What is provisional tax?

Provisional tax is a method created by SARS to help relieve the pressure of making one large payment at the end of its relating year of assessment. This system requires the taxpayers to pay at least two amounts in advance during the year of assessment. At the time of submission of each return, there will be no historic data to base the calculations on. They will be calculated based on estimated taxable income (what your taxable income is predicted to be at the end its relevant year of assessment). Once your income tax return has been submitted, all the provisional tax payments that have been made to SARS will be offset against your final assessed amount.

Provisional tax shares a tax number with Income Tax. This means that no separate registration is necessary should you be required to submit provisional tax returns. You will however, have to activate this tax type on e-Filing using your income tax number in order to start submitting these returns to SARS.

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Who is required to submit a provisional tax return?

For individuals:

If you earn an income other than your regular salary or an allowance, you must register as a provisional taxpayer. Should you be a “one-man band” sole proprietor who does not employ any staff, you will need to submit these returns as well.

For companies:

Companies are automatically added to the provisional tax system and are liable to submit these returns or become non-compliant. This will directly affect their tax compliance status with SARS which can negatively impact trade.

Note: Some entities (natural and judicial) have been excluded from this tax system. Read about them here. >>

When are provisional tax returns due?

Provisional tax is mandatory for payment twice a year, with a third voluntary payment as follows:

The first payment:

This payment must be made within six months of the start of the year of assessment. For years of assessment starting March, this will be 31 August if your financial year end is February.

The second payment:

It is due no later than the last working day of the year of assessment. This will be 28/29 February if your business’s financial year is February.

The third, voluntary payment:

The third payment may be made within six months of the year of assessment.

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How do I submit my IRP6?

There are various ways to submit your provisional tax (IRP6) return. We’ve added them below:

Submitting at a SARS branch:

You can go into a SARS branch where a SARS consultant will assist you with the submission of your provisional tax return.

Using the e-Filing system:

You can submit your IRP6 on the e-Filing system. This will require you to register an e-Filing profile and activate your registered tax types. If you have an existing e-Filing profile, but have never been required to submit an IRP6 before, you will need to activate this tax type on your profile using your Income Tax number.

Hiring a Tax Professional:

A Tax Professional will calculate your amount payable and submit the IRP6 on your behalf. They may (depending on their in-house policies) also send a payment instruction to your registered bank account that will include all the correct, relevant payment details as generated by the e-Filing system. Once it has been sent to your bank, you will be able to review the payment and release it, making the entire process much less stressful for the taxpayer.

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Disclaimer: This post may contain affiliate links. Please read our affiliate disclaimer here. Additionally, this post offers general information. Consult a professional – like an exceptional member of our team – for assistance before submitting.

financial statements and your small business.

As an accountant for over 10 years, I have found that many of my clients have had one universal issue: Understanding their financial statements and their relevance. The purpose of this article is to not only educate and empower you to understand your financial statements but also their importance when making decisions in your small business.

Why are the important?

They help you make better decisions.

Financial statements are crucial when it comes to making decisions in business as they give you a clear, accurate account as to how your business is actually performing. With this information, you can then track your business’s financial fitness and make any necessary adjustments to your spending, investing, or borrowing if needed. They also play a crucial role in helping you determine how much cash is available for business use. This information is exactly what you need when making growth/ management decisions.

a requirement for Tax returns.

Ensuring your bookkeeping is up-to-date – and having financial statements prepared based thereon – will ensure that you have all the information you need for tax season. This data is the information that is used to prepare and submit your income tax return, and the financial statements are generally the supporting documents requested by SARS should you be selected for verification/ an audit.

they are Proof of your success.

They provide historical records of how well your business has performed. This will assist when making not only the crucial business decisions we spoke of earlier, but will also be used should you ever need to secure funding.

certain laws require you to prepare them.

Laws such as the Companies Act of 2008 and Tax Administration Act (falling under record keeping), require businesses to have financial statements prepared within a certain period of time after their financial year has ended.

