The Company Tax Guide

Private Company's(PTY)

A Private Company (Pty) Ltd is treated by South African law as a separate legal entity and has to register as a taxpayer in its own right. The owners of a Private Company (Pty) Ltd are known as shareholders.

The name of a private company usually ends with the words ‘(Proprietary) Limited’ or ‘(Pty) Ltd’.

Typical Characteristics

  • Subject to many legal and compliance requirements.
  • Formal registration process with Companies and Intellectual Property Commission (CIPC).
  • A Private Company must have at least one shareholder. This can be a foreign entity or another Pty Ltd or Close Corporation.
  • A Private Company must have at least one director.
  • A Private Company’s Memorandum of Incorporation should restrict the right to transfer its shares, and prohibit any offer to the public for the subscription of any shares or debentures of the company. A Private Company cannot, therefore, be listed on the stock exchange.
  • The voting rights of shareholders of a Private Company must be determined by the Memorandum of Incorporation which governs the types of shares the company can issue.
  • Certain Private Companies have to have their Annual Financial Statements audited. 
  • An Annual Return would need to be submitted to CIPC reporting annual Turnover.

 

 

Private company tax & regulations

When your private company is registered with CIPC, it is also registered automatically with SARS as a taxpayer and will obtain its own tax reference number. You can call 0800 00 7277 to find out the Income Tax Number which is 10 digits and starts with a 9.

 

 

Registering for tax

Private companies need to register for tax in the name of the company as it is seen as a separate legal entity all together.

Depending on other factors such as size of turnover, nature of relationship with staff who you employ, size of your payroll, whether you are involved in imports and exports etc. you could also be liable to register for other taxes, duties, levies and contributions such as VAT, PAYE and UIF, Customs and Excise and SDL

 

Requirement to submit an ITR14

Unlike a natural person whose year of assessment always covers the 12 month period from 1 March to 28th February, a company will always have a year of assessment which coincides with their financial year (which may not necessarily run from March to February).

They can choose their company yearend when the company is set-up and they can change it at any time online using the CIPC website.
Companies need to file their tax return (ITR14) annually, and this is due within 12 months of their financial year end.
For example, a company with a June year end will need to submit their 2018 ITR14 by 30 June 2019.

The following should be noted:

In most cases SARS does require Financial Statements to be submitted with the ITR14 – see more details on this below.
A taxpayer must retain all supporting documents related to a return for five years from the date upon which the return is submitted to SARS, since SARS may require these documents for audit purposes.

SARS will under certain circumstances, on request, still require the submission of documents for purposes of verification.

 

 

Taxes that are relevant for a company

1. Corporate Tax

A company is required to pay Corporate Income Tax on its profits twice a year, via the provisional filing system and then any additional amount owing when filing their final ITR14.

2. PAYE, UIF & SDL

Many small business owners do not realise that if they operate their business through a Company (Pty) Ltd, the company needs to be registered as an employer with SARS. This also means that it needs to deduct employee’s tax (PAYE and UIF) from amounts paid to Directors. It also is required to make monthly EMP201 submissions (this is the PAYE, UIF and SDL return) to SARS. This holds true even in the case of “owner managed” businesses where there is only one director and no employees. If the owner, who is a director, actively works for the company then they would be considered an employee and subject to PAYE etc.

Employers are required to pay UIF for all of their employees who work more than 24 hours per month. This is calculated at a rate of 2% of their total pay i.e. the employer and employee each contribute 1%. Note however, that the maximum earnings ceiling is capped at R14 872 per month or R178 464 annually. For employees who earn more than this amount, the contribution is calculated using the maximum earnings ceiling amount. Therefore the maximum contribution which can be deducted, for employees who earn more than R14 872 per month, is R148.72 per month.

An employer must pay Skills Development Levy (SDL) if the employer pays annual salaries, wages and other remuneration in excess of R500 000.

Note: in addition to SARS, employers are required to register with the Department of Labour as well (www.labour.gov.za).

3. VAT

It is mandatory for any business to register for VAT if the Turnover generated in any consecutive twelve month period exceeded or is likely to exceed R1 million​. Any business may choose to register voluntarily if the Turnover generated, in the past twelve month period, exceeded R50 000.

