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Thread: Various Questions about a CC and tax (Small business)

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    Cool Various Questions about a CC and tax (Small business)

    Hi there

    Ok, so my husband and i have just registered our CC after succesfully running our businesses for just over a year. Long overdue and also CIPRO took some time but its done now. So now we have to make a switch from Sole Prop to CC ito how we do things and tax. We are very good at what we do but are none the wiser when it comes to these legal/tax matters - we do have an accountant whom I am seeing this week, but would appreciate your imput too. Two minds are always better than one. I feel like I need a CC for Dummies handbook - LOL. This is what I have so far - please feel free to point in right direction/add. I dont need any professional services (as I have this already) - I am writing this because I want to understand more about what is going on when I do meet with my accountant.

    1. Bank accounts are open - pretty straight fw - change banking details and put CK no on invoice? Anywhere else apart from that and letterhead?
    2. Register for PAYE and UIF (we are already tax registered but as provisional payers). Also I believe the CC must be registered for tax? If you do know offhand which forms to use that will be appreciated.
    3. Change all debit orders over to new acc and change into name of CC.
    4. Tax experts - ok so I have paid my provisional tax for august 2010 and feb 2011. now the CC was registered on 11.04.2011 and the name was changed on 20.06.2011. Now logic tells me I will have to pay prov tax in August for March 2011 - 10.04.2011 but I will have to register for PAYE and UIF now and backpay from 11.04.2011 - present?
    5. We dont have any employees and we take drawings depending on how the business does. This varies from month to month. I know some people take set salaries but this wont work for us. I take it I/accountant will have to calculate tax/UIF every month on our drawings? Then how do I calculate CC tax as I believe that is calculated differently. Can I do this myself and can I pay SARS directly? (sorry if this is a duh question).
    6. We have one CC but two seperate sets of books. What we do is related but we prefer to keep it seperate. Another stupid question but am I right in understanding that we will work tax out by taking each "divisions" profit and adding them together. They are both part of 1 cc afterall?
    7. Mot veh fuel and insurance. To date we record our km's then work our personal and business. How will that work now? And how does a car allowance work?
    8. Benefits? How does this work - havent done any benefits to date? Maybe keep med aid etc seperate (sorry very dumb-dumb when it comes to this).
    9. I briefly spoke to the accountant - apparently we wont close our current books, we will just change the info over to the CC info and then of course bring in the correct bank accounts. I assume this is in order.

    Ok that is a mouthful.
    Thanks so much to anyone who will take the time to read through this hoo-hah and help a padawan in need.
    Bon

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    Ok, one more question about Vat. We are not Vat registered. Our turnover is approx 300k - 500k pa (might even be more but i wont say more than a mil which I believe is the new threshold - anyway it fluctuates every month). Our clients are Vat registered, we are in the service industry (design) and we have very few suppliers. Advice?

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    Site Caretaker Dave A's Avatar
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    Quote Originally Posted by belladancer View Post
    Ok, one more question about Vat. We are not Vat registered. Our turnover is approx 300k - 500k pa (might even be more but i wont say more than a mil which I believe is the new threshold - anyway it fluctuates every month). Our clients are Vat registered, we are in the service industry (design) and we have very few suppliers. Advice?
    Being in the service industry with low claimable inputs, and as long as it doesn't harm your relationship with your clients, it's probably best to avoid getting VAT registered while you can.
    The trouble with opportunity is it normally comes dressed up as work.

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    I'll take a stab at answering your 5th question:

    I suppose you could just draw against a loan account and then at the end of the year declare dividends sufficent enought to pay the loan accounts. In this case you would not pay UIF or PAYE, but the company would pay STC on the dividends declared and Income tax on the profits before deducting the dividends.

