One of the biggest tax benefits of running a business is being able to claim deductions on expenses and legitimately reduce your tax bill each year.
But if you’re dealing with a lot of small or variable expenses, keeping track of all your deductions can be a headache.
Fortunately, eligible micro businesses in South Africa can simplify their business expenses and do away with expense receipts by choosing to pay what’s known as ‘turnover tax’. Here’s how it works.
What is turnover tax?
Turnover tax is a simplified tax rate aimed at reducing admin for micro businesses in South Africa with an annual turnover of less than R1 million. The SARS turnover tax system replaces Income Tax, VAT, Provisional Tax, Capital Gains Tax and Dividends Tax.
Turnover tax is worked out by applying a flat tax rate based on the turnover of a micro business. This calculation includes an estimate of business expenses, meaning businesses registered for turnover tax don’t need to manually track and report their tax-deductible expenses.
What is a micro business in South Africa?
For the purposes of turnover tax, a micro business (also known as a micro enterprise) is a business with an annual turnover of less than R1 million. This means if you own a business and your turnover is less than R1 million in any tax season, you may be eligible to register for turnover tax.
Turnover tax rates
|Turnover (R)||Rate of tax (R)|
|0 – 335 000||0%|
|335 001 – 500 000||1% of each R1 above 335 000|
|500 001 – 750 000||1 650 + 2% of the amount above 500 000|
|750 001 and above||6 650 + 3% of the amount above 750 000|
Will I pay less tax with turnover tax?
In many cases, micro business owners pay less tax under the turnover tax system than the standard tax system, and you may not even have to pay tax at all depending on your turnover. The minimum tax threshold for the 2020-2021 tax season is as follows:
Standard micro business minimum amount of taxable income: R83,100
Turnover tax minimum amount of taxable income: R335,000
In other words, with turnover tax you don’t have to pay any tax until your turnover exceeds R335,000 in a financial year. This is much higher than the minimum threshold of R83,100 under the standard tax system.
What if I have a lot of business expenses?
Business expenses are automatically estimated under the turnover tax system based on the typical expenditure of a micro business.
If you have very high tax-deductible expenses that would reduce your taxable income significantly, it may be more tax-effective to claim them under the standard tax system. It’s a good idea to crunch the numbers in both scenarios and compare the difference, or talk to an accountant about what’s best for your situation.
How do I register for turnover tax
To register for turnover tax, you’ll need to:
- Do a quick test on the SARS website to see if you quality for turnover tax
- Fill in TT01 form:
Find out more about how to register for SARS turnover tax here.
When is turnover tax due?
There are three payment dates for turnover tax:
- The first payment is due in the middle of the tax year on the last business day of August i.e. 28 August 2020
- The second payment is due at the end of the tax year on the last business day of February i.e. 26 February 2021
- The final payment is due after your annual turnover tax return is submitted and processed. This is in line with the submission of the annual income tax returns, between 1 July and 31 January of the following year.
Find out more about how to pay for turnover tax here.
Do I need to keep receipts if I pay turnover tax?
You don’t need to keep receipts if you pay turnover tax, as your business expenses will be automatically calculated as part of your tax rate. However, tracking expenses regularly is important for managing your finances effectively and maintaining positive cash flow – so it’s a good practice to do so anyway.