4. Dividends Tax

The Withholding Tax on Dividends is paid over by the company, on behalf of the shareholders and is levied at 20% of the dividend declared.If the company declares and pays a dividend, it needs to register for Dividends Withholding Tax so that it can file a Dividend Return and pay this tax to SARS. This can be done on SARS eFiling.

5. Customs Duty

Any company that imports goods to South Africa, or exports goods from South Africa, is required to be registered with SARS for Customs Duty.

 

 

Determining how much tax to pay

In order to prepare the company’s corporate tax return, you will need to understand the basic steps in determining your business’s profit or loss. These steps are much the same for each type of business entity. Basically, net profit or loss is determined as follows:

Turnover – Cost of Sales = Gross Profit

Gross Profit – operating expenses = business profit/loss

These amounts should all reflect on your company’s Income Statement. You would then need to make the relevant tax adjustments in order to arrive at the corporate taxable income for the year. The current corporate tax rate is 28%.

 

 

Small business corporation (SBC)

Small Business Corporation (SBC) is a private company which complies with various requirements per the Tax Act. If it meets the definition of a SBC, it can take advantage of progressive tax tables (as opposed to the standard 28% corporate tax rate) and also shorter depreciation periods for certain assets. This means less tax paid in the early years.

See the questions below to help you decide if your company does qualify as an SBC and can benefit from the special tax concessions for such entities.

  • Is your business Turnover less that R20 million per year?
  • Are the shareholders in your business all natural persons?
  • Do you only own your one business?
  • Does less than 20% of your turnover come from “investment” income?
  • Is less than 20% of your income from rendering a “personal” service?

If you have answered YES to all the above questions your business could be making significant corporate tax savings.

The tax tables for SBCs are below:

Financial years ending on any date between 1 April 2018 and 31 March 2019: 

Taxable income (R)

Rate of tax (R)

0 – 78 750

0%

78 151 – 365 000

7% of taxable income above 78 150

​365 001 – 550 000

20 080 + 21% of taxable income above 365 000

​550 001 and above

58 930 + 28% of taxable income above 550 000

 

 

Deductions & allowances for companies

Aside from the list of possible deductions for Sole Proprietors, the following special deductions and allowances are available as well and are commonly claimed by companies.

1. Section 11a pre-trade (start-up) costs

Sometimes new businesses may incur start-up costs prior to the commencement of trading i.e. before income is generated from operations. Such costs are not allowed as a tax deduction in the year/s where operations have not started. However, these start-up costs can be used as a deduction in the year that trading begins.

2. Section 11D research and development

Businesses are granted an s11D deduction if they have conducted Research and Development Activities which have been approved by the Minister of Science and Technology. This an incentive to encourage companies to create innovative and new products, processes and services by investing in scientific and technological R&D activities. Check www.dst.gov.za for more details, but remember you can only claim for expenditure incurred once approval has been granted. For tax purposes, the company can claim 150% of total R&D expenditure (both revenue and capital), spent on its business activities, and provided it has the relevant approval from the Department of Science and Technology.

3. Section 11(e) wear and tear on machinery, plant, implements, utensils & articles

Wear and Tear or depreciation is the decrease in value of an asset. SARS allows businesses to write-off this decrease each year. It is calculated by applying a percentage to the cost of the asset. The percentages vary based on the type of asset and can be found in Interpretation Note 47 on the SARS website. The write-off must be apportioned for the number of months used if the asset is brought into use during the tax year.

It must be noted that assets which were purchased for less than R7, 000 can be written off in full during the tax year.

Refer to our wear and tear calculator on taxtim.com to assist with your calculations.

4. Section 11(f) lease premium
This section is for companies that lease properties, and have to pay a lease premium in terms of their rental contact. A lease premium is a lump sum, normally paid at the start of lease, which is something in addition to regular rental payments.

Refer to TaxTim’s Lease Premium Calculator to assist with calculating the business’s s11 (f) deduction.

