Turnover tax for micro businesses: the R1 million test

Turnover tax is SARS's simplified regime for micro businesses: instead of calculating taxable income (revenue minus deductible expenses, capital allowances, all of it), you pay a small tax on turnover itself. No expense schedules, dramatically less record-keeping, and rates that start at zero.

It's genuinely attractive for the right business and genuinely wrong for others — the difference turns on your margins, and on a list of disqualifications that knock out more applicants than the turnover test does.

The qualifying test: R1 million turnover

A micro business is one with qualifying turnover of R1 million or less in a year of assessment. Sole proprietors, partnerships, companies and close corporations can all register. The tax is then a sliver of turnover on a sliding scale — the first R335,000 of turnover attracts no tax at all, and even at the top of the band the rate stays in low single digits of turnover.

The trade-off is symmetrical: because expenses don't reduce the tax, a business with thin margins can pay MORE under turnover tax than under normal income tax. A trader turning over R900,000 with R850,000 of cost of sales has R50,000 of profit; normal tax on that is little or nothing, while turnover tax is charged on the R900,000 band regardless. Turnover tax rewards high-margin, low-admin businesses — a consultant, a service trade — and punishes reselling.

The disqualification questions

The registration form is mostly a list of ways to be excluded. The ones that catch real applicants:

• •Professional services: if you earn more than 20% of your income from “professional services” as defined (the list runs from accounting and law to consulting and IT), you're out.
• •Investment income: more than 20% of receipts from investment income also disqualifies.
• •Capital asset sales: proceeds from selling capital assets over R1.5 million across any three-year period disqualify you.
• •Structure: a company's shareholders must all be natural persons, and holding shares in other companies (beyond narrow exceptions) disqualifies it. You also can't be a personal service provider or labour broker.
• •Year of assessment: the business's year must end on the last day of February.

Note what the professional-services rule means in practice: most freelancers reading tax guides — developers, designers, consultants — are exactly the people the 20% rule excludes. Turnover tax is aimed at the spaza shop, the salon, the small trades.

Interactions worth knowing

A micro business can register for VAT and turnover tax simultaneously (since 2012), but think about whether you want to: VAT admin re-imports much of the record-keeping that turnover tax removed. Registered micro businesses also get relief on provisional-style payments — two interim payments a year on a much simpler basis than the IRP6 regime. And leaving the regime is stickier than entering: deregister voluntarily and you can't re-enter later.

Botswana differs

Botswana has no equivalent turnover-tax regime for micro businesses — small businesses there are in the ordinary BURS income tax system, though presumptive-style simplifications have been mooted over the years. Don't assume a ZA registration means anything across the border.

Deciding with real numbers in Ledgr

The comparison — turnover tax on your revenue versus normal tax on your profit — is only as good as your expense records. Ledgr keeps both sides of that comparison live, in rands, with the working shown, so the decision is made from your actual margins rather than a guess. And if your turnover creeps toward R1 million, you'll be watching it happen, not reconstructing it later.