Micro Business vs Company Tax

One of the most recent changes to SME taxation in South Africa is the introduction of micro business tax, or “turnover tax” by SARS. This new form of tax applies to smaller SMEs and start-ups, and may be a good option for entrepreneurs, depending on their annual revenue. In this article we take a look at the new microbusiness tax and compare it to traditional business tax.

Microbusiness tax – what is it and why should you opt for it?

SARS has a new taxation option for smaller companies (or microbusinesses) which have revenue of less than R 1 million per year. This form of tax, known as turnover tax, applies a flat rate of taxation to the company’s turnover – you could think of it as income tax on the company’s “salary”.

Turnover tax is a single tax payment that takes the place of Income Tax, VAT, Provisional Tax, Capital Gains Tax and Dividends Tax. Registering for this type of tax makes filing returns much simpler for small business owners, cutting down on accounting fees and red tape. However, it also means that you will be liable for the following tax payments each year:

 

For full details on turnover tax, please visit the SARS website.

Company tax for small businesses – the traditional route

If your business turnover is higher than R 1 million a year, you’ll have to register for normal company tax.This is the traditional tax system used by SARS for all companies registered in South Africa.

Businesses that turn over more than a million Rand per year will also need to register for VAT, Provisional Tax, Capital Gains Tax, and Dividends Tax.
When you register your business for company tax, you’ll be taxed according to the following categories:

 

Turnover tax or company tax – which to choose?

As you can see from the information above, there are similarities and differences between turnover tax and company tax that could save you significant amounts of money each year on your SARS bill. Depending on the size of your business, how fast it’s expanding, and what industry you’re in, your choice between company tax and turnover tax may have a big impact on your bottom line.

In our next blog post we’ll take a deeper look at the difference between these two types of business tax. If you’d like more information on your company tax, contact Northwood today for a comprehensive planning session.

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