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Filing taxes can be a daunting task for South African small businesses, exacerbated by the complexity of tax regulations and frequent legislative changes. Despite efforts by the South African Revenue Service (SARS) to modernise the tax system, there remains some work to be done to close the significant gap between the number of small businesses and those fulfilling tax obligations. However, with the right approach, small firms can leverage technology and strategic planning to make taxes work for their benefit.

Effective planning and communication with an accountant is crucial

“Working with an accountant is crucial for small business owners to understand the tax implications for their business. Timely planning and preparation for tax season can play a huge role in alleviating stress and ensuring compliance. Awareness of tax deadlines and types allows for better cash flow management and provision for pending payments. SARS has a strategy document with clear goals and objectives, and businesses should have the same level of focus on their tax and accounting systems and processes,” advises Colin Timmis, Country Manager South Africa, Xero.

Working in collaboration with SARS and financial advisors can not only help small businesses avoid surprises but also enables them to leverage incentives and support. Accountants can assist in navigating financial regulations, tax compliance, and can introduce digital tools for streamlined operations and real-time insights.

Embracing digital tools

Timmis says an easy habit to get into to help with tax filing is keeping digital records of all accounting transactions and supporting documents throughout the year.

“Capturing receipts, bills, and invoices digitally makes it easy to access these when it comes to tax time. Hubdoc is a tool that allows you to upload bills and receipts to Xero by taking a photo on your mobile or scanning them. Once uploaded, the key data is extracted and used to create a transaction in Xero, which is then matched with bank feed transactions, making it quick and easy to reconcile and have up-to-date financials. Having this data securely stored in the cloud makes it easy for business owners and their accountant to access it at tax time.

“At Xero, we’ve developed a suite of cloud-based tools for preparing, storing, and eFiling VAT returns directly to SARS in minutes. Embracing these new tools means reduced errors and a streamlined, pain-free administrative process,” adds Timmis.

Expanding the taxpayer base

As SARS continues to make progress in digitising the tax system, this should result in higher levels of compliance and detection of non-compliant entities. They’ve invested heavily in their digital platform and partnered with private organisations to help businesses file their taxes more seamlessly and reduce complexity. But there are still some missed opportunities to grow our tax base.

“In 2022/23, 1.2 million business owners submitted tax returns, but only 130,000 registered for small business corporation tax and turnover tax. The numbers are very low in both of these areas. This is a huge, missed opportunity for smaller businesses as there are benefits, they could be missing out on like paying less tax,” says Timmis.

Navigating the complexities of the tax system can no doubt be challenging for South African small businesses. With proactive planning and the adoption of technology, taxes can become a tool for business growth rather than a weighing burden. By prioritising effective communication with accountants and leveraging digital tools, small businesses can optimise tax compliance and spend more time on the parts of their business they enjoy.

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