Company registration Archives

In our extensive experience as accountants and business advisors, we frequently encounter individuals who have registered businesses for a variety of reasons. In this article, we will delve into these common motivations:

Formalizing a Side Gig: Many people register businesses as a means to legitimize a side hustle before realizing it may not be sustainable or they lack the time to run the venture effectively.
Meeting Regulatory Requirements: Some individuals are requested by friends to serve as directors for a company primarily to fulfil regulatory obligations, often related to BBBEE (Broad-Based Black Economic Empowerment).
Shifting to Sole Proprietorship: There are instances where individuals initially registered a company but later decided to continue trading as a sole proprietor.
Overseas Relocation: People who registered a company but subsequently relocated abroad for employment often leave their company unattended.

Regardless of the initial reason for registration, it is a recurring trend that many of these businesses eventually become an administrative burden for their founders, partners, or directors. These administrative challenges encompass:

1. Compliance with the CIPC: Ensuring adherence to regulations set by the Companies and Intellectual Property Commission and the Companies Act.

2. Filing of CIPC Annual Returns: Meeting the requirement to submit annual returns to maintain company compliance status.

3. Filing of SARS Tax Returns: This article primarily addresses the critical issue of filing tax returns with the South African Revenue Service (SARS).

The company you registered but might have forgotten about can pose a substantial tax risk. Here’s why:

Tax Obligation: Registered companies have a legal obligation to file annual tax returns with SARS to provide updates on their financial and trading status.
Accumulated Unsubmitted Returns: If you’ve lost track of your registered company, you may have a backlog of unsubmitted tax returns. For instance, if your company was registered five years ago, you could potentially have five years’ worth of outstanding tax returns. This applies to all applicable tax types, including VAT and PAYE.
Ignored Notifications: You might have received notifications and reminders from SARS but overlooked or failed to understand their significance.
Penalties: SARS imposes administrative penalties for non-submission of tax returns, even if the business is not actively trading. These penalties can vary but often start at R250 per month, with a maximum penalty of R16,000 per month. Consequently, for five years of non-submission, you could face a minimum penalty of R15,000. It is important to note that the trigger for these penalties is not trading status, but non-submission of tax returns.

So, what should you do if you find yourself in this situation:

Submit Outstanding Tax Returns: Initiate the process by submitting all outstanding tax returns.
File Returns Regardless of Income: File tax returns for all relevant years, irrespective of whether your business generated income or expenses. As mentioned earlier, penalties are triggered by non-submission, not income levels.
Understand Responsibilities: Avoid registering as a director or tax representative for friends or family without fully comprehending your duties toward the company and tax authorities.
Check Company Compliances: Utilize the Companies and Intellectual Property Commission (CIPC) to obtain a ‘spider report’ for each company you are a director of and verify their tax compliance.
Consider Resignation: If you’ve already registered as a director or tax representative, explore the possibility of resigning from those positions.
Engage with SARS: Communicate with SARS to discuss penalty remittance, repayment plans, or reduced penalties.
Deregister Inactive Companies: If your intent is not to maintain the company’s active status, consider deregistering it with CIPC and SARS.

Remember, SARS appreciates law-abiding citizens. It’s best to be proactive and honest in addressing any oversight or compliance issues. Approach SARS with transparency and a willingness to rectify the situation by submitting overdue tax returns and seeking resolution for penalties.

We hope this information proves helpful. Feel free to reach out if you require assistance or have further questions.

From 1 April 2023, South African businesses must disclose their beneficial owners to the CIPC in line with the Companies Act. Furthermore, SARS necessitates companies to report shareholders who possess an interest of 5% or more in their tax declarations.

Why the Change?:

This mandate compels companies to maintain and submit beneficial ownership records to the CIPC. Its primary aim is to curb money laundering, financial frauds, and reputation tarnishing activities. Moreover, it aids South Africa’s objective of getting delisted from the Grey-list.

