Turnover tax is a simplified system aimed at making it easier for micro business to meet their tax obligations.

The turnover tax system replaces Income Tax, VAT, Provisional Tax, Capital Gains Tax and Dividends Tax for micro businesses with a qualifying annual turnover of R 1 million or less.

A micro business that is registered for turnover tax can, however, elect to remain in the VAT system

Turnover tax is worked out by applying a tax rate to the taxable turnover of a micro business.

Who is it for?

Micro businesses with an annual turnover of R 1 million or less. The following taxpayers may qualify:

• Individuals (sole proprietors)
• Partnerships
• Close corporations
• Companies
• Co-operatives

How to register?

To register for Turnover Tax:

• Do a quick test to see if you qualify for turnover tax

What records should be kept?

A big advantage of turnover tax is the reduced record-keeping requirements.

The following records must be kept:

1. Records of all amounts received;
2. Records of dividends declared;
3. A list of each asset with a cost price of more than R10,000 at the end of the year of assessment as well as of liabilities exceeding R10,000.

To take account of the typical expenses incurred by a micro business and to eliminate the need for detailed recordkeeping of deductible tax expenses, the turnover tax rates are significantly lower than the tax rates under the standard tax system.

Small businesses with an annual turnover of up to R20 million may qualify to pay Income Tax at a reduced tax rate.

A Small Business Corporation (SBC) is a private company that complies with various requirements per the Tax Act.

If it meets the definition of a SBC, it can take advantage of progressive tax tables (as opposed to the fixed standard corporate tax rate) and also accelerated depreciation for certain assets.

The latter means that less tax may be paid in the early years when the assets are purchased.

If you indicate that you are a small business on your Income Tax Return (ITR14), and meet all the requirements, the reduced rates will be applied automatically.

There is no need to apply for the reduced rates because your SBC status will be determined using information on your ITR14.

Is your business viewed as a Small Business Corporation by SARS?

Is your business Turnover less that R20 million per year?

Are the shareholders in your business all natural persons?

Do you only own your one business?

Does less that 20% of your turnover come from “investment” income?

Is less than 20% of your income from rendering a “personal” service?

If you have answered YES to all the above questions your business could be making massive Income Tax savings.

Personal service includes any service in the field of accounting, actuarial science, architecture, auctioneering, auditing, broadcasting, consulting, draughtsman ship, education, engineering, financial service broking, health, information technology, journalism, law, management, real estate broking, research, sport, surveying, translation, valuation or veterinary science, performed personally by any person who holds an interest in the company, close corporation or co-operative, except where such small business corporation employs three or more unconnected full-time employees for core operations throughout the year of assessment.