5. Section 11(g) leasehold improvements
If the company carried out renovations/improvements on its office premises that it leases AND it is stipulated in the lease agreement that it was allowed to carry out these renovations, it will able to claim the cost of the alterations for tax purposes.

A renovation is an improvement which adds to the income earning capacity of the building e.g. adding an additional office space. This is different from general repairs and maintenance which is usually to fix something that has broken or needs to be rebuilt.

Note however, that the alteration costs must be spread over the period of the lease and cannot exceed the cost of improvements as stipulated in the lease agreement.  The deduction must start once the renovations have been completed.

Refer to TaxTim’s Lease Improvements Calculator to assist with calculating the business’s s11 (g) deduction.

6. Section 12C manufacturing assets
This allowance is for companies that own assets which are directly involved in the process of manufacture (or similar) or qualifying Research and Development (R&D) Activities.

A manufacturing process would involve converting raw materials into something substantially different e.g. manufacturing bricks or baking bread. Examples of processes that SARS considers similar to manufacturing include shoe repair, dyeing, dry cleaning, panel-beating and construction.

Section 12C provides for a special allowance in respect of these new or used assets that are owned by the taxpayer and were brought into use for the first time.  Note that unlike the s11e wear and tear write-off, this allowance is granted in full each year and is not pro-rated if the asset is brought into use part way during the year.

Refer to our S12C calculator on taxtim.com to assist with your workings.

7. Section 12E plant or machinery of small business corporations (SBCs)
SBC’s can claim a faster depreciation on their plant and machinery. This means the cost of the asset can be deducted against taxes owing much sooner which means less tax paid in the early stages of the business.

Use TaxTim’s SBC Wear and Tear calculator on taxtim.com to help with your calculations.

A SBC can choose to either claim the wear-and-tear allowance under section 11(e) or the accelerated allowance (50:30:20 deduction) under section 12E.

8. Section 12H learnership allowance
This is an allowance the company may be able to claim if it is paying for training or an apprenticeship for any of its employees in terms of a registered learnership agreement. This is an agreement registered with SETA (Skills Education Training Authorities) in accordance with the Skills Development Act. Note, the company must complete IT180's in respect of all learnership agreements for which a tax allowance is claimed. The allowance will be higher for employees partaking in the learnership agreement who have a disability (compared to those without a disability).

For learnerships entered into before 1 October 2016:

It can claim a tax allowance of R30, 000 (R50 000 for disability) per year for each registered learnership agreement it has between itself and an employee. If the agreement was not in effect for the full tax year, the allowance must be apportioned based on calendar months from the registration date of the agreement.

The company can claim a R30 000 "completion allowance” (R50 000 for disability) for each learner that completes their learnership during the year. If the Learnership exceeds 24 months, then R30 000 is multiplied by the number of consecutive 12 month periods within the duration of that learnership.

For learnerships entered into after 1 October 2016 but before 1 April 2022:

The allowance will depend on the NQF (National Qualification Framework) level of the learnership. For NQF level 1-6, It can claim a tax allowance of R40 000 (R60 000 for disability) per year and NQF level 7-10, It can claim a tax allowance of R20 000 (R50 000 for disability) per year.

The company can claim a R40 000 "completion allowance" for NQF level 1-6 (R60  000 for disability) and R20 000 for NQF level 7-10 (R50 000 for disability).

If the Learnership exceeds 24 months, then the completion allowance is multiplied by the number of consecutive 12 month periods within the duration of that learnership.

9. Section 12J investments in Venture Capital Companies (VCCs)

The VCC acts as an "angel investor" and manages the investment into the smaller companies. Investors who wish to spread their risk and put money into a fund or a group of small start-ups will often invest into the VCC rather than a direct investment into the smaller entities.

Taxpayers can claim the amount incurred on venture capital shares as a deduction from their income. They need to ensure however, that they are in possession of a certificate which reflects the amount of the investment and the fact that the VCC is approved by SARS. For further clarification as well as a list of SARS approved venture capital companies (VCCs), refer to the SARS website.