Entities Obliged to Disclose:

Beneficial ownership must be reported by:

Private Companies
Close Corporations (CC)
Non-Profit Companies (NPC)
State-Owned Companies (SOC)

Specifically:

Trust shareholders equate the beneficiaries as beneficial owners.
In a CC, beneficial owners are the members.
NPCs with members recognize the members as beneficial owners, whereas NPCs without members consider the directors.
For SOCs with a minister as a shareholder, the minister becomes the beneficial owner.

Entities Exempted:

The following aren’t obligated to disclose beneficial ownership:

Public Companies
Primary Co-Operatives (co-op)
Personal Liability Companies

Notably:

Public companies are already overseen by entities like the Johannesburg Stock Exchange (JSE) and thus don’t need to submit again.
Present amendments exclude primary co-operatives from the mandate.
No specific directions have been issued yet for personal liability companies regarding this disclosure.

Who Can Submit?:

Individuals authorized by the company can file the beneficial ownership details.

Deadline Reminder:

Submissions to the CIPC are due by 1 October 2023, which marks 6 months post the inception of the General Laws Amendment Act. If you’re yet to adhere, this provides a month’s time frame to align.

Submission Process:

Filing can be accomplished through the bizportal. Alternatively, using our professional services can streamline the process for you.

Mandatory Documents:

When filing to CIPC, ensure you have the following, which we can generate for you:

Mandate to Lodge Beneficial Ownership
Register of Beneficial Owners
Register of Shareholders (or Members if it’s a CC or an NPC with members)
Verified/Certified ID documents of beneficial owners

Once processed and complemented by essential documents, the CIPC will provide a certificate as an acknowledgment of receipt.

Don’t navigate these new regulations alone! Let our experts guide you seamlessly through every step, ensuring full compliance without the stress. Act now for peace of mind tomorrow. Contact us today and stay ahead of the curve

What is an auto-assessment?

An auto-assessment is an automatic assessment issued on taxpayers by SARS. This basically means that SARS has collected taxpayer information from their parties (such as medical aid or retirement annuities) and then use this information to file your return and issue an assessment on this return automatically without your involvement.

How will you know if you are auto-assessed?

You should receive an email or SMS from SARS informing you that you have been selected for auto-assessment. The process started in July 2022. But, this is not the first time SARS has issued an auto-assessment. They also issued these in the 2021 tax year.

What should I do if I receive an auto-assessment?

SARS says if you agree with the aut0-assessment, you do not have to do anything. However, should you be in disagreement, you have just 40 working days from the date of assessment to file a correction (edited tax return.)

What happens if you miss the 40 days?

If you do not do anything, SARS assumes you are in agreement with the auto-assessment. The assessment becomes your final assessment at the expiration of the 40 business days.

Can I request an extension?

If you feel the 40 working days are too little, you can request an extension on eFiling before the 40 days have expired. SARS will require “reasonable” grounds for the request. if you miss the deadline, you will have an additional 21 working days to submit a request for an extension on the same terms. If both 21 and 40 days have passed and you still were not able to submit a correction, you will need to provide “exceptional circumstances” to justify a delayed request for extension.

NOW TO THE BIG QUESTION, SHOULD I ACCEPT THE AUTO-ASSESSMENT?

We think this is a risky move if (and SARS may not pick up these things on an auto-assessment:)

1. You have qualifying donations you would like to claim

2. You have qualifying out-of-pocket medical aid expenses

3. Your medical aid is being paid for by someone who is not the principal member (normally the person paying for the medical aid would be the one to claim the medical tax credits.)

4. You have capital gains on assets that you sold that fall outside the scope of an auto assessment

5. You are a crypto or share trader

6. You have a side business or rental income (profit or loss)

7. You have and qualify for a home office expense claim (deductions)

8. You would like to claim your business travel kilometres

9. SARS missed one or some of your retirement annuity funds

Contact us:

Was this helpful? Would you like us to do your tax return? Get in touch with us via email (ev****@ev****.com) or by phone – 021 823 9684

Who should be reading this article?

