Times are tough, even for SARS it seems. Business Report revealed that SARS had “collected R1.250 trillion in tax revenue in the year ended March 2021, which was around 12 percent less compared with the government’s original February 2020 target of about R1.425trln.”
The revenue service is now chasing up businesses that have outstanding tax due dating back as far as 15 years ago. And it will “target wealthy taxpayers’ R400bn stashed offshore” according to Business Day.
If money is getting tight for the Receiver of Revenue, the Covid-19 lockdown has had a particularly negative impact on the small and micro businesses. You now have to make every cent count, and that also means making sure that you don’t pay any more tax than you absolutely have to.
We all know that companies must pay SARS R 28 on every R 100 net profit that they make. But that does not apply to all businesses. There are lower tax rates for some small businesses.
For example, if your business makes sales of up to R1 million for the year ending end February, it may qualify to only pay Turnover Tax. If:
- your business is not a Personal Service Provider*, and
- you and the other owners are people (not companies), and
- you and the other owners are not owners in other companies, and
- not more than 20% of your personal income comes from Professional Services, and
- the business was not previously registered for Turnover Tax,
then you can register your business for Turnover Tax.
What are the advantages of paying Turnover Tax?
Let’s say that your business’ annual turnover is R1 million, then you would pay R 6,650 + 3% of turnover over R 750,000, ie R 6,650 + R 7,500 = R 4,150 Turnover Tax (even if you make very little, or no profit).
With the same turnover of R1 million and, say, a net profit of R 250,000, if your business is registered for Company Tax your tax would be 28% of R 500,000 = R 70,000. And it would have a lot more paperwork to do.
Why? Because, if your business is registered for Turnover Tax:
- it doesn’t have to register for Provisional Tax, Income Tax, Capital Gains Tax, Dividends Tax or VAT, and
- it only submits staff payroll tax (and if you do register, VAT) returns twice a year.
But what if your business’ annual turnover is over R1 million? What if its annual gross income is as much as R 20 million?
Well, it could qualify for Small Business Corporations (SBC) tax if:
• the business is not a Personal Service Provider*, and
• all the shareholders in your business are natural persons, and
• you only own this one business, and
• less than 20% of its turnover comes from “investment” income.
In that case, let’s say your business’ taxable income (net profit) is R1 million, then you would pay R 59,098 + 28% of income above R 550,000, ie R 59,098 + R 126,000 = R 185,098 Small Business Corporation tax.
With the same taxable income of R1 million and if your business is registered for Company Tax your tax would be 28% of R1 million = R 280,000.
Are there other advantages to being registered for SBC tax? Yes. It gets to:
• write off all assets bought for trade in the year of purchase (ie 100% depreciation) and
• write off all assets bought for manufacture over three years: 50 / 30 / 20 depreciation.
Don’t forget: in both cases, if you take a salary of, say, R 189,600 (R 15,800 per month) your annual personal salary deductions will amount to R 22,284.
Would the savings make it worth your while to register your business for Turnover Tax or Small Business Corporations tax?
Click here if you want to discuss tax savings for small businesses with us.
* Personal Service Provider (PSP)
This is where the owner of the company is the person who actually delivers the service, like an accountant or an estate agent.
* For the full list of requirements for Turnover Tax, visit
http://www.sars.gov.za/TaxTypes/TT/How-Register/Pages/Quick-test-for-individuals-and-companies.aspx
* For the full list of requirements for SBC tax, visit
https://www.sars.gov.za/AllDocs/OpsDocs/Guides/LAPD-IT-G10%20-%20Tax%20Guide%20for%20Small%20Businesses.pdf
First published: 2017/05/23 Updated: 2021/04/06