 

Building Allowances

1. Section 13 manufacturing building allowance
If the company owns a building which is used mainly for a process of manufacture it may be eligible to claim a Building Allowance based on the cost of the building and/ or improvements and the date it was erected. A manufacturing process would involve converting raw materials into something substantially different e.g. baking of bread or manufacture of bricks. Examples of processes that SARS considers similar to manufacturing include shoe repair, dyeing, dry cleaning, panel-beating and construction.

2. Section 13quin commercial building allowance
If the company owns a commercial building which it either build itself, or purchased brand new from somebody else, it may be able to claim a building allowance based on 5% of the cost of the building.  "Commercial" means the company uses it for its trade, but this excludes residential purposes. An allowance is claimable on improvements (renovations) to the building as well. An example of a commercial building would be an office block.

3. Section 13quat UDZ building allowance
This allowance is for companies that have built, purchased or refurbished a building in an Urban Development Zone (UDZ) or purchased such a building from a developer. UDZs are designated areas within various cities in South Africa, which due to dereliction and decay, have been earmarked by government for renewal and development. There is also an accelerated write-off for low-cost houses that are built or purchased in a UDZ.

 

A company's financial statement obligations

Many small business owners are unsure as to whether they need to engage an expensive professional to prepare their company’s financial statements, or if can they be drafted and signed internally by their accountant/bookkeeper. There also seems to exist some confusion around the requirement for an audit versus an internal review. Below, we try and clear up some of the confusion around this topic. 

Prepare financial statements

The business owner or company accountant or any other employee (hopefully with some accounting knowledge!) can draw up the financial statements internally. 

Alternatively, they can be compiled independently by an accounting professional on the basis of accounting records provided by the company. An independent accounting professional is someone who has no personal financial interest in the company, nor is an employee of the company. They would have no involvement in the day-to-day running of the company and would typically belong to a regulatory body (e.g. South Africa Institute of Chartered Accountants or the South African Institute of Professional Accountants). 

Prescribed financial reporting standards

Prescribed financial reporting standards are a particular format in which the financial statements must be drafted based on regulated accounting standards and policies. The Companies Act does prescribe certain financial standards for reporting – these include IFRS, IFRS for SMEs and SA GAAP. In the case of some small companies, who compile their financial statements internally, the company can choose to use its own financial reporting standards rather than one of the three mentioned above. 

The financial reporting standard, which must be used, will depend on the category of company (i.e public – listed, public – unlisted or private) and its public interest score. It would be useful to work out the public interest score of your company so you can see if you need to prepare your financial statements based on prescribed standards or if the company can use its own financial standards.

In addition, the public interest score will also determine whether or not an audit or internal review will be required (more on this later). 

 

The calculation of the public interest score

There are four parts to the calculation. You need to allocate points per section and then add up the total. See example below for further clarification:

Description

Example

Points

1 point per average number of employees per year

10 employees

10

1 point for every R1m (or portion thereof) in  third party liability at year end

R5,000,000

5

1 point for every R1m (or portion thereof) in turnover at year end

R10,500,000

11

One point for every individual who at year end:

 

 

1) in the case of a profit company: has a direct or indirect beneficial interest in the company's issued shares or,

10 shareholders

10

2) in the case of a non-profit company, is a member of the company or is a member of an association that is a member of the company

N/A

0

Total Points

 

36

 

 

An Audit versus an Internal Review

An audit is a detailed examination of the company’s financial records by independent external auditors who provide an audit report at the end of the audit in which they express an opinion on whether the financial statements fairly present the financial position of the company. Basically an auditor will sign off on whether the financial results are correct.

An independent accounting practitioner performs an independent review. Like an audit, this involves a review of the company’s financial records in order to arrive at an opinion on the financial statements of the company, however the review procedures are more high level and less onerous than an audit. This is a much quicker and cheaper process.
If a company requires an audit, it won’t require an independent review as well (and vice versa). 

Small companies, with a Public Interest Score of less than 100 do not require, require an audit or an independent review – these are small, owner-managed companies with a public interest score of less than 100. These are generally companies with a couple of directors, who own all the shares and run the business themselves. 

