How Company Tax Returns and CIPC Returns Work
I am often surprised to find how little our clients understand their company’s tax and CIPC obligations, so here’s a brief explanation –
The terms company and Close Corporation are synonymous in the discussion below.
1) All companies must be registered as tax payers.
2) They are all provisional tax payers and that means they must submit three tax returns each tax year regardless of whether they have traded or not.
3) The 1st provisional tax return is due 6 months after the beginning of the relevant tax year (end August 2016 for a February year end company). This is known as the 1st Provisional 2017 as it is in repect of the tax year ended 28 February 2017.
4) The 2nd provisional tax returns is due at the end of the tax year (28 February 2017 in our example).
5) The Annual tax return for 2017 is due by 28 February 2018.
6) In most cases the amount payable for the 1st and 2nd provisional returns is based on previous assessments and is therefore nil for relatively new companies.
7) The annual tax return is based on the income statement of the company for the year in question and tax is payable at 28% on the taxable income (less any provisional tax that may have been paid).
Now for the CIPC return
1) The return must be submitted by all companies during the month following the anniversary of their date of incorporation, which is a bit silly because it means that we have to keep track of these returns throughout the year.
2) The purpose of the return is (a) for CIPC to collect an annual fee and (b) to keep their database up to date.
3) The annual fee is determined by turnover (and is generally higher for companies than CCs).
4) Late submissions automatically give rise to penalties.
5) If no returns are submitted for 2 years (sometimes 3), the company is put into status “de-registration process”. That’s just a warning bell and can be rectified by submitting the outstanding returns.
6) Then periodically, CIPC will hit the button and finally de-register all of those companies.
7) It is possible (but painful and rarely cost effective) to restore a company from de-registration.
8) The status of a company in final de-registration is somewhat uncertain, but it is clear from court cases that it may not enter into any contracts which also means that it cannot trade.