Anyone whose business is no longer trading and wishes to wind it down
Anyone who wants to liquidate their business
Anyone who has lost interest in their registered business and now wishes to discontinue it

KEY TAKE AWAY POINTS:

Pay all outstanding creditors
Collect from all debtors if any
Cancel all contracts (ensuring that all the conditions and terms of doing so are understood and taken care off)
Inform all employees and customers of the intention to close down the business
Sell your business assets (including the cars) and stock (if any) or write off any assets or inventory no longer – S basically liquidate the business
The last step would be to distribute any cash or assets that remain in the business
Deregistering at the CIPC
Deregistering with SARS (all tax numbers)

Why may you consider closing a business off?

There are many reasons for this. But, you may consider closing off your business because of any of the following reasons (not limited to this list:)

The business was negatively affected by COVID and there is no possibility of the business doing well again in the future
The business has become unprofitable and it no longer makes sense to continue operating
Your focus or passion has changed and you would like to focus on something else
The project for which the business was designed has ended and will not be resuming again in the future
The most profitable clients of the business have left and you do not see the business attracting any new clients
Changes in technology that drive your product or business out of the market
You no longer have the cash flow or working capital to keep the business going

If you are considering closing down your business, the following steps and considerations are important:

1. Have an exit strategy:

Truly speaking, this should happen before there is a need to close down a business. This is because we will all exit from our business one way or the other. Some of the exit reasons are what we have already highlighted above. But, it could also be due to health reasons, death, new investors, a merger or sale of the business or part of the business. Whatever the reason, every business should have an exit and succession plan in place.

Your goal here is to formulate a plan of how you will close down the business or exit from the business. Without a plan, things usually go wrong and you may be caught unaware along the way.

2. Notify your employees:

After your customers, your employees are an important asset to the business. Besides, they have families to feed and lives to live. Leaving it until late may place an unnecessary mental burden on them and leave them with little time to look for alternative employment. As an alternative, use your relationships to find then alternative employment.

But, the important point here is to keep the employees in the loop, not in the dark, about what is going on. Also, decide on who will handle the communications with the employees. It is also important to decide and communicate their terminal benefits and how these will be paid.

3. Notify your clients

It is important to notify your clients in time so that they have time to look for alternative suppliers. Also, you may need to collect anything that they still owe you. It is important that you decide how you will collect and how they will be notified.

4. Collect your outstanding debts

Plan your business closure around your existing collection policies and avoid giving new credit lines to existing or new clients.

You also want to collect any outstanding debts before you close the business because it may become difficult to get payments once you have already closed off the business. Some businesses’ financial policies do not allow payments to individuals.

Avoid announcing that you want to close off your business before you collect outstanding debts because some clients may just stall on payments hoping it will all go away.

You can offer settlement discounts to encourage customers to settle their accounts. An alternative is selling these accounts to a collecting agency.

5. Notify your creditors and pay outstanding debts

Inform your creditors of your decision to close and ensure you have a plan to handle the outstanding debts.

SARS may be one of those creditors. Ensure that you have filed all your returns and that every return is paid for. If you are unable to pay them, there are processes you can follow to ask for a compromise or a repayment plan (Click here to read more about compromises and repayment plans here.)

There may be specific laws on how you may pay your creditors. Ensure you are familiar with these and follow them in settling your creditors. If you are not sure, enlist the services of a lawyer.

6. Sell your business and operating assets

If you can, package some of the cash-generating units that are still functional and profitable and sell these to interested parties. If this is not possible, you may want to sell the assets in the business including all the inventory, vehicles and other operating assets you may still have if there is a market available for them.

7. Deregister the business

Once you are satisfied that all processes are complete, it is now time to deregister your business with the CIPC. This is to inform the CIPC that your business is no longer in existence.

After this is done, inform SARS that you have deregistered the business. Also, apply to have all tax types (numbers) deregistered. This is to clear you of future tax compliance burden since your business is no longer in existence.

You may contact us if you need help with:

Company registrations
Tax and VAT registrations
Closing off your business
Accounting and Tax
Business mentorship and advisor

These days the work culture has changed. Since lockdown was introduced. Some companies had to close shop and some employees were required to work from home. Also and in general, the world is changing and so is the way people work and interact. Many people, like myself, prefer working from home. Working from home has become a normal thing. The GIG economy will also make working from home just another normal thing.