See the table below for a summary of requirements per category of company:

Category of Company

Prescribed financial reporting standard

Audit

Independent Review

 

IFRS

IFRS for SMEs

SA GAAP

 

 

Public companies -  listed on an exchange

X

 

 

Yes

No

Public companies - not listed on an exchange

X

X

 

Yes

No

Companies with public interest score 350 and upwards

X

X

 

Yes

No

Companies with public interest score at least equal to 100 but less than 350

X

X

X

Yes, if financial statements were internally compiled

Yes, if financial statements were independently compiled

Companies with public interest score less than 100 (i.e 1-99) and financial statements are independently compiled.

X

X

X

No

Yes, unless every shareholder is also a director (i.e owner managed companies)

Companies with public interest score less than 100 (i.e 1-99) and financial statements are internally compiled.

Reporting standards determined by the company

No

Yes, unless every shareholder is also a director (i.e owner managed companies)

 

 

Financial statement submission to SARS

It is compulsory for small, medium and large businesses to submit signed financial statements to SARS on the submission of their ITR14 (company tax return). These are submitted via SARS eFiling when the ITR14 is submitted.

The financial statements must be signed off by the Public Officer.
The minimum requirement of the financial statements is that they contain a Balance Sheet, Income Statement and Notes. 
The submission of financial statements is optional for companies classified as:

  • Dormant,
  • Body corporates or
  • Microbusinesses (turnover less than R1m)

 

The pros and cons of operating as a private company

 

PROS

  • Life of the business is perpetual, that is, it continues uninterrupted as shareholders change.
  • Shareholders have limited liability, that is, they are generally not responsible for the liabilities of the company. However, certain tax liabilities do exist. Every shareholder and director who controls or is regularly involved in the management of the company’s overall financial affairs shall be personally liable for, amongst others, PAYE, VAT, additional tax, understatement penalty, penalty or interest for which the company is liable if the taxes have not been paid to SARS within the prescribed period.
  • Transfer of ownership of shares in the company is allowed.
  • Many suppliers and potential corporate customers prefer to deal with a registered company instead of an individual. This could help a business grow and get more customers and therefore earn more money.

CONS

  • More difficult and expensive to establish and operate than other forms of ownership such as a sole proprietorship or partnership.
  • More burdensome legal and administrative requirements (e.g financial statements and  CIPC annual return submission)
  • More expensive to run and maintain.

 

Sole proprietor vs private company

How do I run my business in the most tax efficient way?

The answer boils down to the level of earnings you expect from your business.

Individuals are taxed on a sliding scale, which means that the average rate of tax you pay increases as your earnings increase. This is called a progressive tax rate and applies to any individuals earning more than R78 750 per year.

This tax threshold means that as an individual, you benefit from a tax rebate, which brings down the amount of tax you owe by a flat amount, depending on your age. If you’re under 65 years, this is called the primary rebate. In addition to the primary rebate, there’s a secondary rebate for those over 65 years and an additional tertiary rebate for those over 75 years.

In a company, profits are taxed at a flat rate of 28%, irrespective of the level of earnings. In order for the owners (shareholders) to receive their share of the profits, the company needs to declare a dividend. This is taxed at a further 20%.

Let’s do a worked example of the difference this makes on R100, 000 profit between a registered company and a sole proprietor’s tax position.

We’ll assume that ABC PTY Ltd didn’t pay out any profit in the year, and distributes a dividend the following year.

For tax year 2019:

ABC PTY Ltd annual taxable income

R100,000

Company tax at 28%

(R 28,000)

Net profit

R72,000

Dividends tax at 20% (20% x R72,000)

R14,400

Effective rate of tax (R28,000+R14,400) / R100,000

42.4%


Now, let’s look at the same situation for Lerato, a sole proprietor.

