Turnover tax is an optional simplified system for micro businesses. Instead of calculating taxable income, you pay a percentage of turnover on a sliding scale, with a threshold below which nothing is payable.
It replaces income tax, and in the right circumstances it removes a great deal of administration.
Who can use turnover tax
- Sole proprietors, partnerships, close corporations and companies, subject to conditions
- Qualifying annual turnover below the prescribed limit
- Certain business types are excluded, including some professional services
- There are restrictions where you hold shares or interests in other entities
The turnover limit and the rate bands are set by SARS and are revised from time to time, so confirm the current figures before deciding. The structure has stayed consistent: nothing payable at the bottom of the scale, then rising percentages.
When it is worth it
| Turnover tax suits | It does not suit |
|---|---|
| Low-margin operations with modest turnover | High-cost businesses with lots of deductible expenses |
| Businesses with very little deductible expenditure | Anyone with significant capital allowances to claim |
| Owners who want minimal administration | Businesses expecting to grow past the limit soon |
| Simple, cash-based trades | Businesses that need to be VAT registered for their clients |
The key trade-off is that turnover tax ignores your costs. A business with a 60% margin usually does better on it than a business with a 15% margin, because the second one is being taxed on revenue that largely went straight back out.
Getting in and out
Registration is an election, made with SARS, and there are rules about when you can enter and how long you must stay. Leaving voluntarily may restrict re-entry for a period. That is a reason to model it properly rather than switching on a hunch.
Common questions
Does turnover tax replace VAT?
No. They are separate. A turnover tax registration does not remove a VAT obligation if you cross that threshold.
Do I still submit returns?
Yes, though the administration is lighter than the normal income tax route.
Can a company use it?
Companies can qualify subject to conditions. Confirm your specific position.
Whichever tax route you take, your invoicing stays the same. Free to use.
Start invoicing- SARS, Turnover Tax
- SARS, Small Businesses and Tax
- SARS, Turnover Tax
Disclaimer: This content is for general information only and does not constitute legal, tax, accounting or financial advice. Always confirm important requirements with SARS, the relevant authority or a qualified professional.