Luckily, SARS allows home office deductions if certain conditions are met. However, it is important to note that SARS often than not flag returns with home office expenses for audit. So it is important that one correctly and accurately claims these deductions.

It is worth understanding the rules around home office expenses as they are allowed under certain circumstances. Not everyone may end up deducting home office expenses.

Having said this, it is important to point out that the situation is different for self-employed people or what we would term sole proprietors or freelancers who work from home. These taxpayers can automatically deduct their home office expenses. These taxpayers (self-employed, sole proprietors, freelancers) do not need to work through the tight conditions required for one to be able to deduct home office expenses. They simply have to include their home office expenses with the local business, trade and professional income on their tax return.

What is required to be able to deduct home office expenses?

The employer must allow the taxpayer to work from home. So, you can’t just work from home because you want to. Your employer must give you express permission to work from home.
The taxpayer must spend more than half of their total working hours working from their home office.
The part of the home in respect of which a claim is submitted must be occupied for purposes of a “trade”, as defined in section 1. So, in essence, there should be a specific part of the home that is used exclusively for this purpose. As an example, a specific set aside office must be kept aside for the trade. A taxpayer meeting with a client in the bar area of their home may not qualify for these deductions.
Building from the point above, the part that is so occupied must be specifically equipped for purposes of the trade. So, it is important that space/office must be specially fitted with the relevant instruments, tools and equipment required for the taxpayer to perform their work.
The part must be regularly and exclusively used for purposes of the trade. As an example, taxpayers who earn a commission but who spend the majority of their time on the road visiting clients and performing their work at the client’s premises do not qualify for home office expense deduction.

What expenses can be deducted?

First, one needs to check the taxpayers’ remuneration structure to see if they are:

A commission earner, that is, takes more than 50% of their total remuneration from the commission or some other variable form which is based on their performance.
A normal salaried employee with variable payments/commission making up less than 50% of their total remuneration.

The commission earners can deduct the following:

Rent
Interest on bond
Repairs to premises
Rates and taxes
Cleaning
Internet
Wear and tear and
All other expenses relating to their house as well as other commission related business expenses (such as telephone, stationery, repairs to printers, maid answering phone in your absence etc)

The salaries employee with variable payments/commission making up less than 50% of their total remuneration can deduct:

Rent of the premises
Interest on the bond
Cost of repairs to the premises and other expenses in connection with the premises
Rates and taxes
Cleaning
Internet,
Wear and tear and all other expenses relating to their house only.

How to calculate the home office deduction:

One would need to work out/measure the total square meterage of the office in relation to the total square meterage of the house. This is then converted into a percentage. The percentage is then used to apportion the expenses that can be used for home office deductions.

Example:

Mrs taxpayer is a software engineer who works for Corona Company Pty Ltd. Her remuneration consists of a salary only (no commission.) Her Company allows her to work from home three days per week. Mrs taxpayer has a separate office at home, fitted out with a computer and printer, which she uses exclusively for her software engineering job. Her office is 30 square meters, and the floor space of her entire home (including the office) is 300 square meters.

During the tax year, she incurs the following expenses:

– R120, 000 interest on a bond

– R36, 000 rates and electricity

– R36, 000 paid to the cleaner

– R5, 000 roof repairs

– R12, 000 cell phone expenses

Based on the above information, Mrs taxpayer qualifies for home office deduction. Based on the space occupied by her home in relation to the entire house, the apportionment ratio is 10% (30/300).

Therefore her home office deduction is 10% x (120 000 + 36 000 + 36 000 +5 000) = R19 700.

Her cell phone costs will not be deductible since she is not a commission earner.

Will I qualify for a home office deduction for the 2021 tax season?

The 2021 tax season started 1 March 2020 and ends 28 Feb 2021. To be able to claim home office expenses you would need to have met the conditions specified earlier. You will also need to have ended up working from home for more than six months of the tax year. That is, you would have worked from home until at least the end of September 2020.

Need help claiming your home office expenses or finding someone who can deal with SARS on your behalf? Click here to contact us.

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