Tax rules for micro businesses
Turnover tax was introduced by SARS as a simplified tax system for small businesses. It applies to micro businesses only and taxes them according to turnover and, courtesy of Section 48A and the Sixth Schedule to the Income Tax Act, it reduces your Vat and income tax obligations. By definition, a micro business is a sole proprietor, company or close corporation with an annual turnover of R1 million or less.
Turnover Tax is optional, meaning that a “micro business” still has the option to use the current tax system.
In February this year Finance Minister Pravin Gordhan announced various changes to the Turnover Tax for 2011/2012, particularly for small and micro enterprises. In a nutshell:
- Turnover tax rates will be lowered from 1 March 2011 so that a micro business only becomes liable to pay the tax if its annual turnover exceeds R150 000 (previously R100 000).
- The three-year restriction on voluntary deregistration from turnover tax will be lifted.
- Businesses registered for turnover tax will be allowed to voluntarily exit the system at the end of a year of assessment (last day of February) and will not be allowed to re-enter.
- SARS will be empowered to register a micro business for turnover tax if it finds that the business is not registered for turnover tax or income tax.
- From 1 March 2012, qualifying micro businesses will be allowed to be registered for VAT and turnover tax.
Turnover tax is payable annually, based on a final assessment, with two six-monthly interim payments based on estimates. Other considerations include:
Administrative burden: Because this new system taxes micro business on the basis of turnover, it means the accounting or bookkeeping burden, for tax purposes, has been reduced. Micro businesses need only record and estimate turnover on a six monthly basis. However, as a world of warning, should you underestimate your turnover by more than 20%, you’ll face a hefty 20% penalty.
Payroll Tax: The simplified tax system does not provide specific relief in respect of payroll taxes/levies like “employees’ tax”, unemployment insurance fund contributions, and the Skills Development Levy (SDL). In terms of existing law, however, businesses whose employees are not liable for employees’ tax will not be required to register for employees’ tax and businesses with a payroll of up to R500 000 a year will not be liable for the SDL.
Secondary Tax: Micro businesses that choose the turnover tax will also be exempted from Secondary Tax on Companies (STC) to the extent that their dividend distributions do not exceed R200 000 a year. Any excess will be subject to STC.
Capital Gains Tax: Micro businesses that choose the turnover tax will be specifically exempted from CGT. The turnover tax will simply include 50% of the amounts received from the disposal of business assets in “taxable turnover”. Where the asset is immovable property, the amounts received will only be included to the extent that the property was used for business.
Turnover tax rates for 2010/2011 and 2011/2012 are as follows:
|Taxable turnover (R)||2010/11 Rates of tax||Taxable turnover (R)||2011/12 Rates of tax|
|R0 – R100 0000||0% of each R1||R0 – R150 000||0% of each R1|
|R100 001 – R300 000||1% of the amount above R100 000||R150 001 – R300 000||1% of the amount above R150 000|
|R300 001 – R500 000||R2 000 + 3% of the amount above R300 000||R300 001 – R500 000||R1 500 + 3% of the amount above R300 000|
|R500 001 – R750 000||R8 000 + 5% of the amount above R500 000||R500 001 – R750 000||R7 500 + 5% of the amount above R500 000|
|R750 001 and above||R20 500 + 7% of the amount above R750 000||R750 001 and above||R20 000 + 7% of the amount above R750 000|