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Tax Savings for Small Businesses

Tax savings – For several years now SARS has afforded small business tax relief if you qualify under certain criteria, therefore there are substantial tax savings for small businesses that fall under the following criteria:

  • Turnover for the year is under 20million
  • All the shareholders of the company are natural persons
  • All the shareholders only own an interest in the one company
  • Less than 20% of your turnover is from rending a ‘personal service’ or investment income as defined.

What is a ‘personal service’?

Section 12E(4)(d) defines “personal service” as –

(d) ‘personal service’, in relation to a company, co-operative or close corporation, means any service in the field of accounting, actuarial science, architecture, auctioneering, auditing, broadcasting, consulting, draftsmanship, education, engineering, financial service broking, health, information technology, journalism, law, management, real estate broking, research, sport, surveying, translation, valuation or veterinary science, if—

  1. (i)  that service is performed personally by any person who holds an interest in that company, co-operative or close corporation or by any person that is a connected person in relation to any person holding such an interest; and

  2. (ii)  that company, co-operative or close corporation does not throughout the year of assessment employ three or more full-time employees (other than any employee who is a holder of a share in the company or a member of the co-operative or close corporation, as the case may be, or who is a connected person in relation to a holder of a share in the company or a member), who are on a full-time basis engaged in the business of that company, co-operative or close corporation of rendering that service.”

What does this mean?

This means that if you are a ‘personal service’ company and have three or more non connected employees, then you can still qualify as a small business. The benefits of small business tax is that you are taxed at much lower tax rates compared to normal company tax as follows for the Feb 2020 tax year:

0 – 78 150 0%
78 151 – 365 000 7% of taxable income above 78 150
365 001 – 550 000 20 080 + 21% of taxable income above 365 000
550 001 and above 58 930 + 28% of taxable income above 550 000

In addition to this, Small businesses get favourable accelerated tax write offs on any assets purchased. If the company’s operations are in the process of manufacture, then the company would be entitled to 100% write off. If not, then it can still write off 50% in the first year, 30% in the second and 20% in the final year. These write offs are subject to Sec 12E.

So if you have a qualifying business, you could qualify for substantial tax savings. Contact Fenns to discuss any questions you have regarding these and other tax savings.

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