For tax year 2019:

Lerato’s annual taxable income

R100,000

Individual tax at 18% (SARS table for R100,000 per annum)

R18,000

Less Primary rebate

(R14 067)

Total tax (R18,000 – R14 067)

R3 933

Effective tax rate (R3 933 / R100,000)

3.933%

While we showed the full worked example above, you can take a short cut by using TaxTim’s Income Tax calculatorLink: https://www.taxtim.com/za/calculators/income-tax


In our example above, Lerato’s effective tax rate of 3.933% is significantly lower than ABC (Pty) Ltd’s at 42.4%. What we must remember though is that as Lerato’s business grows and becomes more profitable, she’ll move into higher tax bracket, increasing her effective rate of tax.
Let’s do another example, but this time where the taxable income is R1, 000,000 for the tax year. How does the tax situation change for Lerato?

Our company this time, XYZ PTY Ltd, has a sole Director, Billy, who draws an annual salary of R360, 000 (or R30, 000 per month). This amount is deducted before corporate tax is applied.

For tax year 2019:

XYZ PTY Ltd income before Director’s salary

R1,000,000

Director’s salary

(R360,000)

XYZ PTY Ltd’s annual taxable income

R640,000

Less corporate tax of 28%

(R179,200)

Retained earnings

R460,800

Dividend Tax on future pay out at 20%

R92,160

As Billy is drawing a salary of R360, 000, he’ll be liable for individual tax on this amount. The tax on salary as per TaxTim’s Income Tax Calculator is R66, 572.50.

Therefore, the total tax paid is:

XYZ PTY Ltd corporate and dividends tax (R179,200 + R92,160)

R 271,360.00

Billy’s individual tax

R 66,572.50

Total tax

R 337,932.50

Now let’s have a look at Lerato’s tax for an income of R1, 000,000 for the year. This amount puts Lerato into the 41% tax bracket, as per SARS tax tables for individuals. Her total tax as per TaxTim’s Income Tax Calculator is R312, 973.90
Lerato is paying R24, 958.60 (R337, 932.50-R312, 973.90) less tax in her own capacity than if she was operating through a company and drawing a salary of R30, 000 per month.

As there are numerous other deductions and allowances to consider for both an individual and a company, we’d have to perform detailed calculations for both scenarios to determine which is truly more tax efficient.

What is evident though, is that as an individual earns more and moves into the highest tax bracket, the difference in tax between a company and a sole proprietor decreases. At lower levels of taxable income, it’s far more tax efficient to operate as a sole proprietor and enjoy the benefits of sliding tax tables and rebates available to individuals. At higher income brackets, it’s likely that company registration would be more beneficial.

 

 

The provisional tax system

Provisional tax is not a type of tax. It is rather a payment mechanism which is intended to assist businesses in meeting their normal tax liabilities. Provisional tax payments are based on the estimated taxable income for the year. They are made by way of two instalments and an optional third payment after the end of the year of assessment. This system is intended to spread out the tax liability over the year and therefore avoid a single substantial tax payment after the tax year end. Note, that all companies and sole proprietors pay tax via the provisional tax system.

Registering for provisional tax

All companies are automatically registered for provisional tax as soon as they are issued with a tax number, but if they want to submit their provisional tax return via eFiling, then they need to do follow the following steps:

Log into their eFiling profile, click on home, then select the “Provisional tax” tax type, scroll down and click on “Register”, this will be sent to SARS for approval and they will activate the tax type within 48 hours.

Sole proprietors can either apply as a provisional taxpayer when they first register for a tax number with SARS, or they can make the change on their SARS eFiling profile.

When to pay provisional tax

The first provisional tax return (IRP6) and payment must be made six months into the tax year, while the second return (IRP6) and payment is due at the end of the tax year. The payments for individuals will always be by the end of August and February. The timing of the payments for companies will depend on the company’s year end which may not necessarily be February. There is an optional third payment at the end of September (seven months after tax season closes, for Individual Taxpayers only) ONLY if amounts paid in previous payments were too little when compared to the actual tax owed. For companies with a yearend other than February, the optional third payment must be made within six months of the year end.

The following graphic shows the time frame which applies to Sole Proprietors (ie individuals) for their Provisional Tax payments. 

The provisional tax payments are based on an estimate of taxable income for the year. The actual tax liability for the business is calculated in the annual tax return and the provisional payments made during the year are then credited against the actual tax liability in order to arrive at a final amount due or owing to SARS.