    However I would suggest that you do make yourselves employees of the new company. You should try and separate yourselves from this newly created entity - the company. I know you "are" the company in the sense that you do everything, but from an accounting point of view try and keep it separate. Provide yourself with payslips and do all the necessary deductions just like you would if you were paying someone else. You can always reduce salary payments in poor months and increase them in good months. In fact you don't have to physically pay the salary. Just transfer the amount to a loan account until the cash becomes available to actually pay you. Here are some advantages of doing it this way:

    - Its a simple, straight forward and common way of doing it. This makes answering queries less complicated.
    - Payslips give you a history of earnings which makes getting personal loans from the bank in the future much easier.
    - If you pay (and you should) UIF and Workmans Compensation, you get the benefits of this should anything go wrong in the future.
    - It becomes simpler to employ people down the line should you expand as the systems are already in place.
    - It gives you a better idea of what your actual business costs are. You should include salary costs as these are significant and the whole reason you are in business anyway.

    The company tax is based on the profit it makes after all expenses are deducted (including salaries but not "drawings").

    You can pay UIF, PAYE and Income tax directly using SARS Efiling. Its a very good online system, but you may need to familiarise yourself with the returns that need to be made each month / every 6 months and annually.

    Hope that helps a bit.

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    Platinum Member sterne.law@gmail.com's Avatar
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    Paying yourselves salaries may have tax benefits. Any profit any cc i staxed but not all salary is taxed and the rate is lower. Eg if you make R15 000 profit a month, the tax is about R4000. But if you each draw a salry of R7500, the tax on that is miniscule. You suddenly save about R3000

    Vehicle expenses - will probably find it easier, at this stage, to run all costs through the cc, rather than car allowances. (the personla usage will be a taxable benefit)
    The cc profits will be taxed as one.
    benefits will be part of salary packages and taxed accordingly.
    VAT registering is difficult - some companys feel more confident doing business with a registered entity. the test is to calculate how much VAT you pay, as this could be reclaimed and thus reduce your running cost. If there is substantial rent and perhaps leases you may find it beneficial to register. the down side may be that existing clients who are not registered will either be paying more or you will be making less off them in order to maintain the pricing.
    Anthony Sterne

    www.acumenholdings.co.za
    DISCLAIMER The above is merely a comment in discussion form and an open public arena. It does not constitute a legal opinion or professional advice in any manner or form.

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    I am a real greeny! We registered a CC in June, 2009. My husband was the Sole Prop. until then and was registered for VAT in his earthmoving business. I do his books but am also a teacher. I was at Sars today registering for VAT for the CC but am under the impression it is a mission to change and was adviced to consider deregistering the CC as some advantages of having a CC no longer apply - ie if the CC gets into trouble the directors are responsible anyway. We don't have AFS done each year, but being a CC this is required from Cipro, which is a R4000 - R6000 expense annually. What advice can the Forum give a greeny on this matter?

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    Hi Lorraine

    That is a common question and not always easily answered.

    The sole prop is simple, has lower (if any) accounting fees, is cheap to run and very little bureaucracy involved. It does however mean that if the business fails or someone successfully sues the business, you will most likely lose all your personal assets as well. It also makes it difficult to sell this type of business as the buyer has difficulty in separating your personal costs from those of the business. Tax can also get complicated such as when you sell some personal items, you will most likely be expected to charge VAT on them, as you (or rather your husband) is VAT registered. SARS doesn't care if its part of your business or not as they see you as the business.

    The company (or cc) route does cost more. But your accountant can ensure you pay the correct taxes and help you make sure the accounts are in fact correct which can be important when you think you might be making profits but aren't. You the owners are protected to a large degree if the company fails or is sued. There are some situations where you (directors) might be personally liable but you will generally have to had been trading recklessly. The exception is SARS who will attack you for any money they deem owed to them. I don't really agree with the comment that directors aren't protected to some degree. It also makes the business easier to sell should you ever want to and it creates an impression of professionalism which is useful for marketing. If you should ever want to expand and bring on partners then you will have to be a company.

    In summary it comes down to how serious and I suppose profitable your business is. If you're scraping through on your own and just making enough to pay your own way then stay as a sole prop. If your plan is to grow and thrive, then the company is the better route to go.

    Just my view.

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    Cheers!

    Hi Guys

    Thanks for the help - its slowly making sense. Having my meeting with the accountant tomorrow - she seems really switched on and has also mentioned the things above.

    Wish me luck!

    Ill be back (Arnold voice) with more questions - dun dun dun! (eerie music)

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