A small business does not face one tax. It faces a set of them, each with its own registration, its own return and its own deadline, and the ones that catch people out are the employment taxes rather than income tax.
This page maps the whole set, so you can see which apply to your business and what each requires.
Business Requirements at a Glance
The taxes and registrations a small business may face.
- Income tax — on the entity’s profit, or on the owner’s profit for a sole proprietor
- Provisional tax — payments during the year rather than one payment after it
- VAT — compulsory above the prescribed turnover threshold, voluntary above a lower one
- PAYE — where the business employs anyone, including a director drawing a salary
- UIF — contributions for employees, split between employer and employee
- SDL — the skills development levy, above the prescribed payroll threshold
- Dividends tax — where a company distributes profits to shareholders
- COIDA — registration with the Compensation Fund, which is not a tax but is a compulsory employer registration
- Municipal and sector licences, depending on the activity
Registration and Legal Requirements
The entity determines the income tax treatment. A company is taxed at the company rate on its profits and the shareholder is taxed again on distributions. A sole proprietor’s profit is taxed in their own hands at individual marginal rates. Which is better depends on the numbers and is worth an accountant’s hour before registering rather than after two years of filings.
Employment taxes are the ones that go wrong. The moment a business pays anyone — including a director taking a salary — PAYE, UIF and possibly SDL are engaged. Registration is with SARS, monthly declarations are due, and the amounts are held in trust for SARS. Failing to pay over employee deductions is treated seriously.
COIDA is separate and compulsory. The Compensation for Occupational Injuries and Diseases Act 130 of 1993 requires employers to register with the Compensation Fund and submit an annual return. An unregistered employer remains liable for an injured employee’s compensation directly, on top of penalties.
Provisional tax applies to most businesses. Payments are made during the year based on estimated taxable income, with penalties for significant underestimation. Confirm your obligation and the current rules with SARS.
Small business tax regimes may reduce the burden — the small business corporation rates and the turnover tax regime each have qualifying criteria and specific exclusions. Confirm eligibility and current thresholds with SARS.
Documents and Ownership Information Required
What a business needs in place.
- CIPC registration documents and a current company profile
- Certified ID copies for every director, member or partner
- Beneficial ownership information as filed with the CIPC
- A SARS tax reference number for the entity
- A business bank account in the entity’s name
- Annual financial statements and management accounts
- Records of all income and expenses with supporting invoices
- Payroll records, where the business employs anyone
Tax, Licence and Compliance Requirements
Register for what applies before you need to. Registering for PAYE after employing someone for six months means six months of arrear declarations, penalties and interest. Register when the obligation arises.
Bank everything through the business account. Undocumented deposits are treated unfavourably on assessment, and a business whose income does not appear in an account cannot substantiate anything.
Keep records for at least five years. The Tax Administration Act 28 of 2011 requires records supporting a return to be retained for the prescribed period from submission, and longer where an audit or dispute is open.
Get a tax compliance status PIN from SARS eFiling. Business customers, tenders, funders and landlords require it, and obtaining it takes time if the entity is not compliant.
If you fall behind, arrange rather than avoid. SARS offers payment arrangements and, in defined circumstances, relief from penalties. An entity with an arrangement is compliant; one that ignores the debt is not, and non-compliance blocks funding, tenders and contracts.
Take the deductions you are entitled to. Business expenses actually incurred in producing income are deductible, and small businesses routinely fail to claim legitimate costs because they have no records for them. Keep every invoice.
Free support exists. The Small Enterprise Development Agency assists with registration, compliance and record-keeping at no cost.
Use a registered tax practitioner for anything beyond simple filings. Practitioners must be registered with SARS and a recognised controlling body, and you can confirm that registration.
Process, Deadlines and Ongoing Obligations
Work through the list at the top and identify which apply to your business today and which will apply as it grows. Register for each when the obligation arises, and diarise the filing dates.
Set up the record-keeping first: business bank account, every receipt kept, monthly reconciliation. Tax compliance is a record-keeping problem before it is a tax problem.
- Identify which taxes apply to your business today
- Choose the entity structure with an accountant before registering
- Register for PAYE, UIF and SDL the moment you employ anyone
- Register with the Compensation Fund under COIDA
- Confirm your provisional tax obligation with SARS
- Check eligibility for small business tax regimes
- Bank all income through the business account
- Keep every invoice — unclaimed deductions cost real money
- Get a tax compliance status PIN and keep it current
- Arrange with SARS if you fall behind rather than ignoring it
Frequently Asked Questions
Which taxes does a small business face?
Income tax, provisional tax, VAT above the threshold, and where it employs anyone PAYE, UIF and possibly SDL, plus dividends tax on distributions and compulsory COIDA registration.
What goes wrong most often?
Employment taxes. The moment a business pays anyone, including a director’s salary, PAYE, UIF and possibly SDL are engaged, and registering late means arrear declarations, penalties and interest.
Is COIDA a tax?
No, but registration is compulsory for employers. An unregistered employer remains liable for an injured employee’s compensation directly, on top of penalties.
What if I have fallen behind?
Arrange with SARS rather than avoiding it. An entity with a payment arrangement is compliant; non-compliance blocks funding, tenders and contracts.
Tax types, registration thresholds, rates and filing deadlines are set in the Income Tax Act, the VAT Act, the Tax Administration Act and related legislation and by SARS, and are revised. Confirm current requirements with SARS or a registered tax practitioner.