As of 1 September 2018, the Companies and Intellectual Properties Commission (CIPC) announced that submitting annual financial statements (AFS), or a financial accountability supplement (FAS), will be a mandatory requirement when submitting your CIPC Annual Returns.

What are they?

To help you understand the financial statements that your accountant prepares for you, we will cover 2 of the 3 core reports that are used to evaluate a business, namely the Statement of Financial Position (Balance Sheet) and Profit and Loss (Income) Statement.

The Statement of Financial Position (balance sheet).

Per Investopedia, a statement of financial position, or balance sheet, is a financial statement that reports a company’s assets, liabilities, and shareholder equity. It provides a snapshot of a company’s finances (what it owns and owes) as of the date of publication.

I will go over these in a bit of detail below:

Assets.

These are what the business owns that will bring it benefits in the future. Some examples of assets include your customer accounts, vehicles, bank accounts, and investments.

Liabilities.

Liabilities are the debts of the business. They are everything that the business owes to another entity/ individual. Liabilities can include items such as supplier accounts, loans, credit cards, bank overdraft, and your company’s tax bill.

Equity.

This sums up the net worth of your small business once you have totaled everything that your business owns (assets) and have deducted everything owed to creditors (liabilities).

For a sole proprietorship/ partnership, equity is referred to as “owners’ equity” whereas, in a corporation, it is referred to as “shareholders’ equity”.

The Profit and Loss (Income) Statement.

Per Investopedia, an income statement is one of the three major financial statements that reports a company’s financial performance over a specific accounting period.

Revenue/ Turnover.

Revenue is the money that is made by your business from its various activities. This could be from the sale of goods/ services to your customers. It could further include fees earned, interest revenue, and interest income. If the income is earned as a result of a main business activity, it is an operating revenue, whereas if it is accumulated as a result of a secondary activity (such as passive income), it is known as non-operating revenues/ other income.⁠

Cost of Sales.

These are the direct costs associated with the production of the company’s goods/ services. The amounts included in cost of sales could range from materials used to produce goods, direct labour costs paid to staff assigned to make the goods/ carry out the services, and commissions associated with sales.

Gross Profit/ Loss.

Gross profit/ loss is the difference between your revenue and cost of sales. It reflects the money that your business has left over once all the direct costs associated with producing and selling its products/ services (cost of sales) has been deducted from its turnover (sales).

Gross Profit = Sales – Cost of Sales

Should your financial report indicate a gross profit situation, this would mean that your turnover was higher than your cost of sales (surplus). If it reflects a gross loss, this would mean that your cost of sales was higher than your sales/ turnover and you had a deficit.

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Other income.

This is income derived from sources that don’t relate to your core activities. This could be interest on investments, royalties, or any other fees collected such as commission.

Expenses/ Operating Expenses.

These are the costs incurred when running your company. Examples of these include bank charges, interest expenses, rent and utilities, payroll costs, depreciation, and telecommunications.

Net Profit/ Loss.

The net profit/ loss of a company is the amount after other income has been added and expenses/ operating expenses have been deducted from your gross profit/ loss. It can also be referred to as net earnings or net income.

Net Profit = Total Income – Total Expenses

Income tax expense.

This is the business’s calculation of how much tax it is responsible for paying in the current financial year.

Annual Financial Statements (AFS) are formed by the general grouping of the line items of the above elements. Assets, liabilities, and equity will form the Statement of Financial Position, while revenue, cost of sales, other income, expenses, and your income tax expense will be grouped to form the Profit and Loss Statement. The changes in these elements will form the Cash Flow Statement. Notes to Financial Statements are also a part of your Annual Financial Statements. These help explain specific items in your reports by providing a clearer picture as to what they are and how they have been treated by your accountant.

Disclaimer: This post offers general information. Consult a professional – like an exceptional member of our team – should you require some assistance. Additionally, this post may contain affiliate links. If you purchase through these links, we may earn a commission at no additional cost to you. We only recommend products that we believe will add value to our readers. 

in 2018, vat increased for the first time in 25 years.

