A business can overpay tax by leaving out expenses it was entitled to claim. An expense is deductible if it's incurred in the production of income and not capital in nature. Everyday costs that meet this test can be left out of the books, recorded under the wrong heading, or lost with the receipt. Each rand of legitimate deduction you miss is taxed at your marginal or company rate.

Everyday business expenses you can deduct

These are ordinary, legitimate business expenses that you can claim if you record them:

  • Bank charges and card-machine fees: a few rand each, a larger amount over a year, and fully deductible.
  • Software and subscriptions: accounting software, website hosting, design tools, cloud storage and the apps you run the business on.
  • Professional fees: your accountant, bookkeeper and business-related legal work.
  • Business travel and fuel: the business portion of vehicle running costs, tolls and parking, provided you keep a logbook.
  • Marketing: social ads, flyers, your website, and photography and branding for the business.
  • Insurance: business cover, professional indemnity, and cover on business assets and premises.
  • Repairs and maintenance: fixing equipment or premises you already own. Improving or replacing them is capital spending.
  • Bad debts: an invoice you can't recover can be written off against income.

Home-office costs can be deductible if you work mainly from home and have a space used regularly and exclusively for the business. You then apportion costs such as rent, rates and electricity by floor area. The rules are strict. Check your set-up against them before you claim, because SARS examines home-office claims closely.

Capital assets and running costs

A running cost, such as rent, salaries, stock or a monthly software subscription, is deducted in full in the year you incur it. A capital asset, such as a laptop, a delivery vehicle, machinery, a generator or shop fittings, is treated differently. You cannot write off its whole cost in the year you buy it. You claim it gradually through wear-and-tear over the asset's useful life.

A laptop bought outright and a software subscription

A R25,000 laptop bought outright is a capital asset. You claim wear-and-tear on it over its useful life, so you can't deduct the full R25,000 this year. Design software at R500 a month gives a running-cost deduction of R6,000 for the year straight away. Both are technology costs, and the tax relief arrives at different times. If you miss the wear-and-tear, you lose the deduction. If you expense the whole asset at once, SARS can adjust your return.

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Amount of a capital asset's full cost you can deduct in year one. You claim it over its useful life through wear-and-tear.

How wear-and-tear works

Wear-and-tear spreads the deduction for a capital asset over its useful life. You still get relief on the full cost. A R25,000 laptop written down over, say, three years gives you part of the deduction each year until the full cost is claimed. Larger items such as a delivery vehicle, a generator or machinery follow the same method over longer lives. If you buy a capital asset and never set up the wear-and-tear claim, you lose the deduction. Over several years of equipment purchases, the lost deductions add up to a large amount.

Missed deductions over one year

Take a small business that leaves out R2,500 a month of bank charges, subscriptions and professional fees. It also misses R18,000 of business travel because it kept no logbook, and never sets up wear-and-tear on R60,000 of equipment. Those deductions can come to R60,000–R80,000 in one year. At a 27% company rate, the business pays roughly R16,000–R21,000 of tax it did not owe. Every one of those claims was legitimate.

Expenses that are limited or not deductible

Some costs are limited or excluded, and over-claiming them can lead SARS to query your return. Entertainment, such as client lunches and hospitality, is restricted. Fines and penalties are not deductible at all. You must remove the private portion of anything you use for both business and personal purposes, such as your car, your phone or your home internet. Drawings you take for yourself are not an expense and are not deductible. Recording these items correctly lets you claim everything you're entitled to and keeps your return defensible.

Records you need to support a deduction

SARS can disallow a deduction you can't prove, even if the spending was real. You must keep the supporting records, such as tax invoices, receipts, bank statements and logbooks, for five years. A genuine expense is lost if the paperwork has been thrown away and nothing backs it up at assessment. Till slips fade, and a bank statement line on its own may not be enough, because SARS wants the invoice behind it. Photograph or forward each receipt into your accounting software on the day you get it, so that the proof is attached to the transaction.

Getting your deductions right

Claiming what you're entitled to depends on recording each cost under the right heading: running cost or capital, deductible or limited, business or private. Bookkeeping kept up to date each month captures every legitimate cost, puts it under the right heading and attaches a valid invoice. If you want to check that every legitimate expense is captured and treated correctly, talk to us. We review our clients' expenses as part of their monthly bookkeeping.