Some small businesses may qualify for lower tax rates in the form of either Turnover tax or Small Business Corporations (SBC) tax.
There are lower tax rates for some small businesses, as Rick Ed from DoBetter.Business explains:
Turnover Tax
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. You can register your business for 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,
What are the advantages of paying Turnover Tax?
Let’s say that your business’ annual turnover is R1 million, then you would pay R6 650 + 3% of turnover over R750 000, i.e. R6 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 R250 000, if your business is registered for Company Tax your tax would be 28% of R500 000 = R 70 000. And it would have a lot more paperwork.
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.
Small Business Corporations (SBC) Tax
But what if your business’ annual turnover is over R1 million? What if its annual gross income is as much as R20 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 R59 098 + 28% of income above R550 000, i.e. R59 098 + R126 000 = R185 098 small business 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 of being registered for SBC tax? Yes, as it gets to:
- write off all assets bought for trade in the year of purchase (ie 100% depreciation)
- 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, R189 600 (R15 800 per month), your annual personal salary deductions will amount to R22 284.
These savings outlined above could certainly make it worth your while to register your business for Turnover Tax or Small Business Corporations tax.
* 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