A 1% hike may not seem that significant, there are a few elements to this that we must consider in your small business.

Adjusting Your Selling Price

As a registered VAT Vendor, by now you should have adjusted your selling price. Using fully compliant, SARS accredited accounting software, such as Sage Business Cloud Accounting will make this adjustment easier. Any updates have been prepared and released in time, ensuring that for your small business, it’s business as usual.

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If you are creating your invoices manually, ensure that you have adjusted any formulas on your quote, proforma and tax invoice templates to ensure that you are not under charging. As you should be submitting VAT201 forms to SARS, there will be variances between what should be paid (or refunded), and what has been collected if this isn’t adjusted. Avoid a mess and update your templates.

If you are not a Vat Vendor, this does not mean that you should not adjust your selling price as well. Due to our strained economic environment, adjusting your selling price to recover increases in operational expenses makes sense. Your profits will be impacted if you do not, leaving your small business potentially under financial strain.

I recommend that you start planning your monthly cash flow with a simple cash flow forecast. This forecast will help you plan cash inflows and outflows, as well identify any shortfalls that you may incur. Being able to plan ahead for your monthly financial commitments will empower you. It will help you to identify any shortfalls in the upcoming month and make provisions accordingly.

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How The Vat Increase Affects Our Consumers

The Vat increase will affect consumers, especially the lower-earning consumers, by decreasing or even drying up, their disposable income. The same disposable income that allows them to purchase goods and services from small businesses. While the Vat increase doesn’t impact Zero-rated items, it still impacts other items and expenses (such as utilities) that are needed within the average household. As a result, some small businesses may be forced to absorb a portion of the additional costs. A drastic increase in selling price drastically may cost these businesses some much-needed sales.

As a small business owner, take a look at your profit and loss reports since 1 April 2018, compare it to previous seasons, and then make a judgement call. An increase may lose you sales as your consumers may not see what you provide as being essential, and cut purchasing from you to save cash. Loss of sales means less cash available to meet your monthly obligations, so it may be a tough decision to make.

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Personal Case Study

To date [as at the date of this article], I haven’t yet increased our fees. I wanted to see first hand how the Vat increase would affect my business profits. As a virtual accounting firm, we have the benefit of lower overheads than firms with a physical office space. This doesn’t mean I dodged a bullet by much. The biggest pinch has been in my personal, disposable income. Some personal expenses have increased by more than R100 so my Rands purchase considerably less than they did pre-Vat increase.

Rather than adjusting our fees right now, I am looking at adding some additional streams of revenue to our income. We’ve partnered with famous software brands and are creating templates and resources for small businesses to download and use in their business for a small fee. Funding partnerships have also been formed to assist clients get access to finance when they need it most, and add revenue as well.

These additional revenue streams in my firm may keep a price increase at bay or lessen the percentage in upcoming months. Unfortunately, the Vat increase is not the only factor that may affect cash flow and profits in the future. Fuel hikes, as well as the impact of load shedding on productive hours, are a massive cause for concern. For now, all we can do is remain informed and strategize where necessary.

This post may contain affiliate links. Please read our affiliate disclaimer here. >>

why you need a business plan.

As entrepreneurs, we often have creative ideas that we’re certain will help us make money. Unfortunately, what most don’t realize is that without a clear, concise plan and actionable steps as to how you’re going to bring your ideas to life, they could end up being a costly hobby rather than a profitable business.

Your ideas and goals need in-depth research into their viability, and solid action plans as to how you are going to achieve them. This will help you to minimize the risk of failure and figure out if there is actually a market for your idea before investing any money or time into it.

So how do we move from idea into a thriving business?

we Write a business plan.

Which is exactly what we will be going over in this article.

The Importance of a good Business Plan.

