Xero Accounting Gold Champion Partner
We hope you enjoy reading the blog post.
If you want our team to do your accounting or tax for you click here.

The Hidden Risks of Turnover Tax for Small Businesses.

Turnover Tax

turnover tax for small businessesAre you tired of navigating through a maze of tax laws and regulations just to keep your small business afloat?

Well, in 2008, the South African government made an important move to ease the tax burden on small businesses by introducing the Turnover Tax on Micro Businesses. This simplified tax system is a game-changer for small businesses as it eliminates the need to account for Income Tax, Capital Gains Tax, STC, and VAT. In this article, we’ll highlight the hidden risks of Turnover Tax that you as small business owner should be aware of.


Quick Take-Aways

  1. Turnover Tax simplifies taxes for small businesses.
  2. Turnover Tax starts taxing from first sale, not just profit.
  3. Businesses must stay in Turnover Tax for 3 years.
  4. Only keep records of receipts and assets over R10,000 with Turnover Tax.

You would have to applaud the government for finally realizing that they would have to take steps to ease the tax burden on small businesses. But the real questions are:  Have they succeeded AND will you, in fact, pay less tax?

Qualifying taxpayers have the choice to get taxed on turnover based on the new system or on profits based on the old system. This is an important distinction to make. Under the new system, you will start paying tax from almost the first rand of sales, whether you make a profit or not. Even if you make massive losses, you will still pay tax. In the current system, you will only pay tax if you make a profit.

The following tax rates are applicable:

Turnover (R)

Tax payable

0-150000

0%

150 001-300 000

1% of each R1 above R150 000

300 001-500 000

R1 500 + 2% of amount above R300 000

500 001-750 000

R5 500 + 4% of amount above R500 000

750 001 and above

R15 500 + 6% of amount above R750 000

Once a taxpayer has elected the new system, he needs to remain in the system for a period of three years. If the taxpayer discovers that he pays more tax under the new system, he will have to wait for the three years to elapse before he can opt-out. Also, keep in mind that the taxpayer will not be able to re-register for a period of three years after opting out.

The option is available to sole proprietors, a micro business, close corporations, companies, and cooperatives with an annual turnover of less than 1 million rand. Trusts are excluded.

Businesses under the new system used to not be able to register for Vat as proper records need to be kept for Vat. However, as of March 2012, businesses in the Turnover Tax system will be allowed to register for VAT.

Would I qualify for the new Turnover Tax system?

The following businesses are excluded:

1.  Any person who holds shares in another company for any period during the year.

  • When more than ten percent of the receipts are from investment income (interest/dividends)
  • Personal service providers
  • A labor broker without an exemption certificate
  • Professional service providers
  • A taxpayer if the proceed from the sale of assets exceeds R1.5 million over a three-year period.

2.  A CC or company if

  • at any period during the year, any shareholder of the company or CC held shares in any other company or CC
  • it is a recreational club
  • it is a public benefit organization
  • at any period during the year, any of its shareholders were not natural persons

What advantages would I have over my current tax system?

The only records you need to keep are receipts and details of assets with a value greater than R10 000. There will be a saving in accounting and bookkeeping fees, as well as a reduction in administrative duties. Keep in mind that you will still have to do some sort of bookkeeping, as it is impossible to run a business efficiently without proper accounting records.

Will I actually benefit?

It depends. Taxpayers who make a big margin on sales and have low overheads will benefit. The problem is that most taxpayers who fall into this category are in the service industry and personal service providers are specifically excluded.

If you are eligible make a three-year forecast and determine whether you will pay less tax under the normal tax system or the turnover tax system. Take administrative savings into account and choose the system that will lead to the least amount of tax.

We are however of the opinion that most businesses will not benefit from switching to the new system. Start-up companies make little, if any, profit during the first years of operation. To pay tax on turnover instead of profit during this period does not make much sense. Start-up businesses that could have benefited, namely service companies, are specifically excluded in most circumstances.

Get in contact with our tax consultants for more information on turnover tax registration options for your business.

Facebook
Twitter
LinkedIn
WhatsApp
Ready to take your financial success to new heights?
How would it feel to have peace of mind knowing that your finances are in the hands of experienced professionals who are passionate about helping you maximise your financial potential?
Ready to experience the difference? Contact us today for a complimentary consultation and discover how our tailored accounting solutions can empower your financial future.
What our clients say?
Thrive CFO
5.0
Based on 10 reviews
powered by Google
Martin Mulder
Martin Mulder
12:36 17 Aug 23
I have only the greatest appreciation for this company. I was going through a difficult time and they were understanding and accommodating. My tax was handled speedily and efficiently.
Kevin Rademeyer
Kevin Rademeyer
07:20 17 Aug 23
We have been using Melissa, Marche and the rest of the crew at ThriveCFO for over 10 years, in order to compile our annual audit for Law Society. They have been exceptional, efficient and pro-active every year. I would not take the business anywhere else.
Jan de Wit
Jan de Wit
13:13 13 Jun 23
Our firm has been making use of the services of Thrive CFO for more than 10 years. Thrive CFO has amazing staff that is not only extremely helpful, but also very capable. We are extremely happy with their services and will continue to support them. They make accounting easy. Thanks Melissa, Marche and the rest of the Team - You Rock!!
LM Keyser
LM Keyser
07:13 13 Jun 23
The ThriveCFO team has been our trusted accounting and tax partner since 2010. They are competent, honest, approachable, quick to respond, and they really do care. I highly recommend them.
Andre Claassen
Andre Claassen
10:24 08 Jun 23
Prompt, professional and personal service!!
Palabadi Ramaphoko
Palabadi Ramaphoko
19:38 15 May 23
I'm impressed with the work you do. You are extremely professional and polite. I hope we will grow big together!
Deidre Oosthuysen
Deidre Oosthuysen
12:20 04 May 23
I feel as though Thrive CFO is a natural part of our business. 100% professional. Very knowledgeable. Incredibly organised. And with a work ethic and proactive communication practices, I know I am in the very best hands possible.
Sean Fabian
Sean Fabian
07:45 04 May 23
As someone who has had the pleasure of working with Thrive CFO, I can confidently say that they are an exceptional company with an unwavering dedication to their clients. From beginning to end, their commitment to providing top-tier financial services is evident in every interaction.One of the things that sets Thrive CFO apart is their focus on education. They take the time to educate their clients on financial best practices and help them understand the reasoning behind their recommendations. This approach ensures that clients are empowered to make informed decisions about their finances.Thrive CFO also uses the latest technology to streamline their services and make the financial management process as efficient as possible. They utilize cloud-based software to provide real-time financial data and make it easy for clients to access their financial information at any time.Overall, Thrive CFO is an exceptional company that is dedicated to providing personalised financial solutions that help their clients succeed. If you're looking for a financial firm that truly cares about your success, I highly recommend Thrive CFO.
Michael Dawson
Michael Dawson
15:48 02 May 23
Great experience with the team! Always willing to assist with questions and able to help guide my small business to ensure that I am compliant.
Riaan Schlebusch ITMC
Riaan Schlebusch ITMC
12:15 21 Apr 23
Professional, smart and friendly people.You only deal with the best of the best, and they know how to answer your questions, and they ensure that they understand you, and make they make sure to take the time to know your business.
See All Reviews
js_loader

Ready To Take Your Financial Success To New Heights?

Scroll to Top