[Question] info on small business

[kahoel117]

i need some info on running a small business.
i want to start a small business. unclear how to go about it.
how does the tax work ? do you have to register as a cc and register for vat ? is the vat dependent on income made ?
does everyone selling something to make money have to pay tax.? even as an second income?

[geraldenek]

Hello Kahoel

Well there is lots of different entitities to trade in, either sole proprietor, cc or pty. From the previous post i gather it is clothing. I'm going to give you an example.

Say you have your main income R200,000 and business profit of R100,000 for a tax year.

Being a sole proprietor you are going to be taxed at a rate of 30% - giving you R56995.00 total tax for the year to be paid

If you have the clothing business in a cc/pty you will qualify as a small business corporation (if you are not a member of another cc/director of another company). You will be taxed at the rates of small business corporation and will pay R4024.90 plus R28745 in your personal capacity total of R32,769.90

if you do not qualify as a small business corporation and taxed at 28% you will end up paying R28745 personal capacity + R28,000 total of R56,745.

From the above scenario you will note that the best option was the small business corporation. so it is all about playing around with figures which suit your situation and getting the best option.

There is also other factors to consider for cc/pty the legal part of it.

You only need to register for vat if your annual turnover is expected or exceed R1m. Vat is charged on product sold at 14%.

You can only register pty's and you won't need to have an audit done with the new company act. so the new pty's is very similar to the cc's.

[kahoel117]

thanks for the info. its more complicated than i thought.

[Newretailer]

If your turnover is under 1 million a year, you could register for turnover tax. If your input costs are high, this is not a good option. You pay tax on your total turnover, can't deduct for any expenses, but the rate is really low.

[Blurock]

Good idea to run your own business. Is it still an idea or is it reality? Don't be put off by the red tape to get started.

What do you sell or manufacture? If the business is viable and can generate a sustainable income, discuss your ideas with a reputable accountant and let them take care of the paper work. You can then concentrate on growing the business. Join a networking group and talk to other business owners.

Good luck with your venture!

[kahoel117]

thankss. will do some more research. but will get some guidance 1st.
i'm going to ask a silly question ... this is an example ...
a street vendor : do they have to register for vat ? i mean if any form of income has to be vat registered, does it matter if the income made is small ?

[Blurock]

I will let the accountants answer this one, but if your turnover is below R1mil you still register, but do not charge vat.

[Dave A]

a street vendor : do they have to register for vat ? i mean if any form of income has to be vat registered, does it matter if the income made is small ?

If the turnover is under R1 million you don't have to register for VAT.

When it comes to street vendors, the phrase that comes to mind is "informal sector." I suspect there's often a difference between theory and practice when it comes to tax

[kahoel117]

If the turnover is under R1 million you don't have to register for VAT.

i like the way that sounds. lol. so i can do business without registering for vat aslong as the turnover is less than 1 million. i guess that means i dont have to get a cc or pty, since those require vat registration and i can still do business ?

[Mark Atkinson]

Well it all depends on how much money you think you're going to be making.

It sounds like it's just a secondary income stream. Something informal? If so, my suggestion is just to run the business as a sole proprietor and see how you go. You don't need to register for VAT but you do need to add the profit from your business to your annual income tax return. You may want to look into registering for provisional tax so you aren't slapped with a big income tax bill at the end of the year.

Make sure you keep records of all your income and expenses.

Have you thought about all the non-accounting aspects of the business? Who is your target market (your typical customer) and how are you going to market to them? Do you need suppliers? Do they require any specific registrations or business types in order to buy from them? Do you offer returns or warranties on your goods sold? Are you going to need any employees?

Make sure you have thought about all these things. I'm not a fan of business plan's, per say, but it does help to jot your thoughts and ideas down on paper somewhere.

Good luck!

[kahoel117]

It is an extra income. to be honest, all the hoops that i would have to go through makes it a bit difficult. what i was planning was buying goods and selling it again at a profit. but would be starting small. so my projected profits would'nt be big. BUT ... info is very helpful. maybe i'm just taking the wrong approach to this.
how much does it cost to register as a sole proprietor ?

[geraldenek]

how much does it cost to register as a sole proprietor ?

you are already registered for income tax so you will only have to go and register for provisional tax with SARS which is paid twice a year in advance for the next tax year (August and Feb)

there is no other place which you will have to register your business for a sole proprietor.

[DeanF]

Hi Geraldene,

This is one of the many reasons why I love this site. You have also helped me understanding this.

Thanks.

[mother]

Kahoel, if I were in your shoes, I would just ignore the whole tax-thing, registration-thing, paperwork-thing, etc, and JUST DO IT! Personally, I believe in just starting it, going with your gut, reacting to what happens, and shaping the business according to the market's response (without any of the red tape), and to see where it leads you. You'll soon see whether or not this is going to become "a business". And so what if you make a R100 profit now without declaring it. Rather just get it going first. I think a lot of great ideas never get past conception, because people are overwhelmed by the legislative and regulatory requirements, so they just let go of their idea.

If it works, and you see it growing, and it proves that it can become a business, then go see an accountant, and let them handle all the paperwork for you.

[kahoel117]

i think i'll give it a try then like you said...i can always iron out the rinkles later !
currently waiting for my 1st shipment , and will see where that goes ...