“The way to get started is to quit talking and begin doing.” – Walt Disney
Being an entrepreneur, you most probably already have the ideas lined up. But how do you actually “start” your business, or “being doing” in Disney’s words?
In the South African legal framework, the following 7 essential steps should be followed in order to get your business going:
1. Decide on an entity form for your business
When setting up your business the first step would be to choose an entity form from which you will be trading. The different options available, each with its advantages and disadvantages, are –
- Trading in your own name;
- Trading as a company registered with the Companies and Intellectual Property Commission, in terms of the Companies Act, Act no 73 of 2008;
- Trading within a trust, registered with the Master of the High Court.
A company is the most popular entity form, as it has various benefits attached thereto, being, inter alia, having a fixed tax rate of 28%, as well as ringfencing the liabilities of the company from the owners of the company. Please ensure that you make use of a reliable service provider when registering your entity form, as the correct paperwork is of paramount importance.
2. Decide on a name for your business
The name of your business is obviously one of the most important aspects. When registering a company or a trust, you may have a different name under which your business operates, as opposed to the registered name of your entity. This will be referred to as your “trading name”.
The Consumer Protection Act, Act no 68 of 2008 makes provision therefor that a business trading name should be registered with the Companies and Intellectual Properties Commission, however, these provisions have not come into effect as yet.
3. Register your business for taxation
In terms of the Income Tax Act, Act no 58 of 1962, it is a provision that each entity form should be registered for income tax with the South African Revenue Service (“SARS”).
Currently, CIPC and SARS work together, and for each company being registered, SARS automatically registers the company for income tax, and provides the company with an income tax number.
However, individuals and trusts should ensure that they register for taxation as soon as possible in order to avoid any penalties being issued by SARS. Income tax returns should be submitted to SARS on a yearly basis, as well as provisional tax returns once every six months
4. Opening a bank account
It is best practice to keep your business finances separate from your personal finances. This just makes life easier when doing taxes and applying for loans. Think of your business finances and personal finances as two separate boxes.
Therefor, ensure that you open up a separate bank account for your business as soon as you start trading, the bank account being registered in the name of the entity from which you will be trading.
5. Registration for Value-Added Tax
Your business is required to register for Value-Added Tax (“VAT”) as soon as the turnover thereof exceeds R1 000 000, in terms of the Value-Added Tax Act, Act no 89 of 1991.
It is possible to register for VAT, on a voluntary basis, in the event that your business has a turnover of at least R50 000 calculated over a period of 12 months.
Once you have appoint employees to your business, ensure that your monthly payroll is up to date and compliant by –
- registering with the Workmen’s Compensation Commission;
- registering with the Unemployment Insurance Fund (“UIF”);
- registering for pay-as-you-earn on your SARS E-filing profile.
- registering for Skills Development Levy on your SARS E-Filing profile.
Monthly compliance will then include –
- Submitting monthly EMP201 submissions to SARS, and paying the pay as you earn deducted from your employee’s salaries to SARS.
- Submitting six monthly EMP501 submissions to SARS in respect of your payroll.
- Deducting UIF contributions from your employee’s salaries and submitting these to SARS, as well as paying the portion of the business contribution.
- Skills Development Levy must be paid to SARS on a monthly basis. This equals 1% of the total amount paid in salaries to employees.
- Submitting Return of Earnings on an annual basis to the Compensation Fund, this will allow you to obtain a Letter of Good Standing.
The final step would be to ensure that your house is in order, by keeping sufficient accounting records of all the transactions taking place on a daily basis. This will ensure that your taxes are calculated correctly on a yearly basis, and is the first step in complying with all SARS related obligations.
Depending on your entity form, it will be required that financial statements be prepared on a yearly basis, as well as income tax returns be submitted subsequent to the year end of your business.
Furthermore, SARS, in terms of the Tax Administration Act, Act no 28 of 2011, requires that all accounting records and invoices relating to expenses be kept for a period of 5 years after submission of the income tax return to SARS.
The red tape in setting up your business is immense! Ensure that you appoint a competent service provider with sufficient knowledge on the various subjects, to ensure that your business will be compliant in all aspects. As a new business, you cannot afford to incur liability in the form of penalties and interest for not being compliant with the relevant laws and regulations.
*Joanie Viviers is a Chartered Accountant of South Africa (CA(SA)), as well as a non-practising Attorney of the High Court of South Africa. Being an entrepreneur at heart, she knows how to start a business, having taken The Finance Man, a firm providing accounting and taxation services, from a start-up to a solid business.