Tax compliance is about meeting deadlines. Tax planning is about making decisions throughout the year so that when those deadlines arrive, there are no surprises and no value left on the table. For business owners, the difference between the two can be significant.
Start with your deadlines
Each business has its own rhythm of tax obligations. For companies and close corporations, this includes the company income tax return (ITR14), which must be submitted within twelve months of financial year-end. Other obligations, such as provisional tax, VAT and PAYE, will depend on the nature of the business and its registrations. Where provisional tax does apply, a business with a February year-end will, as a general planning point, typically have provisional tax obligations falling around August and February, so these are useful checkpoints to review the year’s numbers and plan accordingly, rather than dates to react to at the last moment.
Choose the right structure
How a business is structured, whether as a sole proprietor, company, or trust, affects how it is taxed, but tax should not be the only consideration. Ordinary companies are generally taxed at the applicable corporate income tax rate, while qualifying Small Business Corporations may benefit from progressive tax rates on a portion of their taxable income. SBC treatment is subject to specific qualifying requirements around shareholding, turnover and the nature of the business’s income, and should never simply be assumed; eligibility needs to be confirmed for each year of assessment. More broadly, the right structure depends on legal and commercial considerations, risk and liability exposure, estate and succession planning, and the commercial substance of how the business actually operates, not on tax minimisation alone. This is a decision worth revisiting as the business grows, ideally with both your accountant and legal advisor involved.
Use legitimate deductions and allowances
Businesses sometimes pay more tax than necessary simply because deductions were not claimed, or were not properly supported. Depending on the nature of the business, this can include wear-and-tear allowances on qualifying assets, other capital allowances, payroll-related deductions, employer contributions to retirement funds on behalf of employees where applicable, bad debts written off in terms of the applicable requirements, and other legitimate business expenses. Each of these must be properly supported by documentation and claimed in terms of the applicable rules; what qualifies, and to what extent, depends on the specific facts of the business. Good tax planning ultimately depends on reliable accounting records, up-to-date management accounts, and proper supporting documentation, so that whatever is claimed can be substantiated if SARS asks for it.
Manage cash flow around tax, not after it
A tax bill that arrives as a surprise is a cash flow problem, not just a tax problem. Businesses that set aside provisional tax estimates every month, instead of having to raise the full amount twice a year, protect their working capital and reduce the risk of underestimation penalties when the final assessment is issued. Treating tax as a fixed monthly cost, rather than an unpredictable lump sum, is one of the simplest ways to plan around it rather than react to it.
Make it a year-round conversation
The businesses that benefit most from tax planning treat it as an ongoing conversation with their accountant, not a once-a-year exercise before a deadline. Reviewing management accounts regularly, flagging significant transactions before they happen, and revisiting structure as the business grows all create room to plan properly, depending on circumstances, rather than react after the fact.
Where to from here
Every business’s position is different, and how these principles apply will depend on its specific structure, industry and circumstances. Working through these decisions with your accountant or tax advisor before key transactions and deadlines, rather than after, is generally the most effective way to turn tax planning into a practical, ongoing part of running the business.
At AIM | Accountants in Motion, we work alongside business owners throughout the year to ensure that tax planning is practical, proactive and aligned with the broader financial position of the business.
Disclaimer
The information contained in this article is provided for general informational purposes only and does not constitute accounting, tax, audit, legal, financial, or other professional advice. While every effort has been made to ensure the accuracy of the information at the time of publication, laws, regulations, and interpretations may change, and the application of information may vary depending on individual circumstances.
Readers should not act upon the information contained in this article without seeking appropriate professional advice specific to their situation. AIM | Accountants in Motion accepts no responsibility for any loss or damage arising from reliance on information contained herein.
