South African small businesses have a taxation option they should consider: turnover tax.
It simplifies your taxes and reduces administration burdens. However, it isn’t ideal for every business.
Let’s break it down.
About Turnover Tax
Turnover tax is a taxation system intended for small businesses making R1 million or less per year.
As a turnover taxpayer, you’ll only deal with one tax. You’ll also no longer track deductible business expenses.
Tax will be calculated based on your turnover once you go over the R1 million threshold, you’ll have to switch to regular tax.
Plus, you’ll be liable for VAT if you’re not already registered.
How Turnover Tax Works
Think of turnover tax as an extremely streamlined way of paying taxes.
SARS no longer requires you to worry about accounting for expenses.
The tax you pay is calculated using a simplified formula based on your turnover.
Turnover Tax Rates(2025/2026)
- R1 – R335,000: 0%
- R335,001 – R500,000: 1% of the amount exceeding R335,000
- R500,001 – R750,000: R1,650 + 2% of the amount exceeding R500,000
- R750,001 – R1,000,000: R6,650 + 3% of the amount exceeding R750,000
Benefits of Turnover Tax
Many small businesses can benefit from the simplifications turnover tax provides:
- Fewer taxes to deal with-Normal tax requires you to take into account a few different taxes. With turnover tax, there’s only one.
- Simple record keeping-You won’t need to track all your business expenses. You primarily only need to track income.
- Manageable cash flow-Tax amounts are easily predictable based on your turnover amount.
- Lower admin burden-You won’t have as many returns to complete and file.
- Could pay less tax-If your business has low operating expenses, you’ll likely pay less.
When Turnover Tax Isn’t Ideal
While turnover tax simplifies things, it’s not always the best choice.
Turnover tax might not be ideal for your business if:
- You have significant expenses/deductibles
- Your business makes close to R1 million or more per year in turnover
- You operate a business in one of the categories we cover later on
- You want to file and pay your taxes electronically (turnover tax requires manual processes)
Who Can Register?
Any business owner who meets the following criteria can register for turnover tax:
- Annual turnover is less than R1 million
- Operates as a sole trader, partnership, company, close corporation, or co-operative
- Doesn’t fall into one of the categories we mention below
Types of Business That Can’t Register
Business owners in the following categories cannot register for turnover tax:
- Professional services
- Financial services
- Mining related activities or operations
Who Counts as a Personal Service Provider?
This is where many small business owners run into problems.
Business owners run the risk of being considered a personal service provider if:
- Most of their income is derived from personal services rendered.
- The way your business is structured is similar to that of an employer/employee relationship.
Businesses commonly deemed to be ‘personal service providers’ include:
- Consultancy firms
- IT consultancies
- Law firms
- Accounting firms
- .Engineering/architecture firms
- Medicine/health-related services
- Teaching/tutoring
- Advertising agencies
- Production companies
- Public relations
- And many more…
However, you can still qualify for turnover tax if you:
- Rent your services to multiple independent companies or clients, or
- Work independently without specific direction or supervision from a client.
These are determined on a case-by-case basis, but there are exceptions.
Record Keeping
As with most tax structures, certain records must be kept.
These include:
- Income received
- Declared dividends
- Assets over R10k
- Liabilities over R10k
Turnover tax has the potential to benefit your small business.
But it only does so when it aligns with the nature of your business.
If you keep operating costs low and want simplicity, turnover tax can save you money and time.
If you don’t fit that description, you might be better off under the regular tax system.
Choose the structure that benefits your business the most, not the one that seems easiest.
Still Need Help?
Deciding on whether turnover tax is right for your business can be tricky.
If you’re still unsure, consider reaching out to a professional accountant or tax advisor to assess your specific situation.
It could save you time, money and a lot of headaches in the long run.