Get it wrong and you could face massive penalties! …of up to 200%. By LAW, taxpayers (Companies and Individuals) are required to keep certain tax records for 5 years, however SARS urges us – as consultants, to keep records for 7 years. If you don’t know which documents and records SARS requires you to keep, then you will find yourself facing penalties. A single item of which you don’t have proof will cause the SARS to doubt the validity of all your other deductions claimed or disclosures of income received. This could lead to additional assessments and additional tax of up to 200%.
The words tax, tax man, Receiver and SARS are known to strike fear into the hearts of many an entrepreneur. This is not only because it implies that you have to part with your money, but because the tax process can be a daunting one. A good place to start when getting your taxes in order is by keeping accurate records. You may choose your own system of record keeping that suits the purpose and nature of your business, but your records must always establish your income and expenses. You need to keep permanent books of account as well as any other information to support these records, such as invoices, cheque stubs, paid accounts, and bank statements. The Income Tax Act and the Value-Added Tax Act specify certain records that you are required to keep. These records include:
- cash books
- cheque books
- bank statements
- deposit slips
- paid cheques
- stock lists and
- other books of account
Recent changes to the Act now include any data created by means of a computer, including data in the electronic form in which it was originally created or in which it is stored for back-up purposes. As a business-owner, it’s crucial that you keep records that will help you to prepare complete and accurate tax returns. It’s up to you to choose an accounting or bookkeeping system suited to your business and that complies with regulations.
If your company’s financial administration is in arrears or it’s just not your area of expertise, it’s probably better to get a professional tax consultant to get you up to date and to make sure all your taxes are paid up. It’s worth spending the extra money.
Your financial records.
To put it simply, your financial records reflect your company’s income, expenses, financial position and cash flow. Together with these records, you must also keep all other documentation (such as receipts, invoices, cancelled cheques, deposit slips, etc.) that support the entries in your records and tax returns. These “supporting documents” are very important, so file them in a logical order and store them in a safe place.
You’ll need the following records:
Those showing the assets, liabilities, undrawn profits, revaluation of fixed assets and various loans A register of fixed assets Detailed daily records of cash receipts and payments reflecting the nature of transactions and names of the parties involved (except for cash sales) Detailed records of credit purchases (goods and services) and sales reflecting the nature of transactions and the names of the parties involved
Statements of annual stocktaking and supporting vouchers
NB: If you’re operating both your personal and business banking from the same account, it’s best to open a separate account for your business, to enable proper record-keeping and tax filing. Keeping accurate and up to date records are essential for keeping track of money coming in and money going out of your business. At tax time, they are also important to: Identify nature of receipt – to show whether anything you received of a revenue nature or capital nature Avoid omitting deductible expenses – by recording your expenses as soon as they are incurred, you won’t forget to include them in your tax return
Establish amounts paid out as salaries or wages – Under normal circumstances amounts paid to employees for services rendered are taxable in the hands of the employees. In these cases employees’ tax must be deducted from salaries or wages by the person paying such salaries or wages. Explain items reported – If your income tax return is examined by SARS, you may be asked to explain certain items, which will be simple if you’ve kept complete records and their supporting documents.
Get a professional
A company is required by law to appoint an auditor/independent reviewer, if it is owner managed (New Companies Act), who will audit and sign an audit report relating to its financial statements. A CC must appoint an accounting officer. Normally, the auditor or accounting officer will help to determine the taxable income and the amount of tax to be paid. In the end, it’s also a lot easier for a professional to do it.
Keeping all your documents
You are required to keep your books and records, as SARS can ask to examine them at any time, should something not add up or seem suspicious. Retention periods in terms of the Companies Act and the Close Corporation Act are:
For Closed Corporations (CCs)
DOCUMENT – RETENTION PERIOD
1. Founding statement (form CK1) – Indefinite
2. Amended founding statement (forms CK2 and CK2A) – Indefinite
3. Minute book as well as resolutions passed at meetings – Indefinite
4. Annual financial statements including annual accounts and the accounting officer’s report – 15 years
5. Accounting records, including supporting schedules to accounting records and ancillary accounting records – 15 years
6. The microfilm image of any original record reproduced directly by the camera – the “camera master” – Indefinite
DOCUMENT – RETENTION PERIOD
1. Certificate of incorporation – Indefinite
2. Certificate of change of name (if any) – Indefinite
3. Memorandum and articles of association/Memorandum of Incorporation (New Companies Act) – Indefinite
4. Certificate to commence business (if any) – Indefinite
5. Minute book, CM25, CM26 and resolutions passed at general/class meetings – Indefinite
6. Proxy forms – 3 years
7. Proxy forms used at Court convened meetings 3 years – 3 years
8. Register of allotments after a person ceased to be a member (section 111) – 15 years
9. Registration of members – 15 years
10. Index of members – 15 years
11. Registers of mortgages, debentures and fixed assets – 15 years
12. Register of directors’ shareholdings – 15 years
13. Register of directors and certain officers – 15 years
14. Directors attendance register – 15 years
15. Branch register – 15 years
16. Annual financial statements including annual accounts, Directors’ report and an Auditors’ report – 15 years
17. Books of account recording information required by the Act – 15 years
18. Supporting schedules to books of account and ancillary books of account – 15 years
Record keeping for Income Tax or Capital Gains Tax purposes
As a taxpayer, you are required to keep records such as ledgers, cash books, data in electronic form, all supporting documents and any records relating to capital gains or capital losses for a period of five years from the date on which the tax assessment for that year was received by SARS. However, if objections and appeals have been lodged against assessments, you should keep all relevant records and information until the objection or appeal has been finalised, even if it takes longer than five years to sort out.
Appoint a Representative Taxpayer
Every Company/Close Corporation which conducts business or has an office in South Africa must, within one month of commencing operations or buying an office, for the purposes of section 101 of the Income Tax Act, appoint a representative as the Public Officer of the Company/CC. The name of the representative and his position must be given for approval to the SARS office for the district in which the Company/Close Corporation has its registered office.
The representative must be a responsible officer of the Company/Close Corporation (for example, director, manager, senior member, secretary, etc.) and such position must constantly be kept filled by the Company/Close Corporation. Accurate and up to date record-keeping is not only about making life easier when you file your taxes. It can also protect your business’s cash flow and enable to run a tight ship. Failure to pay your taxes is not only illegal, but it can lead to the closure of your business.