Turnover Tax: What You Need to Know

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As an accountant, it's important to keep you informed about the various tax options available for your business. One such option in South Africa is the turnover tax, designed to simplify tax administration for small businesses. Here's a comprehensive guide to help you understand turnover tax and its implications for your business.

Turnover tax is a simplified tax system aimed at reducing the administrative burden for small businesses with an annual turnover of less than R1 million. If your turnover exceeds R1 million, you must register for VAT and pay tax at standard rates. Businesses can be registered for both turnover tax and VAT (voluntary registration).

The turnover tax system estimates a company's business expenses automatically when calculating taxable income. This means businesses don't need to track and report their tax-deductible expenses. Typically, small business owners pay a lower tax rate under this system and may not have to pay tax at all, depending on their annual income.

Tax Rates for 2025/2026

  • 1 – 335 000: 0% of taxable turnover

  • 335 001 – 500 000: 1% of taxable turnover above 335 000

  • 500 001 – 750 000: 1 650 + 2% of taxable turnover above 500 000

  • 750 001 and above: 6 650 + 3% of taxable turnover above 750 000

Benefits of Registering for Turnover Tax

  1. Simplified Tax Filing: Consolidates multiple taxes (Income Tax, VAT, Provisional Tax, Capital Gains Tax, and Dividends Tax) into a single tax.

  2. Lower Record-Keeping Requirements: Only need to keep records of total revenue and a few other key items.

  3. Predictable Tax Liability: Easier to predict tax liability based on turnover.

  4. Reduced Administrative Burden: Less paperwork and fewer compliance requirements.

  5. Tax Savings: Potential for significant tax savings for businesses with lower profit margins.

When Turnover Tax Might Not Be Suitable

  • High-Expenditure Businesses: Cannot claim deductions for business expenses, which may result in higher tax liability.

  • Exceeding Turnover Thresholds: Businesses exceeding R1 million turnover must deregister from turnover tax, leading to unexpected tax liabilities and penalties.

  • Certain Activities Excluded: Professional services, financial services, and mining are excluded from turnover tax.

  • Manual Registration and Filing: The process is manual and cannot be done through eFiling, which can be time-consuming.

Eligibility Criteria for Turnover Tax

  1. Annual turnover must not exceed R1 million.

  2. The business must be a sole proprietor, partnership, close corporation, cooperative, or company.

  3. Certain activities, such as personal service providers and specific professional services, are excluded.

Personal Service Providers

A personal service provider is typically:

  • A company or trust providing services rendered personally by a connected person.

  • An entity earning most of its income from services rendered by the owner or connected person.

  • An individual who would be regarded as an employee if the service was provided directly to the client.

Exceptions and Special Cases

  • Independence Test: Service providers not subject to control or supervision regarding duties or hours may not be classified as personal service providers.

  • Multiple Clients: Service providers with multiple, unrelated clients might qualify for turnover tax even if they provide personal services.

Types of Activities Classified as Personal Services

  • Consultancy

  • Broking

  • Information Technology (IT)

  • Engineering

  • Architecture

  • Law

  • Accounting

  • Health

  • Performing Arts

  • Sports

  • Journalism

  • Translation and Interpretation

  • Training and Education

For many small business owners, turnover tax offers significant advantages over the standard small business tax. However, it's essential to consider your business's specific situation. If you have high tax-deductible expenses, the standard tax system might be more beneficial.

Record-Keeping Requirements

If you opt for turnover tax, you must keep records of:

  • All amounts received.

  • Dividends declared.

  • Each asset with a cost price of more than R10,000 and liabilities exceeding R10,000 at the end of the assessment year.

If you need help determining whether you qualify for turnover tax or if it would benefit your business, please get in touch with us.