Having a well-researched business plan will go a long way. It will provide you with the essential tools that you need to effectively start, grow and manage your business. Associate a business plan with the blueprints that architects design when building houses. Your business plan will serve much the same purpose in your business. It will help you identify what you want to sell, who you should to sell it to, how you should sell it, where you should sell it, and what you should sell it for, among other key items.

Let’s go through some key steps that a few industry experts suggest you take.

Determine your purpose.

According to Alan Williams, co-author of “The 31 Practices”, you need to take time to identify with your businesses core values and purpose so that you’ve got a clear starting point.

Build your vision.

You need a clear vision of what you want to accomplish as a business. Come up with 3 to 5 key strategies that will help you to achieve this.

Clarify your business model.

Your business plan should include financial projections. “Start by answering ‘what if’s’. If I sell this product at this price, and this is how much it will cost me to get clients, how much profit will I make? When you’re done building and testing the business model, you can go back and write a business plan.” advises Alex Muller, CEO of GPShopper.

Work out your business name and business structure.

The way your business is structured legally will play an important role in how you will be able to conduct your business activities. In addition, ensuring you have checked to see if your name is legally available for use is vital. Should you make use of a name that legally belongs to another entity, it could end up in not only an expensive rebranding exercise, but an additionally expensive lawsuit by the entity the name belongs to.

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Road-test your business idea.

Make sure that there actually is a market for your business idea before you waste valuable time and resources on a business plan.

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How to write your Business Plan.

Peter Hull, a contributing writer at Forbes Entrepreneurs and a serial entrepreneur who has over 25+ years experience in launching successful companies, offers these 5 tips that will help you write to write a brilliant business plan:

Get rid of the fluff.

Fluff gets you nowhere and wastes space. Be as concise as possible and remove any filler language.

Be realistic.

You should be honest with yourself in your business plan, which is why it’s very important to consider challenges and opportunities.

Show you are conservative.

Show examples as to how you are going to be conservative in your approach and projections when writing your business plan.

Visuals are good.

Whenever possible, and without overdoing it, use visuals in your business plan. Graphs, charts, and images can help bring your concept to life.

Be creative.

Include a creative element in your business plan so that it your concept will stand out and grab someone’s attention.

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The Key Components of a well written Business Plan.

Preparation Is Key. If you have “skimmed” over the previous sections of this article to get here, backtrack and take your time reading the above tips so that you can write a better business plan.

Executive Summary.

This is a summary, or an overview, of your business plan highlighting all your content and goals. This should ideally be 1 – 2 pages long, but no greater than 3 or 4.

Company Overview.

Here’s where you provide more information about your company, its mission, the markets you intend to serve, and what makes you different from other businesses.

Products and Services.

This is where you go into detail about the products/ services you plan to offer and how your product/ service will solve a problem or fill a need for your market. It should also indicate the product/ services life-cycle.

market analysis.

Before launching, it is essential that you research your target market thoroughly. When researching, include items such as who your target market is, your industry, your competitors, and customer trends.

Market Sales and Strategy.

How do you plan on marketing your products/ services? What is your sales strategy? How do you intend on securing your slice of the market?

Organizations and Management.

This describes how your business will function on an ongoing basis, and which structure will be for your business. It will also describe the background of your managers and executives and how they will help you achieve your business goals.

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Financial Projections.

This is always at the back of the business plan. If you’re wanting to secure funding from investors (even if they’re friends or family), they will love this section as it gives them something to hold your business accountable to. It will include your projected income statement, cash flow statement, balance sheet and capital expenditure.

Appendix.

A completely optional section that should not be included in the body of your business plan, and should only be provided on an as-needed basis. It will include items such as your key managers’ curriculum vitae, product images, letters of reference, details of market studies and any other relevant legal and/or supporting documents.

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In Conclusion.

If you have take anything away from this article, I hope that it is the impact that planning can have on the success of your business. While planning is a critical element in business, it goes hand-in-hand with persistence, skill, making connections, and tons of hard work.

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