or even your new business – at some point what once start off as something small, eventually grow up and mature into a stage where most of its characteristics are now formed. ‘Raising’ it becomes much easier, right? Wrong!

As the last year has proven, working on your business takes tremendous planning. That includes planning for any event. Remember that you can plan for the inevitable, and the obvious, such as tax. Taxes are one of the largest expenses any business faces. Learning how to mitigate any tax risks as part of your financial year end planning will set any business up for success.

Let’s have a look at five tax-related considerations you’d need to pay attention to after you have established many of the initial tax parameters to keep your business up and running efficiently, while saving every business owner time and money.

1. Provisional tax

For most businesses, the second provisional tax deadline for the 2021 tax year is just a few dreaded weeks away. Provisional tax is not a separate tax, but a method to pay your income tax liability in advance. By ensuring that your provisional tax estimates and payments are accurate, and on time, your business will enjoy cashflow benefits. Failing to pay your provisional tax on time, and accurately, could leave your business with a large tax debt on assessment, as well as penalties and interest levied by SARS.

2. VAT

Many new business owners fail to realise that they may be required to register as a VAT vendor in terms of the VAT Act. Once a business has made taxable supplies that exceeds R1 million during any 12-month period, it is required to register as a VAT vendor with SARS. When this threshold is reached, VAT must be levied on the supplies made to their clients. Failing to comply with this requirement may lead to outstanding taxes as well as penalties and interest charged by SARS, which is easily avoidable.

Businesses can register as a VAT vendor using the eFiling portal. Once registered your business can enjoy the benefit of claiming input tax against the VAT levied on the supplies made to your customers. Being a registered VAT vendor will also be advantageous should your business wish to apply for contracts. This is because it benefits clients when they can claim input tax on fees paid to suppliers. Businesses can also register voluntarily as a VAT vendor once you have made taxable supplies that exceeds R50 000 during the 12-month period, and enjoy the benefits.

3. Keep your business records up to date

Keeping your business records up to date will ensure you to reap the rewards during tax season. Up to date and real-time business records will give you a clear indication of the financial position of your business. This allows you to plan for your upcoming provisional tax payment and not get caught off guard by the tax bill you receive.

Updated business records will not only be beneficial during provisional tax season, but also during your VAT periods. Updated and accurate business records will ensure that you have valid tax invoices when input tax is claimed, thereby avoiding unnecessary SARS audits and potential penalties and interest for input tax incorrectly claimed.

4. Call on dedicated professional assistance

As a business owner, the last thing you’d like to keep you up at night is outstanding returns or taxes. Free up to focus by appointing a trusted and professional tax consultant or accountant to assist your business in filing tax returns on time and accurately. This will avoid making costly mistakes and will benefit your business in the long run. 

5. Now that my business’ taxes are out of the way, how can I plan for myself?

Many business owners tend to focus solely on their business, which means their personal taxes fall behind. However, business owners fail to realise that their own personal tax planning can be as important as their business’ taxes. Business owners tend to draw money for their business as and when they require the cashflow but fail to realise that these withdrawals may be deemed to be dividends or remuneration for tax purposes.

Now that you have become aware of an unexpected tax bill and that no deadline ever waits for anyone, what can you do to limit your tax liability? One of the options available is to make use of a tax benefit by making additional contributions to your retirement fund. Contributions to a retirement fund is tax deductible up until 27.5% of the greater of an individual’s taxable income or remuneration but limited to R350 000. If you have not reached this limitation, it may be beneficial to contact your financial planner and make additional contributions to your retirement fund before the end of the tax year.

The pandemic has significantly impacted the way that we do business and has been taxing on many businesses. But you can ensure to avoid one additional uncertainty when you stay committed to tax planning as part of your financial year planning. Remaining compliant now remains more crucial than ever.