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Turnover tax and the small business

Provided by Business Partners Ltd, South Africa's leading investor in SMEs


Turnover tax is a simplified tax system aimed at micro businesses (with a qualifying turnover of R1 million or less), making it easier for micro businesses to comply with their tax obligations. It replaces Income Tax, VAT, Provisional Tax, Capital Gains Tax and Dividends Tax. A micro business that is registered for turnover tax can, however, choose to remain in the VAT system.

Turnover tax is available to qualifying individuals (sole proprietors), partnerships, close corporations, companies and co-operatives. Specific reasons can disqualify you from the turnover tax system. These can be found in paragraph 3 of the Sixth Schedule to the Income Tax Act.

Turnover tax is worked out by applying a tax rate to the taxable turnover of a micro business. The rates are applicable for any year of assessment ending during the period of 12 months ending on 28 February 2017:

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

Table 1: Turnover Tax Rates for any year of assessment ending during the period of 12 months ending on 28 February 2017.

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. 

The SARS website contains various guides and forms that will help you keep the appropriate financial records. 

To register for Turnover tax a TT01 form must be filled in and sent to SARS. This application should be sent before the beginning of a year of assessment (from 1 March to 28 February), or a later date that may be determined by the Commissioner in a Government Notice.

Should a new micro business start trading activities during a year of assessment and wishes to register for turnover tax, an application must be sent within two months from the date that business activities started. Existing micro businesses can register for / switch to turnover tax before the start of a new tax year

A person may elect to voluntary de-register before the beginning of a year of assessment or a later date announced by the Commissioner in a Government Notice. You may be forced to deregister if your turnover exceeds R1million for a given tax year or certain qualifying criteria is no longer met (paragraph 3 of the Sixth Schedule).  In the case of a compulsory deregistration, the business will be deregistered from the beginning of the month following the month during which they no longer qualify for turnover tax.

Take Note: If a person has been deregistered (voluntary or compulsory) from turnover tax, they may not be registered as a micro business again.

When must Turnover Tax be paid?

Two interim payments, the first in the middle of the tax year (29 August) and the second at the end of the tax year (27 February) must be made based on the estimated turnover of the business for that tax year. The form used is a TT 02.

After the end of the tax year, a turnover tax return (TT 03) that reflects the actual taxable turnover of the business must be completed. Any shortfalls / overpayments then become payable / refundable. The Payment Advice will help with this and other matters relating to payments.

A major benefit of turnover tax is the reduced record-keeping requirements. The following records should be kept:

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

Besides the two interim payments, a Turnover Tax Return (TT 03) must be submitted annually to SARS by a specific due date that is be announced by SARS as part of its annual Filing Season campaign. The completed return can be handed in or posted to the nearest SARS branch office

All the necessary forms and more detailed information is available on the SARS website.

Source: www.sars.gov.za

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