Whats returns to file

In addition to the two provisional returns (IRP6s) per year, sole proprietors also need to submit an annual tax return (ITR12) which is due by the 31 January each year (i.e. 11 months after the tax year end). Similarly, registered companies also submit two IRP6s per year as well as an annual tax return (ITR14). The latter is due twelve months after the company’s financial year end.

 

 

Turnover tax

Turnover Tax is a simplified tax system only available to sole proprietors, partnerships, companies or close corporations with a “qualifying turnover” of less than R1m per year. These types of entities are called micro businesses.

As the name implies, Turnover Tax is a type of tax, which is calculated against the turnover of a business, as opposed to a percentage of profit (i.e. income less business expenses) as per usual business tax. This difference reduces the administration burden on business owners as there’s less of a need to keep a detailed record of expenses and understand which are deductible for tax purposes.

Turnover tax isn’t available for just any business, though, and you’ll have to meet SARS requirements in order to register.

Let’s have a quick look at the qualifying criteria before we go into further detail.

 

Does my business qualify for turnover tax?

Turnover tax is reserved for micro businesses with a “qualifying turnover” of less than R1m for the financial year.

“Qualifying turnover” is the total amount received by a business for the year of assessment from carrying on business activities. For the purpose of determining the R1 million cap, the following amounts will be excluded from qualifying turnover:

  • All receipts of a capital nature - for example, an amount received from the sale of equipment that was used in the business. This means that even if your turnover was R900, 000 for the year and you disposed of a large business asset for R250, 000, the capital from the sale will be excluded and your turnover still falls below the R1m threshold.
  • Certain Government grants exempt from income tax in terms of the Income Tax Act.

While the above are basic criteria, there are further scenarios and types of businesses that aren’t eligible to register for Turnover Tax. Our handy Turnover Tax tool (link below) will take you through a number of straightforward questions and let you know instantly whether your business qualifies or not.

Link: https://www.taxtim.com/za/tax-guides/chats/should-i-register-for-turnover-tax

 

I qualify for turnover tax. How do I register?

If your business qualifies for turnover tax and you wish to register (note: this is optional) you need to submit a TT01 form to SARS. Regrettably, the registration process is a manual one and can’t be done via eFiling.

 

How do I calculate my “taxable turnover”?

While your qualifying turnover is the amount used to determine whether you’re eligible for Turnover Tax, your “taxable turnover” is the amount used to calculate the tax payable. These numbers can differ, depending on your business situation.

“Taxable turnover” is the total income generated by the business as a result of its trading activities, e.g. paid invoices for services delivered, or products supplied plus 50% of all receipts of a capital nature from the disposal of business assets.

In addition, registered companies (not individuals) will need to include all interest from investments, but not dividends.

 

WHAT ARE THE CURRENT TURNOVER TAX RATES?

Below are the Turnover Tax Rates for years of assessment ending on 28 February 2019

Turnover (R)

Rate of Tax (R) 

0 - 335 000

0%

335 001 - 500 000

1% of each R1 above 335 000

500 001 - 750 000

1 650 + 2% of the amount above 500 000

750 001 and above

6 650 + 3% of the amount above 750 000

 

WHAT ABOUT OTHER TAXES LIKE CAPITAL GAINS, DIVIDEND WITHHOLDING TAX AND VAT?

Micro businesses registered for Turnover Tax are exempt from Capital Gains Tax (CGT), however, 50% of the proceeds of business asset sales need to be included in the calculation of your “taxable turnover”. Effectively this is a substitute for CGT and ensures that large capital gains aren’t routed through the turnover tax system to intentionally avoid CGT.

Registered Turnover Tax payers are also exempt from Dividend Withholding Tax (DWT) on dividend distributions up to R200, 000 per year. Dividends in excess of R200, 000 are subject to DWT at the standard rate of 15%.

Companies only need to register for VAT if the value of their taxable supplies exceeds R1m in a 12-month period. Micro businesses, which by definition have turnover less than R1m, will therefore not need to register for VAT.

 

How do I submit returns and pay turnover tax?

