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If you're registered for VAT, provisional tax, and are a company, you have to submit these returns to SARS. And it's not just once a year. It's one company tax return, two provisional tax returns and six VAT returns. That's nine times a year. That's almost one a month you're spending time preparing for tax return submissions. How much time is that wasting you? But if you qualify for turnover tax, you may not need to do this anymore. Let me explain...
Why are you still submitting nine tax returns to SARS?
If your business generates less than R1 million in turnover every year or you see you're not going to generate R1 million this year, I have a way you can drop the nine returns to three returns a year very easily AND save you money at the same time.
All you need to do is register for turnover tax. But, having a turnover of less than R1 million isn't the only requirement to switch to turnover tax. You have to meet a few other requirements.
If you switch to turnover tax you WILL save money every year. Let me show you a comparison between normal company tax and turnover tax to see how much you can save.
How much can you save with turnover tax?
Let's use an example. Tim has just launched a mobile dog grooming business, Waggers (Pty) Ltd. He's trying to decide if he should switch to turnover tax to simplify his life. So he does a step-by-step comparison:
Step #1: Calculate your estimated turnover for the year
Tim calculates his estimated turnover for the year. He charges R90 per customer. He sees six customers each day, six days a week.
That's R90 x 6 customers x 6 days/week.
This is R3 240 per week.
Tim only works 50 weeks of the year. The other 2 weeks he takes as holiday leave.
So you take 50 weeks he works and multiply it by the R3 240 he makes each week.
50 weeks x R3 240 per week = R162 000 per year.
Step #2: Identify the tax rate and determine how much tax you'll probably pay
Tim estimates how much tax he'll pay on this estimated turnover. He uses the tables below.
Turnover tax rates for the 2018/2019 tax year
Turnover (2016 tax year)
Marginal Rates (R)
R0 – R335 000
R335 001 - R500 000
1% of the amount above R335 000
R500 001 - R750 000
R1 650 + 2% of the amount above R500 000
R750 001 and above
R6 650 + 3% of the amount above R750 000
Income tax rates for the 2018/2019 tax year: Companies
Type of taxpayer
Rates of tax - %
Let's compare the effect of the tax rates at this point:
Applicable tax rate
Tax Tim has to pay
But, Tim is taxed on his profits for company's tax purposes not on his turnover. Unlike turnover tax, he's taxed on his turnover. He has operating expenses of R50 000 and pays himself a salary of R70 000. Let's look at the effect this now has on his tax.
Less: Operating expenses
Applicable Tax rate
Tax Tim has to pay
R11 760 (this is R42 000 x 28%)
Turnover tax vs regular tax = R NIL vs R11 760
Step #3: Compare and decide!
For Tim it's clear that turnover tax is the cheaper option, and this doesn't even include the saving of time and cost of not having to submit all the other returns outside of Turnover Tax (provisional tax returns, VAT returns, and income tax returns).
So, what are you waiting for? Now's the time for you to start saving time and money.
The content in this article was provided by FSP Business.