LU10- TURNOVER TAX
WHAT IS TURNOVER TAX?
Turnover tax was introduced with effect from 1 March 2009 as a simple all-in-one tax for micro businesses who meet
certain requirements. The reason for introducing this new, simpler, tax was, according to SARS:
Small businesses have the potential to grow the economy, generate jobs and reduce poverty. With this initiative in mind
and in line with government’s commitment to reducing the administrative burden on small businesses and cultivating an
environment for entrepreneurship, SARS has designed a new single tax system as a tool for small businesses to help
streamline their tax obligations.
Part IV of Chapter II of the Income Tax Act covers turnover tax payable by micro businesses. In addition, Schedule 6 to the
Income Tax Act contains the detailed paragraphs covering the determination of turnover tax. As the name implies, the tax
is levied on turnover, not on net profit. Therefore the micro business does not need to keep records of expenses or trading
stock for tax purposes (although this may well be required for other purposes e.g. budgeting). Previously, a person who
had registered his business for turnover tax would not be allowed to register this business as a VAT vendor (and those
who had previously registered as VAT vendors would need to deregister when registering for turnover tax). Effective from
1 March 2012, VAT and turnover tax have been completely de-linked. Vendors who are registered for VAT may now freely
register for turnover tax without any requirement to deregister as VAT vendors.
It is important to note that although registering as a micro business will likely save a taxpayer administrative costs it is not
a given that the taxpayer will pay less tax overall. This tax is purely designed to ease the administrative burden of
compliance on very small businesses with the hope that this will encourage previously non-complying businesses to start
paying some tax. It is also important to note that although SARS markets this tax as an ‘all-in-one-tax’ this does not mean
that taxpayers will fall completely out the net of all other taxes – as we proceed through the chapter we will see many
instances where a person registered as a micro business will still be subject to normal income tax. In addition, a micro
business which pays salaries above the tax threshold will still be subject to all the usual requirements with regards to
withholding PAYE and UIF on these salaries.
However, effective since 1 March 2012 micro businesses are given the option of making payments for turnover tax, VAT
and employees’ tax at twice-yearly intervals. In addition a single combined return is filed on a twice-yearly basis from 1
March 2013. The number of returns required for these taxes has therefore fallen from eighteen to only two a year from
the 2013/2014 tax year. Because of the build-up of tax liabilities (e.g. six months’ worth of PAYE as opposed to one
month’s worth) micro businesses will need to take care to manage their cashflow to ensure that funds are available to
meet these liabilities on the due date.
, MICRO BUSINESS TAX RATES
Turnover tax rates are fixed annually by parliament. The rates in effect for the years of assessment commencing on or
after 1 March 2015 are as follows:
SEE EXAMPLE 10.1
DO QUESTION 10.1
WHO COULD QUALIFY FOR TURNOVER TAX?
A business must meet certain criteria in order to qualify as a micro business and be eligible for turnover tax. Natural
persons (including partnerships), companies and close corporations can all qualify as micro businesses provided that all of
the following conditions are met:
The ‘qualifying turnover’ does not exceed R 1 million.
In the case of a partnership, company or CC the partners, shareholders or members must all be natural persons
and the financial year-end must be the end of February. In addition, no more than 20% of the company’s total
receipts for the year of assessment may consist of investment income and income from the rendering of a
professional service.
The natural person (in the case of individuals or partners) or shareholders (in the case of a company or CC) may
not at any time during the year of assessment hold any share or interest in the equity of another company.
This requirement prevents persons from splitting their business interests between various companies in order to
keep the qualifying turnover below the threshold.
The following shareholdings are, however, permitted:
Shares in a listed South African company;
Shares in a portfolio of a collective investment scheme;
Shares in a sectional title body corporate or a share block company;
WHAT IS TURNOVER TAX?
Turnover tax was introduced with effect from 1 March 2009 as a simple all-in-one tax for micro businesses who meet
certain requirements. The reason for introducing this new, simpler, tax was, according to SARS:
Small businesses have the potential to grow the economy, generate jobs and reduce poverty. With this initiative in mind
and in line with government’s commitment to reducing the administrative burden on small businesses and cultivating an
environment for entrepreneurship, SARS has designed a new single tax system as a tool for small businesses to help
streamline their tax obligations.
Part IV of Chapter II of the Income Tax Act covers turnover tax payable by micro businesses. In addition, Schedule 6 to the
Income Tax Act contains the detailed paragraphs covering the determination of turnover tax. As the name implies, the tax
is levied on turnover, not on net profit. Therefore the micro business does not need to keep records of expenses or trading
stock for tax purposes (although this may well be required for other purposes e.g. budgeting). Previously, a person who
had registered his business for turnover tax would not be allowed to register this business as a VAT vendor (and those
who had previously registered as VAT vendors would need to deregister when registering for turnover tax). Effective from
1 March 2012, VAT and turnover tax have been completely de-linked. Vendors who are registered for VAT may now freely
register for turnover tax without any requirement to deregister as VAT vendors.
It is important to note that although registering as a micro business will likely save a taxpayer administrative costs it is not
a given that the taxpayer will pay less tax overall. This tax is purely designed to ease the administrative burden of
compliance on very small businesses with the hope that this will encourage previously non-complying businesses to start
paying some tax. It is also important to note that although SARS markets this tax as an ‘all-in-one-tax’ this does not mean
that taxpayers will fall completely out the net of all other taxes – as we proceed through the chapter we will see many
instances where a person registered as a micro business will still be subject to normal income tax. In addition, a micro
business which pays salaries above the tax threshold will still be subject to all the usual requirements with regards to
withholding PAYE and UIF on these salaries.
However, effective since 1 March 2012 micro businesses are given the option of making payments for turnover tax, VAT
and employees’ tax at twice-yearly intervals. In addition a single combined return is filed on a twice-yearly basis from 1
March 2013. The number of returns required for these taxes has therefore fallen from eighteen to only two a year from
the 2013/2014 tax year. Because of the build-up of tax liabilities (e.g. six months’ worth of PAYE as opposed to one
month’s worth) micro businesses will need to take care to manage their cashflow to ensure that funds are available to
meet these liabilities on the due date.
, MICRO BUSINESS TAX RATES
Turnover tax rates are fixed annually by parliament. The rates in effect for the years of assessment commencing on or
after 1 March 2015 are as follows:
SEE EXAMPLE 10.1
DO QUESTION 10.1
WHO COULD QUALIFY FOR TURNOVER TAX?
A business must meet certain criteria in order to qualify as a micro business and be eligible for turnover tax. Natural
persons (including partnerships), companies and close corporations can all qualify as micro businesses provided that all of
the following conditions are met:
The ‘qualifying turnover’ does not exceed R 1 million.
In the case of a partnership, company or CC the partners, shareholders or members must all be natural persons
and the financial year-end must be the end of February. In addition, no more than 20% of the company’s total
receipts for the year of assessment may consist of investment income and income from the rendering of a
professional service.
The natural person (in the case of individuals or partners) or shareholders (in the case of a company or CC) may
not at any time during the year of assessment hold any share or interest in the equity of another company.
This requirement prevents persons from splitting their business interests between various companies in order to
keep the qualifying turnover below the threshold.
The following shareholdings are, however, permitted:
Shares in a listed South African company;
Shares in a portfolio of a collective investment scheme;
Shares in a sectional title body corporate or a share block company;
