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Kobus Engelbrecht, marketing head for the Sanlam Business Market, says business owners will do well to pay close attention to the manner in which their businesses and their personal income from their businesses are taxed; and whether they are paying the correct amounts of tax.

“Not only are businesses taxed, but so too are their dividends. If the business owner draws a salary from the business, this is also taxed in his hands. Income tax, therefore, is a major expense for any business and its owners. As is the case with all other expenses, great care should be taken to ensure that the correct amount is paid in tax.”

Overpaying as well as underpaying of any form of tax has far-reaching consequences. Paying too much tax negatively affects the after-tax profits of the business, while underpaying tax exposes the business and its owners to prosecution and large fines.

Engelbrecht says the tax changes in the 2016 National Budget will affect every business and its owners in different ways as every business and its owners’ circumstances are unique. It is, therefore, important for business owners to obtain advice on the impact of tax changes on their businesses.

What should business owners do?

The amounts payable in any form of tax is based upon the actual numbers of a particular business. Engelbrecht says it is therefore of the utmost importance that that every business has a properly managed accounting system. “The owners must have absolute confidence that the accounting reports produced by the system which they use are trustworthy and reliable.”

The amounts payable in tax should be reduced to the absolute minimum. He says there are typically two ways of ensuring that a business does not pay too much tax, namely tax evasion and tax avoidance.

“Tax evasion is illegal and uses illegal means to avoid paying taxes. Business owners should never engage in any such activity, as it can lead to prosecution and huge amounts in fines.

“Tax avoidance, on the other hand, involves the legal usage of the tax regime to one's own advantage to legally minimise the amount of tax that is payable. There is nothing illegal about avoiding paying too much tax. It is to the benefit of both the business and its owners to ensure that they pay the correct amount of tax.”

Engelbrecht argues that the number of different types of taxes including income tax ,capital gains tax, value added tax, transfer duty, excise duty ,estate duty and donations makes tax law and the compliance with tax law a very complicated and specialised environment.

He urges business owners to use specialist tax advisors to help them find ways to legally reduce the amount of tax payable. “In fact, paying a good adviser may be a very cost effective exercise, compared to overpaying tax due to your own lack of knowledge.”

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