The deadline for South African micro businesses to register under the new, simplified turnover tax system is 30 April 2009. Not only could this lift an administrative burden from your shoulders, but also leave significantly more after-tax money in your pocket. Find out whether this system could work for you.

Who may want to register for the new turnover tax?

• Profit-making non-professional service providers
• Profit-making trading businesses with large profit margins
• Profit-making trading businesses with medium-sized profit margins that could benefit from the significant compliance cost savings

Who qualifies for the turnover tax?

Sole proprietors, partnerships, close corporations or companies with an annual turnover not exceeding R1 million may register.

What types of businesses are disqualified?

• Businesses of which the tax year does not run from the beginning of March until the end of February of the following year
• VAT-registered vendors
• Professional services, including accounting; actuarial science; architecture; auctioneering; auditing; broadcasting; broking; commercial arts; consulting; draftsmanship; education; engineering; entertainment; health; information technology; journalism; law; management; performing arts; real estate; research; secretarial services; sports; surveying; translation; valuation; or veterinary science
• Public benefit organisations
• Clubs
• Businesses of which the investment income (interest, dividends, rental income) form more than 10% of the total income of the business
• A ‘personal service provider’ according to the SARS definition
• Another few, less commonly applicable exclusion. Please see the SARS checklist for turnover tax

What are the main benefits?

• In the case of profitable, high profit-margin businesses the total annual tax payable could be significant lower than with the normal tax system.
• Simpler administration.

Why is the turnover tax system simpler than the normal tax system?

• Under the normal tax system, it can be quite complicated to calculate the taxable income according to the SARS definition.
• No VAT is payable under the turnover system.
• Under the turnover tax system, no secondary tax on companies (STC) is payable if the annual dividends are less than R200 000.

What are the main differences between normal tax and turnover tax?

What are the turnover tax rates for 2009/2010?

In comparison, what are the normal tax rates for 2009/2010?

For companies, profits are taxed at 28% from the first R1. To this, STC of 10% on all dividends declared needs to be added.

For small business corporations, no tax is payable up to R54 200 of taxable income. For taxable income between R54 200 and R300 000, 10% tax is payable on the amount above R54 200. For taxable income exceeding R300 000, R24 580 + 28% of the amount above R300 000 of tax is payable.

How are capital gains taxed under the turnover system?

Capital gains tax is payable at 50% of the selling price of business assets.

In the case of a sole trader, what happens to other non-business earnings?

Any salaried income, as well as interest, rental income and dividends earned in your personal capacity, will be subject to normal tax and handled outside the turnover tax system. The turnover tax is therefore a stand-alone tax and the taxable turnover from a qualifying micro business will be ring-fenced.

What if you’re currently VAT-registered?

You would need to de-register from the VAT system before you can apply for the turnover system. (Exit VAT may apply.)

Who may want to think twice before registering under the new turnover tax system?

• Loss-making businesses have little incentive to change to the turnover system.
• Profit-making businesses with really small profit margins may end up actually paying more income tax under the turnover system.
• For businesses considering selling large business assets soon, it may be worth staying under the old system to benefit from the smaller capital gains tax.
• Businesses with clients that prefer VAT registered vendors as an indication of formality and good standing, may lose clients when de-registering for VAT to apply for turnover tax status.

To get a better idea of the types of businesses that will benefit most from the turnover tax system, have a look at BDO’s article

What if you’re only starting your business during the current tax year?

A new micro business needs to register, if interested, under the turnover tax system within two months from the date of commencing business activities.

Can you change between the turnover and normal tax system as you please every year?

No. You will need to apply before the start of the tax year in which you want to fall under the turnover tax system. If you choose to exit the turnover tax system, you cannot re-register for at least three years.

What records would you need to keep?

• All amounts received
• All dividends declared
• All assets worth more than R10 000
• All liabilities worth more than R10 000

When do you pay the turnover tax?

The turnover tax year runs from 1 March to the end February of the following year. Income tax is due in two six-monthly provisional payments.

For more details on the new turnover tax system, visit your registered SARS branch or the SARS website.

Tags: micro business, tax burden, turnover tax, VAT

This entry was posted on Friday, April 17th, 2009 at 1:00 pm and is filed under business. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.