Effective tax planning saves SMEs time and money

Megan Dedekind | 20 February 2024

Megan Dedekind is an area manager at Business Partners Limited

One of the most important administrative components of running a successful business involves complying with tax laws of a country.

However, to avoid paying too much tax while remaining tax compliant, small businesses must have an effective tax strategy in place.

With several different deductions, credits and income streams that need to be considered, the process of submitting tax returns can be quite an administrative burden.

The good news is that by implementing a few simple measures to streamline the process, SMEs can save a substantial amount of money and sidestep unnecessary penalties on the journey to a healthier cashflow.


Prioritise efficient record-keeping

The first step to better tax management is to create an efficient and consistent system for recording important income and expense statements.

Rather than waiting for tax season to arrive before getting your affairs in order, SMEs should ensure that at the end of each month, relevant documents are saved in a secure place, and that records are filed diligently and timeously.

These documents should include any relevant invoices, receipts and bank statements. In order to ensure you can substantiate claims for tax deductions, receipts for deductible expenses should be saved electronically. These expenses include entertainment costs, insurance costs, travel and fuel expenses, asset depreciation, office supplies and bank fees.


Get smart about tax registration

The next step is to ensure that the kind of tax the business is registered for is the most cost-efficient option. For example, since 2015, the South African Revenue Service (SARS) has implemented a turnover tax system for micro enterprises that earn an annual turnover of less than R1 million for the financial year.

Businesses that qualify for turnover tax are taxed according to a table that imposes a certain amount of tax on different earning brackets, without requiring those enterprises to submit their deductible expenses on a case-by-case, itemised basis. By switching to turnover tax, small businesses can greatly reduce the administrative burden of filing their taxes. Read more: How do I declare business income for tax?

This is just one example of how ensuring that the business is registered for the right kind of tax can reap long-tern benefits.

Enlisting the services of a tax practitioner who can offer advice and guidance is an investment well-made.

Businesses that cannot afford to employ these services on a retainer basis could opt for a regular consulting session where practitioners can answer any questions and provide expert opinion on how to optimise tax as the year progresses. Read more: Who can help me with tax advice?


Cash in on tax benefits

Another important tax strategy to employ is to take full advantage of the tax breaks and incentives that are offered to small businesses.

Depending on the sector and the nature of the business, SMEs stand to gain substantial benefits from breaks on certain research and development activities, for example.

The cost of machinery and other capital assets acquired for the purpose of research and development also qualify for significant reductions on depreciation in the first three years of operation.

Due to ongoing and worsening loadshedding, the government also introduced an energy efficiency savings incentive which small businesses can cash in on. Businesses that employ energy saving measures can save up to R0.95 for each kilowatt hour saved.

This is yet another example of how small businesses can benefit from consulting a tax expert and enquiring about which breaks, incentives and credits could apply to their unique business model.


Automate processes

Many of the manual accounting processes within a small business, ranging from invoicing to bookkeeping and preparing reports can be automated by using tools from Xero, QuickBooks and similar software.

By automating these processes, you can increase your team’s productivity, streamline invoice processes and have more accurate forecasting, reporting and better cash flow management.

How small businesses benefit from these tools varies from business to business, however, they can be highly useful and can optimise business operations in most cases.  Read more: How do I plan and manage my small business cash flow?