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 (from 1 March 2012).
This article has reference to the Sixth Schedule and Part IV (sections 48 to 48C) of the Income Tax Act which regulates the turnover tax system available to micro businesses and will provide a basic overview of Turnover Tax. Further articles will provide more in-depth detail.
Small and micro businesses have the potential to grow the economy, generate jobs and reduce poverty. In order to alleviate the tax compliance burden on micro enterprises, a turnover tax regime was introduced with effect from 1 March 2009. It streamlines the tax compliance process for micro businesses by replacing a registered micro business’ liability for income tax (including CGT) and, to an extent, dividends tax with a liability to account for turnover tax. As the term “turnover tax” suggests, the registered micro business’ tax liability is determined by applying a specific turnover tax rate to the registered micro business’ “taxable turnover” in a particular year of assessment.
A micro business is not exempt from the duty to withhold payroll and other taxes, such as employees’ tax, skills development levies (SDL) and unemployment insurance fund (UIF) contributions, or to account for VAT (if voluntarily registered as a VAT vendor). However, as a means of reducing its compliance burden, a micro business has the option of making twice-yearly payments for these taxes as from 1 March 2014.
Turnover tax is a stand-alone tax, meaning that its determination is separate and independent from the normal tax system. Despite being liable to account for turnover tax, certain receipts and income streams of a micro business could be taxable under the normal tax system. These receipts and income streams may relate to remuneration and investment income received by the micro business, as well as amounts derived by the micro business from carrying on business activities outside South Africa.
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:
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
Remember, Turnover Tax applies to 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
There are three payment dates:
1st payment is in the middle of the tax year on the last business day of August i.e. 29 August 2014 on the TT02 – Payment Advice for Turnover Tax
2nd payment is at the end of the tax year on the last business day of February i.e. 27 February 2015 on the TT02 – Payment Advice for Turnover Tax
Final payment is after the annual TT03 – Turnover Tax Return is submitted and processed. The submission of TT03 turnover tax returns is in line with the submission of the annual income tax returns, between 1 July and 31 January of the following year.
Payments can be made at banks or electronically using internet banking.
When payment is made, it is essential that the ‘Beneficiary ID’ and ‘Payment Reference Number’ are quoted. The Payment Advice (TT02) will assist with this and other matters relating to interim payments.
Note: The TT02 payment advice is the taxpayer’s record it must not be submitted to SARS and TT as it’s not catered for on eFiling.
Where any day specified for any payment to be made under the provisions of the Act falls on a Saturday, Sunday or public holiday, the payment must be made no later than the last business day before the Saturday, Sunday or public holiday.
What records should be kept?
A big advantage of turnover tax is the reduced record-keeping requirements.
The following records must 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 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 record keeping of deductible tax expenses, the turnover tax rates are significantly lower than the tax rates under the standard tax system.
Quick test for individuals and companies
By answering the following questions you will be able to determine if a business meets the criteria to qualify for turnover tax registration.
If the answer to any one of the questions is “NO”, the business will not qualify for turnover tax registration for that year of assessment.
A partner in more than one partnership will not qualify for “turnover tax”. The other partners may still qualify if they are only partners in a single partnership and do not answer “No” to any of the questions below.
Questions
Will the “qualifying turnover” of the business be less than or equal to R1 million for the year of assessment?
Do you declare that the business is not a “personal service provider” or a “labour broker” without a SARS exemption certificate?
Does the business trade in one of the following forms: sole proprietor, partnership, close corporation, co-operative or company?
If the business is a partnership, do you declare that all the partners will be individuals throughout the year of assessment?
If the business is a close corporation, co-operative or company, do you declare that all of the shareholders/members will be individuals throughout the year of assessment?
Do you declare that the business is not a public benefit organisation, recreational club, association of persons or a small business funding entity?
Does the business have a year of assessment that ends on the last day of February?
Do you declare that the owner, any partner, shareholders, members and the business do not hold shares/interests in a close corporation, company, or cooperative other than the following exceptions:
Listed South African companies;
Collective investment schemes;
Body corporates and share block companies;
Venture capital companies;
Less than 5% in social or consumer co-operatives;
Less than 5% in cooperative burial societies or primary savings co-operative banks;
Friendly societies;
Any other company that did not trade during any year of assessment and which did not own assets with a total market value that exceeds R5 000 during any year of assessment;
Any company that has taken steps to liquidate, wind up or deregister?
a) If you are a natural person, do you declare that the income from “professional services” is not expected to exceed 20% of your total receipts during the year of assessment
b) If the business is a company, close corporation or co-operative, do you declare that income from “professional services” and “investment income” is not expected to exceed 20% of the total receipts for the year of assessment?
Do you declare that the income from the disposal of assets by the business over the year of assessment and the past two years of assessment is not expected to exceed R1.5 million in total?
Do you declare that the business was not previously registered for the Turnover Tax?
Further articles will provide more in-depth detail.
Author CL Tonkin