Turnover tax simplifies tax for small businesses

2011-03-17 00:00

IN the past if you ran a small business, irrespective of the size, it was your responsibility by law to register for income tax.

SARS understands that small businesses should not be required to have the same tax compliance burden as big businesses. Having recognised this, SARS implemented a simplified tax system for small businesses with effect from March 1, 2009.

This simplified tax system consists of a turnover tax and an increase in the compulsory VAT registration threshold from R300 000 to R1 million. This effectively means that qualifying businesses with a turnover of up to R1 million per annum are not forced to register for VAT and can choose to register for the simpler “turnover tax”. A business registered for turnover tax is only required to submit one “easy tax return”.

Under current conditions a small business is not allowed to register for both VAT and turnover tax. This is mainly aimed at assisting small informal businesses. It was previously required to deregister a VAT vendor in order for them to register for turnover tax. Businesses that qualify for the turnover tax that are already registered are required to deregister as a VAT vendor before registering for turnover tax.

The rule is that when any vendor deregisters from the VAT system, they are required to pay VAT (exit VAT) on the lesser amount of the cost or market value of the assets held before deregistering.

Vendors that deregister from the VAT system, following the increase in the VAT registration threshold to R1 million, will be allowed to pay the exit VAT over a period of six months.

Turnover tax is available to individuals (sole proprietors), partnerships, close corporations, companies and co-operatives and is an elective process i.e. qualifying small businesses can choose to register for the standard tax system or for turnover tax.

SARS has approved an extension until April 30, 2011, for existing small businesses to register for turnover tax for the 2011/12 tax year.

Turnover tax rates will be lowered from March 1, 2011, so that micro businesses only become liable to pay the tax if the annual turnover exceeds R150 000 (previously R100 000).

This means that the first R150 000 (previously R100 000) of taxable turnover of all businesses registered for turnover tax will be free of tax!

For more information call KPMG at 033 347 7600.

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