Three of the avoidable small company tax return mistakes are briefly discussed below.
Fringe Benefits
One of the less obvious mistakes made with the completion of private company tax returns is that of incorrect reporting of business expenses, such as:
- Not reporting the cash-free benefits that the company provides to the directors and not withholding PAYE tax for these benefits.
- Incorrect reporting on company low interest or no-interest loans to shareholders, which can lead to secondary tax on the company.
To prevent the above mistakes with private company tax returns, identify and clearly indicate employment expenditures in all records pertaining to cash payments. Seek professional guidance on company tax returns and obtain bi-annual tax checks regarding the company’s PAYE deductions and reporting.
Inaccurate Accounting
One problem often experienced in small company tax returns is the lack of clear distinction between owner and business finances. It is essential for the business owner not to use company money for private expenses. If SARS suspects incorrect or improper bookkeeping, then the company can expect an audit. The company must have sufficient proof of expenditures and all records must be kept for a minimum period of five years. To avoid the above and related mistakes regarding company tax returns appoint a qualified and experienced bookkeeper or outsource the function to a reputable tax and accounting firm.
Keep a list of all accounts regarding income and expenses, keep proof of expenses in a safe place and reconcile accounts monthly. It is essential to have up-to-date records. Keep business and private expenses separate and ensure that private expenses are recorded. The private expenses must be listed in the shareholder loan account and should not be recorded as business expenses. Set clear guidelines and policies regarding stock taking to ensure an accurate reflection of inventory and the expenses associated with such.
Leaving Tax Payments for Last
Smaller private companies, close corporations, and sole traders often leave tax payments for last, especially when business is slow or under financial pressure. Operating costs are often dealt with first while tax payments have to wait. The problem is that late and non-submissions, as well as late or non-payments of company taxes come with hefty penalties. The penalties quickly add up and eventually the overdue tax payments can lead to SARS action against the company.
Prevent the above by implementing cash-flow plans and setting up a bank account specifically for the transfer of tax withholds such as VAT and PAYE. In this way, the company does not fall behind on payment of taxes withheld to SARS. Also, create an account for direct tax payments due to SARS. Finally, prevent costly mistakes with company tax returns by making use of our professional tax and accounting services.
Disclaimer: This article is for information purposes only and does not constitute tax, financial and legal advice. Call on our attorneys for legal advice, rather than relying on the information herein to make any decisions. The information is relevant to the date of publishing – January 2018.