What is Turnover Tax and am I eligible to register?
In order to make it easier for micro businesses to meet their tax obligations, turnover tax is a simplified system. 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 (from 1 March 2012).
Sole proprietors, partnerships, companies or close corporation are eligible for Turnover Tax if their “qualifying turnover” is less than R1 million per annum and are considered to be a micro business. Read our guide on who is eligible to register for this tax type and the process to follow for registration.
What is Turnover Tax?
Turnover Tax is a tax calculated against a business' turnover, instead of the profit (i.e. income less expenses), as is the case with business taxes. Since companies don't have to keep detailed records of expenses, the administrative burden is reduced for business owners. This is because they do not have to understand which items are deductible for tax purposes.
Follow this link for a detailed list of criteria that needs to be met in order to qualify for Turnover Tax.
What kinds of businesses qualify for turnover tax?
Turnover tax is only reserved for micro businesses who have a qualifying turnover of less than R1m for the financial year and that have a financial year end of February each year.
Qualifying turnover is the total amount a business receives during a year from carrying on its business activities. The following amounts are excluded from qualifying turnover, when calculating the R1 million cap:
Any amount received from the sale of an asset will not be included in the turnover of the business. For example, if your annual turnover is R750,000 and you dispose of an asset worth 400,000, the proceeds from the sale will be excluded and your turnover would still fall below the R1 million threshold.
Certain Government grants exempt from income tax in terms of the Income Tax Act.
In addition to the basic eligibility standards, there are other aspects of a business that determine eligibility for Turnover Tax, see the most important criteria below:
Does more than 20% of your turnover comprise accounting, actuarial science, architecture, auctioneering, auditing, broadcasting, consulting, draftsmanship, education, engineering, financial service broking or health (GP, dentist, etc), information technology, real estate brokering, research, sport, surveying, translation, valuation or veterinary services – if you answer yes to any of the above, you would not qualify
If you or the business has disposed of business assets where the proceeds were in excess of R1,5million or more you would not qualify
If you are a Public Benefit Organisation, labour broker or Recreational club you would not qualify
If you employ 3 or more employees who are not connected to the owners of the business and more than 80% of your total turnover comes from a single client – you would qualify. However, should your turnover from a single client exceed 80% of total turnover and you do not employ 3 or more non-connected persons, you would not qualify
Are all shareholders of your company natural persons (i.e. not a company, CC or Trust) – if not, you would not qualify
You've qualified for Turnover Tax, what next?
If your business qualifies for turnover tax and you wish to register (Turnover Tax is optional), you can submit a TT01 form to SARS. Unfortunately, you will need to make an appointment at a SARS branch office in order to submit your registration application and cannot be submitted via SARS online platform (you can make an appointment using the platform).
Help me calculate my Taxable Turnover
The "qualifying turnover" refers to the amount used to determine that they are eligible for Turnover Tax, while the "taxable turnover" is the amount used to calculate the tax payable.
The total income of a business is determined by all the invoices raised and 50% of the receipts from the sale of capital assets. Companies (not individuals) must include all the money they make from interest received on investments and cash, but not dividends.
What are the current turnover tax rates?
Turnover tax is worked out by applying a tax rate to the taxable turnover of a micro business. Year of assessment ending on any date between 1 March 2021 and 28 February 2022:
Source: Table extracted from sars.gov.za/types-of-tax/turnover-tax/
What taxes are applicable for a micro business registered for Turnover Tax?
Micro businesses registered for Turnover Tax are exempt from Capital Gains Tax (CGT), but 50% of the proceeds of asset sales must be included in the calculation of your "taxable turnover". By doing this, large capital gains will not be routed through the turnover tax system to avoid capital gains tax.
Additionally, dividend distributions up to R200,000 per year are exempt from Dividend Withholding Tax (DWT). DWT is charged at the standard rate of 20% on dividends in excess of R200,000.
A company is only required to register for VAT if their taxable supplies exceed R1m in a 12-month period. Due to this, micro businesses, which are defined as having turnover under R1m, will not be required to register for VAT.
How to submit returns and pay turnover tax
Micro-businesses with turnover tax submit two provisional returns and a final tax return. The two provisional returns (submitted in August and February each year) are based on anticipated revenue for the year, which is then compared to what was actually made at the end of each year.
If you are registered for turnover tax, I would advise considering the added time and effort it will take to deliver your tax return by hand instead of electronically.
What Records Does a Micro Business Need to Keep?
If you are a Turnover Taxpayer, then you do not need to maintain an exhaustive record of your business transactions but there are some items that SARS does require as a minimum, these are:
A list of all amounts received from clients
A list of dividends declared
A list of assets which cost more than R 10,000 per item
A list of liabilities which exceed R 10,000
What happens if the business exceeds the threshold?
Within 21 days of your business exceeding the R1m turnover threshold, you would need to notify SARS and deregister the business for Turnover Tax – this can only be done in person at a SARS branch office (similarly to the registration process).
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