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Are you a director of a company, or a member of a CC? Make sure you comply with these three tax obligations

by , 19 December 2014
Just because you're a company director or member of a Close Corporation (CC) doesn't mean you escape tax.

You still have obligations you have to comply with or you could face a 'Fixed amount administrative/non-compliance penalty' or an 'Understatement penalty'.

But what exactly are your tax obligations?

To help you avoid these penalties, I'm going to show you exactly what your tax obligations are...

 
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You have three tax obligations as a company director of member of a CC

 
1. PAYE
 
Directors and CC members used to be able to pay their tax as provisional taxpayers. This isn't the case anymore and it means you must pay PAYE on your remuneration.
 
This means you must pay PAYE on your salary, bonuses, allowances and fringe benefits. If you earn a salary as well as an incentive bonus, it will affect you severely.
 
If you're the owner and a manager, this is even more complicated because of Paragraph 11C of the Fourth Schedule to the Income Tax Act.
 
This means you might have to pay PAYE on your 2014 figures, instead of your actual 2015 figures. You must select the higher of the two. So, if you earn R220 000 in 2014 but only R140 000 in 2015, you could end up having to pay PAYE on R220 000! But, there are provisos. 
 
If you don't normally get a fixed monthly salary, you're more likely to draw money regularly through a loan account. According to the tax law, you must calculate your monthly PAYE liability on the money you take from your loan account.
 
2. Skills Development Levy (SDL) 
 
When you workout your company's SDL contributions, you must include your salary.  This is if your salary, as an employer is more than R500 000.
 
This is 1% of your salary amount. You must pay SDL on a monthly basis, within the first seven days of the month.
 
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3. Unemployment Insurance Fund (UIF)
 
Along with paying PAYE and SDL contributions, you also have to include UIF contributions. All employees, including directors and members, must contribute to UIF. SARS limits this contribution to R14 872 per month per employee. Because the fund's structure changed, it will pay a benefit ranging from:
 
38% for the highest paid workers to; and
58% for the lowest paid workers.
 
Just remember, if you choose to quit your job, the fund doesn't cover you because of the new structure. 
 
You have to comply with these obligations on a monthly basis, the same way any other employee below you does. 
 
Make sure you do all the calculations correctly. If you have employees, pay the money to SARS when you hand over their taxes. 
 
The Practical Tax Loose Lease Service contains the exact formula you must use to make sure you pay the right amount of tax each month. Make sure you fulfil your tax obligations so SARS doesn't penalise you.
 


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