A few questions about CC VS Sole prop

[Pap_sak]

Firstly thanks for a great forum – seems like there are some guys and gals that really know their stuff!

I have a couple of questions and was wondering if anyone could help me in choosing the correct path to take.

I own a sport/fishing shop in the small town of Malmesbury in the Western Cape. I started the shop at the beginning of last year in less than ideal shop – zero walk by trade, but after a while word of mouth started to work and trade picked up – I am terrible at spending on advertising and spent under R3000 for the year. A couple of months ago I was approached by the guys that run our version of a mall to move to a vacant shop – this, after a bit of soul searching, I have done and have been in my new shop for around a month. I have had to hire one full time staff member now – but things on the whole are looking good, there is definitely a little cash at the end of the tunnel!

I have already established that I need to register for VAT – should I be thinking of also changing from a sole proprietor to a CC? I rather like the idea of my rather basic books – but maybe I should step up a gear? Sales should be around the R400 – R600K.

How do I go about putting my employee on the books as such? She gets a basic plus overtime and commission. Does it make a difference if I am a sole prop VS CC?

My stock control is terrible – is there a cheap way/system to barcode my stock?

Thanks for your time!

[Sieg]

CC vs sole proprietor

From a legal point of view, it is always better to have your business in a separate legal entity.

Close corporations as entities will be phased out.

I have always preferred, and would recommend a private company (i.e. a (Pty) Ltd). The grounds of personal liability of a shareholder in a company are more limited than in a cc. A company will cost more to set up and administer but worthwhile when there are problems.

Sieg

[Dave A]

I have already established that I need to register for VAT – should I be thinking of also changing from a sole proprietor to a CC? I rather like the idea of my rather basic books – but maybe I should step up a gear? Sales should be around the R400 – R600K.

The "savings" gained by staying sole proprietor now could cost you later, and incorporating doesn't cost that much. It's the audit fee that's a PITA with a Pty Ltd, but good record keeping keeps that cost down and I've found the advice that goes with dealing with an auditor (as opposed to a bookkeeper) is worth the spend. That's not meant to knock bookkeepers, they're pretty good sources of advice too. But auditors are a touch more analytical and precise, particularly on good practice issues.

How do I go about putting my employee on the books as such? She gets a basic plus overtime and commission. Does it make a difference if I am a sole prop VS CC?

Other than they're not contracted to you personally, no difference that counts that I can think of.

My stock control is terrible...

Ug - stock control and management. Bane of my life.
I'm definitely not the person to give advice except set up good practices right from the start if you can. Implementing a stock control system once bad habits are set is a nightmare

I'll be interested to hear about bar coding too. It might be an option worth considering, even though after two years it looks like we might finally be getting systems pretty close to working...

[NIRE]

CC definately

I find that a cc does the job in retail, you only have to do VAT if earnings are above R300 000 in a 12 month period for now.

This will change to R1 000 000 in the next months or so.

You can pay provisional income tax for yourself and PAYE and UIF for your permanent employees SARS will be able to supply you with the relevant documentation if you contact them on 0800 00 7277

There is a bar-coding system out in the market which makes it easier to label as you pre load data on stock and then allocate a bar code which you print and attach in store. There is a lady by the name of Michaela who deals with these systems you can contact her on 084 580 8484 (Checked with her she is fine with me putting her no down). She can arrange country wide service.

Hope this helps.

[NIRE]

cc

sorry before I forget to reg a cc on line for R690.00 and they allocate a accountant etc. go to www.businessneeds.co.za they are very good.

[daveob]

can also look at swiftreg.co.za

Have used them once before and was impressed.

[Yvonne]

An aspect you don't usually consider is the potential value should you wish to sell your business, Pty Ltd is preferrable when it comes to selling your business.

PS Suggest you read and study "Crash Proof Your Business" by Peter Carruthers - vital reading for start up business in South Africa. http://www.crashproof.co.za/

Yvonne

[Morticia]

Tax rate more favourable in co/cc (28%) or sliding rates applicable to small business corporation (max 28%) in comparison to sole proprietor (40%)

[Pap_sak]

Thanks for all the comments – great food for thought.

If a run the company as a CC I am guessing the CC gets taxed and my salary gets taxed? Don’t you end up paying more tax this way? This is the part that is putting be off…As I do not hand in books as a sole prop, I would rather wait for SARS to push up the Vat rate to 1mill – anybody got the inside on this, is it likely?

Cheers Nire – have spoken to Michaela.

[Dave A]

If a run the company as a CC I am guessing the CC gets taxed and my salary gets taxed? Don’t you end up paying more tax this way?

If you are worried about a double taxation effect:
Your salary would be taxed in your hands. Profits of the CC are taxed in the CC's hands, but that would be the profit after deducting your salary.

Also, take careful note of Morticia's post - once your marginal rate for you as an individual is above 28% it's cheaper to be taxed on undistributed profits in the CC's hands.

[NIRE]

Get it from the horses mouth

The R1 000 000.00 is definately approved already it is just going thru the implementation process and SARS not clear on when exactly it will be in but said it should be within the next 6 months.

The best way to get the right advice for your business and intentions is to phone the SARS line. They have a division on income tax and on vat on the voice prompts. They don't require ID or CC or other information to supply you with advice.

Important to know is that they are revising the % with regard to income tax as permanent employees complained about the breaks afforded to other sectors.

[Dave A]

Get it from the horses mouth

When you can, NIRE

My personal favourite is when I call the eFiling support number and you're tossed into the standard SARS helpline queue - and they can't help with tech glitches. They refer you back to exactly the same number you've just called. Talk about going round in circles.

Part of the original motivation for setting up this site was so that if anyone learns anything along the way, the information can be shared, spread quickly and is more easily accessible.

This implementation date on the change of VAT threshold issue hasn't moved since Trevor first announced the intention at this year's budget speech. The uncertainty is affecting a lot of businesses, I'm sure.

Mind you, maybe you're onto something. If all of us call the SARS helpline every day, they'll actually move faster towards finalising and announcing an implementation date!

[NIRE]

Sorry

sorry bout that, did not intend to undermine the site.

After listening to the Chief Communications Officer at SARS on a talk on 702 bout a week ago it just became apparent that they are in the process of changing a number of laws and processes in this regard, thus current opinions and knowlage on this subject might be out of date shortly.

Due to this I felt that speaking to them at this stage might be the safest option.

[Dave A]

No worries, Nire. I understood where you were coming from.

Taking SARS issues as an example, each of us tend to call them on an issue from time to time. If we share what we learn as we go, we all learn in the process. At the end of the day, the source is SARS and I'm not saying don't go looking there for answers. This site's role is supplementary and hopefully easier/quicker at times, not to mention hopefully more enjoyable.