After almost a year of freelance editing, I decided that I needed to professionalise my service offering to clients. I imagined an ideal client to be either an individual/student or a corporate client. I am full-time employed and I wanted to run my business in a way that would ensure tax effectiveness, that is, I wanted to prevent paying higher tax than necessary.
Situation analysis
As a full-time employee, I did not want the income from editing to be added to my salary thereby placing me in a higher tax bracket. I also did not want to find myself in a situation where I might have difficulty in claiming back certain tax deductible expenses (eg home office expenses, donations to non-profit organisations, branding of business, business entertainment, subscriptions to editing products/organisations such as PerfectIt/PEG, telephone expenses, Wi-Fi packages and use of computer equipment).
SARS options
I considered the options available from the South African Revenue Service (SARS) in terms of turnover tax as the tax rates are attractive for a small business. However, these did not benefit me given my personal context. I accessed the SARS system and took the quick test to see if I would qualify for turnover tax – as I render personal services (academic editing services), the business activities fell out of the definition.
Proprietary Limited option
I then decided to go the route of setting up a proprietary limited, ie (Pty) Ltd, company. The benefits for me were as follows:
- Although the tax rates appear high, I felt that this type of vehicle would be attractive to corporate clients in the event I needed to register on a supplier database. This became a reality when I was able to register with ease on a university supplier database. Also, as long as I kept good records, I could justify tax deductible expenses and use this to reduce tax rates.
- A (Pty) Ltd has its own tax rates and my personal income would not be affected by being subjected to a higher tax rate.
- A (Pty) Ltd has its own legal identity, so I would be forced to treat the business as a separate legal entity. It would need its own bank account, tax clearance certificate and financial statements. I have seen too often the problems encountered when people are not able to separate their personal lives from business identities.
- At a glance I could see if the business was growing as income and expenses are clearly stated on bank statements.
CIPC
I sought the assistance of colleagues to register the business on the Companies and Intellectual Property Commission (CIPC) website. I appointed an accountant in advance to prepare financial statements in line with the CIPC and SARS requirements when these are needed. I made it clear to the accountant that I would prepare the paperwork myself using a simple EXCEL spreadsheet. I was clear that I would provide the content. I did this because, again, I have seen too often how people hand key information over and walk away expecting the other person to deal with the task in totality. At this point in my life, I understand the value of specialist knowledge, but I also believe in taking responsibility for things that are important to me.
Updating SARS eFiling
I advised SARS of the new tax type/product that I had registered (when registering with CIPC, tax registration is done automatically, but one has to let SARS know). My updated SARS eFiling account would allow me to file my personal tax return as well as that of the (Pty) Ltd.
SARS has a single log in function so, once you have an eFiling account, you can add multiple tax products to that account. An additional advantage is that you don’t need to remember multiple passwords and log in details. I was able to prove that I was the director of the newly registered (Pty) Ltd and therefore add the company filing responsibilities to my SARS eFiling profile.
Conclusion
Now that the company registration steps are concluded and my SARS eFiling profile updated, I can focus on growing my business, Shabd-Wrdz Academic Editing Services, and be the best representative for it. I also have a silent partner (my Spiritual Master). This helps me to ensure that I am ethical and professional in my dealings with clients.
There is peace of mind that comes with being compliant with the laws of the land, whether paying library fines, traffic fines or taxes.
Feature photo: Markus Winkler, Unsplash
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