Micro businesses registered for turnover tax submit two provisional returns. TT02 in August and February, and a final tax return, TT03, per year. The provisional returns are based on estimated turnover for the year with actual turnover calculated when the final tax return (TT03) is submitted and the taxpayer is assessed.

VERY IMPORTANT: Turnover Tax payers aren’t able to file and pay taxes via eFiling and these returns have to be delivered by hand to a SARS branch. This is a consideration point before deciding to register for Turnover Tax (remember, it’s optional) as what should be a reduced administrative process, may actually result in a cumbersome one if you have to factor in long queues at the SARS branches!

WHAT RECORDS DOES A MICRO BUSINESS REGISTERED FOR TURNOVER TAX NEED TO KEEP?

While Turnover Tax payers needn’t maintain exhaustive record of all business income and expenditure (although, this is generally good practice for business anyway), SARS does require you to keep the following:

  1. Records of all amounts received;
  2. Records of dividends declared;
  3. A list of each asset with a cost price of more than R10, 000 at the end of the year of assessment as well as of liabilities exceeding R10, 000.

What if my business exceeds R1m turnover?

Firstly, great job on the booming business!

Secondly, within 21 days of your business breaking the R1m turnover mark (in a single tax year), you’ll need to de-register from Turnover Tax by notifying SARS. As per the registration process, this has to be done in person at a SARS branch.

 

How to register your company for SARS eFiling

In order to use SARS eFiling, you will need your company tax reference number.
If you do not know it, please call SARS on 0800 00 7277 to find out what it is. 

Go to www.sarsefiling.co.za.
Click on Register.

 

Look for the option For Organisations. Click the little brown arrow button to continue.

You will be shown the SARS eFiling Terms and Conditions - read them to understand your rights.

You will need to click the checkbox next to "I accept" and press the Continue button to proceed

You will then be asked to complete the registration form with your company details. Some helpful hints:

  • you should only be registering for eFiling if you have a Tax Reference Number.
  • a company should always be registered for Provisional Tax (IRP6) as well as ITR14 and IT Admin Penalty.
  • if you have a tax practitioner then enter their details here. Your practitioner will have a practitioner registration number in the format of PR-xxxxxx which they should be able to give to you. This will help SARS identify who your practitioner is in case they need to be contacted.
  • be sure to answer the security questions with answers that you will remember. These are used to get your password back if you forget it. When asked for a Helpful Hint question, it is important to make this something that is secure and that nobody else but you is likely to guess, also something that is easily remembered. You don't want to have to phone SARS to reset this each time you forget.
  • your password must have a number, letter and symbol as well as a capital letter - for example johnRob#1234.

Now click Register.

On the next page you will see a list of communication types. SARS wants you to register for certain notifications or messages. Please select:

  • "Provisional Tax (IRP6)"
  • "Organisation Income Tax (ITR14)"
  • "IT Admin penalty" - this option must be selected. It is used to send you messages when things go wrong with your tax return.

For each communication type you will need to enter your tax reference number in the box that says "Reference Number" and then select which tax office is the nearest to you. Once you have filled in your details for each selected communication type, press the Register button at the bottom of the form.

Important: The last step is to download a summary of your registration form from SARS eFiling. Click on Home, then Summary, then Declaration to eFile. Complete and sign the form, include a copy of your ID and then either fax these documents to SARS on (011) 602 5312, or send by email to info@sarsefiling.co.za to finalise your eFiling registration.

You are done with registration! In 1 - 2 days’ time return to www.sarsefiling.co.za, login with the registration details you setup above and click the Returns tab where you will now be able to view your returns for submitting.

 

STUCK AT REGISTRATION?

After registration, if SARS does not automatically register you and you are stuck, unable to start your tax return, it might be the case that SARS requires further documentation from you. To find out, you can still login to eFiling, then if you click on the User tab at the top you may see a line saying "Pending Registration". Click this and you will notice a "Case Created" message. Clicking on that should display a letter from SARS asking for a certified ID, proof of address or similar document proof. There will be an option to upload digital copies of these documents directly. This message usually appears 24 - 48 hours after trying to register on eFiling. If you are still having hassles, call SARS on 0800 00 7277.