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Individual vs Company Tax

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A presentation given to the Xtraordinary Women in Business Network in Blouberg on 18 April 2013 by Chris Farquharson, Chartered Account and owner of True North Accounting.

TOPIC: Sole Proprietor vs. Pty: Legal meets Finance

So, they say – “Rome was not built in a day” and that is certainly true for any business. Most small businesses start off as sole proprietorships or even partnerships, simply in order to save costs. Some on the other hand because the other options are often widely misunderstood.

Is there really a cost saving and if there is, is cost saving really worth the risk?

An insightful morning was spent with Nicolene Schoeman and Chris Farquharson as they shared the legal and financial practical business solutions to these challenges.

Published in: Education
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Individual vs Company Tax

  1. 1. The Financial Perspective
  2. 2. ž Sliding scalež Starts at zerož Equates to company rates at +_ R 480 000incomež Rebate R 12080.00
  3. 3. Income  tax  rates  for  natural  persons  and  special  trustsYear  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  258  751  –  358  110   53  096  +  30%  of  the  amount  above  258  750  358  111  –  500  940     82  904  +  35%  of  the  amount  above  358  110  500  941  –  638  600   132  894  +  38%  of  the  amount  above  500  940  638  601  and  above   185  205  +  40%  of  the  amount  above  638  600  
  4. 4. ž Two tiered tax systemž Initial tax at 28%ž Thereafter dividends tax is withheld at 15%of remaining reserves which makes thecombined effective tax rate 37.4%
  5. 5. ž Introduced by government to assist smallowner managed businesses.ž Applies to companies and CC’sž Preferential tax ratesž Increased capital asset write off allowancesž 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 areemployed full time in the SBC’s business)¡  Turnover must be under R 14 million (qualify)
  6. 6. ž  The first R 67 111 income is tax free.ž  The next band of income between R 67 111 andR 365 000 is taxed at 7%ž  The following band of income between R 365 001and R 550 000 is taxed at 21%ž  Thereafter the normal company rate of 28%appliesž  The effective tax saving between an ordinarycompany and an SBC alone is R 94 297
  7. 7. ž  Is literally ‘Value Added Tax’ and is a tax that is based on thevalue add to a product/service.ž  You have to charge vat on everything you sell and are able toclaim it back on everž  i.e. if you buy a good for R 57 (incl vat of R 7) and sell it for R114 (incl vat of R 14) you are adding  value of R 50 (net) andpaying vat of R 7 over on this.ž  The obligatory vat registration threshold is R 1 million perannum. (This works out to about R 82 000 per month)ž  You are allowed to voluntarily register for vat if your turnover isunder this.ž  It makes sense to register voluntarily if the bulk of your clientsare vat registered as they have no problem paying over the vatand it will mean that you will be able to claim your inputs.ž  The downside is that you will then need to process your accountsbi-monthly or at least every 4 months. (if you have beenprocessing them annually up to this point)
  8. 8. ž This is a withholding tax on the employee’ssalary.ž You are paying it over on their behalf.ž It is paid monthly.ž What is an employee for SARS purposesž Implications of non-deduction.
  9. 9. ž Paid over by employees and employers.ž It is based on Gross Salary (limited to R15 000) – 1% paid the by the employer and 1%by the employee.
  10. 10. ž This is 1% of gross salaries and is payable bythe employer.ž Note that it only applies if your total salarybill (including wages paid to directors) is inexcess of R 500 000 per annum.ž Then depending on the SETA that you belongto, you can look to send your employees fortraining offered by the SETA concerned.
  11. 11. ž Annual Paymentž Based on Gross Salariesž It varies depending on industryž For and professional services industry you arelooking at 0.13 of a percent – so with a salarybase of R 1 million, the cost for the year is R1 300.ž This is often overlooked, but invaluable ifyou do suffer a workplace injury.
  12. 12. ž Company setup costsž Processingž Financialsž Tax return costsž Personal assets and liabilities and personalreturn costs
  13. 13. ž Please note that the information provided isfor illustrative purposes only and cannot beconstrued as advice. Should you wish todiscuss the specifics of your situation you cancontact Chris:chris@truenorthaccounting.co.zaTel: 021 510 2350

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