Tax compliance isn’t the most exciting part of running a business, but for many South African SMEs, it’s one of the most common areas where avoidable mistakes are made. These errors often start small—missed deadlines, incorrect classifications, informal transactions—but they can build up quickly and create major problems with SARS down the line.
Here are some of the most common tax mistakes that small businesses in South Africa make—and what you can do to stay on the right side of the law.
1. Not Registering for the Right Taxes
Many SMEs register for income tax when they incorporate, but forget to register for other relevant taxes like VAT, PAYE, UIF, or SDL as their operations grow. If you exceed R1 million in turnover in any 12-month period, VAT registration is compulsory—but many businesses only realise this after the fact. Similarly, once you hire employees, you must register with SARS and the Department of Labour for PAYE and UIF—even if you’re a small business.
2. Treating Personal and Business Finances as One
Mixing personal and business finances is a common issue for sole proprietors and small companies. Using one bank account for both can make it harder to track expenses, correctly calculate income, and justify deductions. This not only confuses your books—it can raise red flags with SARS if your tax submissions don’t align with your bank statements.
3. Poor Record-Keeping
Keeping receipts, invoices, and supporting documentation is essential for claiming legitimate tax deductions and defending yourself in a SARS audit. Yet many SMEs fail to keep clear, organised records of business transactions. Without proof, even valid expenses can be denied by SARS, resulting in higher tax liabilities and penalties.
4. Missing Provisional Tax Deadlines
If your business earns more than R1 million per year (or if you don’t earn all your income via PAYE), you’re likely a provisional taxpayer. That means you’re required to submit two tax payments during the year, based on estimated income. Missing these deadlines—or underestimating your income—can lead to interest and penalties.
5. Incorrect VAT Claims
VAT is one of the most misunderstood taxes. Common mistakes include claiming VAT on expenses that aren’t actually eligible (like non-business entertainment), forgetting to include VAT on sales, or claiming input VAT without proper tax invoices. Another issue is not accounting for VAT correctly when buying from or selling to foreign suppliers or customers.
6. Forgetting to Declare All Income
Some business owners forget (or fail) to declare income earned from side projects, offshore clients, or informal transactions. SARS is increasingly linking data from bank accounts, third-party providers, and suppliers, making it easier for them to identify under-declared income.
7. Not Using a Qualified Tax Practitioner
Many SMEs try to “DIY” their tax submissions or rely on informal help to save costs. But tax legislation changes regularly, and incorrect advice can lead to expensive mistakes. It’s worth working with a qualified tax practitioner who understands SARS requirements and can help you structure your finances in the most efficient way.
8. Ignoring Penalties or Letters from SARS
SARS doesn’t just forget about missed returns. If you ignore notices, penalties can compound over time—even for small oversights. Responding early, filing outstanding returns, and applying for waivers (where appropriate) can help limit the damage.
9. Not Understanding Tax Incentives and Allowances
There are many tax relief measures available to SMEs—like the Small Business Corporation (SBC) tax rates, section 12C asset depreciation, or employment tax incentives (ETI)—but they’re often overlooked. Not knowing what you qualify for means you may be paying more tax than you should.
10. Treating Dividends and Directors’ Salaries Incorrectly
Paying yourself out of the business without properly accounting for dividends tax or remuneration tax (PAYE) can trigger compliance issues. Many business owners mistakenly draw money informally without issuing payslips or declaring dividends properly, which can cause SARS complications or errors in their annual financial statements.
Final Thought
Tax doesn’t need to be a headache—but it does require structure, discipline, and a proactive approach. The cost of a small tax mistake often outweighs the effort it takes to stay compliant. By avoiding these common pitfalls and getting the right advice early, South African SMEs can reduce risk, protect their cash flow, and build a stronger foundation for long-term growth.