A Sole Proprietorship is a business owned and operated by one person, so you are personally liable for any debt generated by the business.
But what do all these terms, provisional tax, Site and VAT mean to the sole proprietor?
Provisional tax means that you have to make two tax payments in a tax year, rather than paying monthly employees’ tax. The advantage? You keep your tax money for longer and it earns you interest in the process.
Income and tax
All income from the business should be included in your tax return. In the case of a sole trader, the taxable income of the business is the taxable income of the owner and as the sole proprietor you pay tax in your personal capacity at the same rate as an individual i.e. the more you earn the more you pay.
Income Tax Rates for Individuals
|Rates of income (individuals 2010)
|R0 – R132 000
|18% of each R1
|R132 001 – R210 000
|R23 760 +25% of the amount over R132 000
|R210 001 – R290 000
|R43 260 +30% of the amount over R210 000
|R290 001 – R410 000
|R67 260 +35% of the amount over R290 000
|R410 001 – R525 000
|R109 260 +38% of the amount over R410 000
|R152 960 +40% of the amount over R525 000
Dealing with SITE and PAYE
If a sole proprietor employs staff the proprietor will have to register with SARS to pay income tax on behalf of the staff. There are two main types of tax that are deducted from an employee’s salary or wages:
- SITE (Standard Income Tax on Employees)
- PAYE (Pay As You Earn).
If a staff member earns more than R27 000 per year, you must deduct SITE every week or monthly. If someone earns more than R54 200 per year, they will pay SITE on R54 200 and PAYE on everything they earn over R54 200. The amounts to deduct are calculated from tax tables issued by SARS.
How to register as an employer for SITE/PAYE
Employers must fill in a form called an IRP101 form and send it to the South African Revenue Services. This form can be collected from SARS or you can print the form from SARS’s website: www.sars.gov.zawhich is a book of tax tables, which shows how much tax must be taken from each employee’s salary and sent to the Receiver.
Don’t forget UIF
The employer must register with the Unemployment Insurance Fund in Pretoria and must deduct 1% off of every employees salary.
SARS is clear that anyone who has a turnover in excess of R1 million (from 1 March 2009) in any 12-month consecutive period, are liable for compulsory VAT registration. But you may also choose to register voluntarily, provided that the minimum threshold of R20 000 has been exceeded in the past 12-month period. If you register voluntarily you are referred to as a vendor.
Vendors have to perform certain duties and take on responsibilities if they are registered. For example, vendors are required to ensure that VAT is collected on taxable transactions, that they submit returns and payments on time, that they issue tax invoices where required, that they include VAT in all prices advertised or quoted.
The SAR’s website clearly explains the procedure you need to follow in order to register as a VAT payer. To find the information you require follow these easy steps: