Turnover tax is a simplified regime for very small businesses. It replaces several taxes with a single tax on turnover, which removes a great deal of administration — and it is not automatically the cheaper option.
This page sets out who qualifies, what it replaces, and the specific circumstances in which it is a poor choice, because that is the part the simplicity argument omits.
Business Requirements at a Glance
Broadly, who may register for turnover tax.
- A micro business with qualifying turnover below the threshold prescribed in the Sixth Schedule to the Income Tax Act 58 of 1962
- A sole proprietor, partnership, close corporation, company or co-operative, subject to the Schedule’s conditions
- Holders of shares or interests limited as the Schedule requires — a person may generally not hold interests in other companies
- Business activities not excluded by the Schedule — certain professional services are specifically excluded
- Income from the disposal of assets within the limits the Schedule sets
- Registration with SARS within the period the Schedule allows
- Records adequate to support the turnover declared
Registration and Legal Requirements
Confirm the current threshold, exclusions and rates with SARS. They are set in the Sixth Schedule and revised, and the qualifying conditions are specific — this is a regime where the detail decides eligibility rather than the general description.
Turnover tax is charged on turnover, not on profit. That is the crucial point. A business with high turnover and thin margins can pay more under turnover tax than under normal tax, because no expenses are deducted. A business with high margins and few expenses generally pays less.
Run both calculations before registering. Take last year’s actual figures and calculate the tax under the turnover regime and under normal income tax with deductions. The comparison takes an hour and it is the only way to know.
A loss-making business pays turnover tax anyway. Under normal tax a loss produces no income tax and may create an assessed loss carried forward. Under turnover tax, tax is payable on turnover regardless. For a business in a difficult year that is a material disadvantage.
Certain professional services are excluded by the Schedule. Confirm whether your activity falls within an exclusion before assuming eligibility.
Leaving the regime has consequences. The Schedule sets rules on voluntary exit and on the period before you may re-enter. Confirm those with SARS, because registering and deregistering repeatedly is not permitted.
Documents and Ownership Information Required
What is needed to register and comply.
- A SARS tax reference number for the business or the individual
- Registration for turnover tax through SARS, within the period allowed
- Records of all turnover received, with supporting documents
- A business bank account through which all income passes
- Records of any asset disposals within the regime
- Details of shareholdings or interests held, to confirm eligibility
- Retention of records for the period the Tax Administration Act requires
Tax, Licence and Compliance Requirements
Turnover tax replaces several taxes for a qualifying micro business, which is its main advantage — substantially less administration and fewer returns. Confirm exactly which taxes it replaces in your circumstances with SARS, since the position depends on the entity type and on whether you are also VAT registered.
VAT and turnover tax can interact. Confirm with SARS whether registration for one affects the other in your case before assuming.
Payments are made during the year with a final return, on the dates SARS publishes. Diarise them.
Records are still required. Simplified does not mean no records. You must be able to substantiate the turnover declared, and the Tax Administration Act 28 of 2011 retention rules apply.
Employment taxes are unaffected. If the business employs anyone, PAYE, UIF, possibly SDL and COIDA registration all still apply. Turnover tax does not touch them.
Compare against the small business corporation regime as well. A company may qualify for reduced corporate rates under section 12E of the Income Tax Act, which taxes profit rather than turnover and is often better for a business with real expenses. Confirm the qualifying criteria with SARS.
Take advice before registering. This is a decision that is easy to make and awkward to reverse, and an hour with a registered tax practitioner is cheap relative to being in the wrong regime for years.
Process, Deadlines and Ongoing Obligations
Confirm eligibility against the Sixth Schedule conditions with SARS, then run both tax calculations on last year’s actual figures before registering.
Register within the period the Schedule allows, and keep proper turnover records from the first day — the simplification is in the returns, not in the record-keeping.
- Confirm the current threshold, exclusions and rates with SARS
- Remember turnover tax is charged on turnover, not on profit
- Run both calculations on last year’s actual figures before registering
- Consider that a loss-making year still attracts turnover tax
- Check whether your activity is an excluded professional service
- Compare against the small business corporation regime under section 12E
- Confirm how VAT registration interacts with turnover tax
- Understand that employment taxes and COIDA still apply
- Keep proper turnover records — simplified is not record-free
- Take advice before registering — exit rules limit reversal
Frequently Asked Questions
Is turnover tax cheaper?
Not automatically. It is charged on turnover rather than profit, so a business with thin margins can pay more than under normal tax. Run both calculations on your actual figures.
What if I make a loss?
Turnover tax is still payable, because it is charged on turnover. Under normal tax a loss produces no income tax and may create an assessed loss carried forward.
Does it replace all my taxes?
It replaces several for a qualifying micro business, but employment taxes and COIDA registration are unaffected. Confirm exactly which taxes it replaces in your case with SARS.
Can I leave the regime?
The Sixth Schedule sets rules on voluntary exit and on the period before you may re-enter. Registering and deregistering repeatedly is not permitted.
Qualifying turnover thresholds, exclusions, rates and payment dates are set in the Sixth Schedule to the Income Tax Act and by SARS, and are revised. Confirm current requirements with SARS or a registered tax practitioner before registering.