Turnover Tax Micro Business

Turnover tax is a simplified turnover-based tax system. It is payable in lieu of income tax, CGT and dividends tax.

Turnover tax is imposed on the taxable turnover of the registered micro business. Taxable turnover is the amount received (including VAT charged) less amounts refunded to customers. It does not include amounts accrued to the micro business or any receipts of a capital nature. There are no deductions of expenses against income. There are certain other inclusions and exclusions.

It applies to small sole proprietors, partnerships and incorporated businesses with a turnover of less than R1mil per year. Members and shareholders have to be natural persons.

A micro business must be registered in terms of Part II of the Sixth Schedule else, it does not qualify for turnover tax and is subject to the normal income tax, CGT and dividends tax rules. Registration is optional, but if a person qualifies as a micro business, application (TT01) to register with SARS:

  • Before the beginning of a year of assessment, ie before 1 March, or before a date during the year of assessment prescribed by the Commissioner; or
  • Within 2 months from the date of commencement of business activities if that micro business commenced trade during the course of the year of assessment.

Registration will be effective from the 1st day of the year of assessment ie 1 March.

It is an elective system where a micro-business can voluntarily exit the system however, the taxpayer will not be permitted to re-enter. Once turnover exceeds R1mil, the micro-business is obliged to exit the system. It is possible, for a particular year of assessment that an amount payable will be made up of turnover tax as well as normal tax.

How to pay:

  • 1st payment due on the last business day of August
  • 2nd payment due on the last business day of February
  • Final payment is due after the annual TT03- Turnover Tax Return is submitted and processed. These are due between 1 July and 31 January of the following year.

Advantages:

  • Reduced rate of tax
  • Less onerous record keeping i.e. no detailed record keeping required. Records to be kept include:
    • All amounts received
    • Dividends declared
    • List of all assets with an individual cost > R10 000 at the end of the year of assessment
    • List of all liabilities > R10 000 at the end of the year of assessment

Persons who do not qualify:

  • Natural persons who hold any shares or have interest in the equity in other companies, excluding shares in listed companies, collective investment schemes and in body corporates
  • Natural persons who are partners in numerous partnerships
  • For incorporated businesses: aggregate income from investment income and professional services > 20% of total receipts
  • For natural persons: aggregate income from professional services > 20% of total receipts
  • If proceeds from the sale of capital assets, used mainly for business purposes > R1.5mil over a 3-year period
  • Labour brokers
  • PBOs, recreation clubs, associations and small business funding entities
  • Businesses where any of its partners, members or holders of shares are not natural persons
  • Businesses where the year of assessment does not end on the last day of February

For more information, contact ERH Accountants.