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Tax-Deductible Business Expenses in South Africa: A Guide for Small Businesses and Freelancers

Tax-Deductible Business Expenses in South Africa: A Guide for Small Businesses and Freelancers
March 16, 2021 gnuworld
tax deductible expenses

In the current economic climate, it’s essential to reduce business expenses wherever possible. Small businesses must ensure they claim all the tax-deductible business expenses they’re entitled to on their tax returns.

What counts as tax-deductible business expenses?

According to SARS, tax-deductible business expenses are any expense incurred in the operation of a business.

For example, stationery bought for the office is considered a business expense.

It’s imperative to keep records of these purchases.

In South Africa, whether you’re registered as a company or a sole proprietor, you can claim business expenses on your taxes. Freelancers who work from home can also claim valid expenses.

Checklist of business expenses to claim

To make sure you haven’t overlooked any tax-deductible business expenses, use our handy checklist.

Day-to-day business expenses

These are general day-to-day office or business expenses, including items like stationery, petrol and internet. These expenses should all fall into one the following categories:

  • material and equipment costs
  • employee costs and administration costs
  • office rental costs
  • office supplies
  • phone and internet costs
  • travel and transport, including business vehicle running costs
  • uniforms and PPE
  • wholesale purchase costs for inventory
  • financial charges (such as bank fees)
  • electricity, water and other utilities
  • security costs
  • cleaning costs
  • legal fees
  • insurance fees
  • marketing, advertising and promotional expenses.

Capital expenses

These are large expenses that don’t crop up on a daily or monthly basis. Usually, these long-term expenses are budgeted for well in advance. Examples include:

  • equipment and machinery
  • business vehicles
  • renovation costs
  • hardware, such as computers
  • signage.

Education expenses

The cost of staff training that directly relates to their roles at the company can be claimed as a business expense.

Entertainment expenses

Entertainment costs for clients can be deducted. This can include expenses like drinks, meals or live entertainment. You must be able to prove that these costs were business-related.

Business start-up expenses

Any costs that were incurred while setting up your business in your first year of trading can be claimed.

Net operating losses

Any losses incurred in the same business in previous years can be carried forward as a tax deduction.

Business expenses you can claim as a commission earner

SARS allows commission earners to deduct all commission-related expenses against his or her commission income. This includes expenses such as telephone usage, petrol, accommodation, wear and tear, and entertainment.

You’ll need to prove that these expenses were directly related to your commission work. SARS has been known to flag these claims due to previous abuse of the system, especially for more vague claims like entertainment.

Claiming home office expenses

If you work from home, there are home office expenses you can claim for. These include items like data or internet expenses, electricity usage, rent, rates and cleaning costs. The claimable amount is based on how much of your home is taken up by your office space.

To work out what you can claim, you must work out what percentage of your home’s floor space is taken up by your dedicated workspace. You can only claim for that percentage of your expenses because the rest is for personal use.

If you’re a remote worker who uses a coworking space like The Workspace, those office fees are still claimable as a business expense. This applies to freelancers and remote workers who are employed full time by a company.

Claiming medical expenses

Certain medical expenses can be claimed through the Additional Medical Expenses Tax Credit (AMTC).

This is a rebate that’s used to reduce the tax you pay. It covers a range of medical expenses such as primary doctor care, dentistry, optometry, hospital stays, medicines and much more.

The percentage of the fees paid to a registered medical scheme that you can claim will depend on your age and whether or not you have a disability.

You will need to submit a medical aid certificate to support an AMTC claim.

Documents you need to support claims

All business expenses you want to claim need to be supported by documentation. Below are examples of business expenses and the documents you would need to submit for each. For most business expenses, an invoice or receipt will suffice.

Expense

Supporting document/s

Office rental

Monthly invoices

Office supplies

Receipts

Medical costs

Medical aid tax certificate, medical invoices

Depreciation on business assets

Original invoice, calculation of wear and tear

Travel

Mileage logbook, vehicle purchase invoice (if applicable), fuel, maintenance, licence and insurance invoices, accommodation invoices

Rideshare costs (e.g. Uber)

Email receipt

Bank charges

Bank statements

Entertainment

Schedule with client names and purpose of entertainment, restaurant or venue invoices

Telephone

Monthly statements

Home office

Calculation of percentage of expenses claimable; invoices for expenses (electricity and water, rates, bond mortgage statement, rental invoice)

For some of these expenses, it might be necessary to show the ratio between business and personal use. For example, if you use your personal phone for work, you’ll need to show what usage is business-related versus what usage is personal. You can only claim for business usage.

Do you still claim expenses if you pay turnover tax?

Yes, business expenses are still claimable if you pay turnover tax. Small businesses that have a yearly turnover of less than R1 million can opt for a simplified tax rate called turnover tax. This option also simplifies how you claim business expenses.

Turnover tax automatically estimates your business expenses when calculating your taxable income. This means businesses that are registered for turnover tax don’t need to track and report their tax-deductible expenses.

The Workspace

At The Workspace, we offer affordable, fully serviced offices and coworking. Your office fees are tax-deductible business expenses. All our members have access to meeting rooms, boardrooms and a range of business services.

For more information or to arrange a visit to one of our branches, call us on 0861 250 259 or contact us online.

Contact us to find out more