As part of Government’s broader mandate to encourage entrepreneurship and create an enabling environment for small businesses to survive and grow, the National Treasury and SARS announced initiatives in 2008 to reduce the tax compliance burden on businesses with an annual turnover of up to R1 million.

What is the simplified tax system for micro businesses?

The simplified tax system is essentially a package that consists of a turnover tax as a substitute for income tax, capital gains tax (CGT), secondary tax on companies (STC), and an increase in the value-added tax (VAT) compulsory registration threshold from R300 000 to R1 million. Turnover tax is optional, meaning that a micro business can decide if it wants to use it or the current tax system. It is available to sole proprietors (individuals), partnerships, close corporations, co-operatives and companies with effect from 1 March 2009.

How will turnover tax work? Unlike the income tax system that makes use of comprehensive inclusion rules and a reduction process that requires proof of expenditure to be maintained, turnover tax will be calculated by simply applying a tax rate to a taxable turnover. The taxable turnover consists of the turnover of the business with a few specific inclusions and exclusions.

What happens if the qualifying turnover is exceeded? A micro business registered for turnover tax must notify SARS within 21 days of its qualifying turnover exceeding R1 million for the year of assessment, or where there are reasonable grounds to believe that the amount will be exceeded. The business will then be deregistered from turnover tax and will be registered for VAT, unless SARS is of the view that the excess will be small and temporary. The deregistration and liability for VAT will take effect from the beginning of the month following the month in which the qualifying turnover exceeded, or was likely to exceed the R1 million threshold.

SARS may also deregister a micro business from turnover tax if it is satisfied that the taxable turnover of the micro business is sufficient to render that business liable to register for VAT. SARS must consult with the micro business before proceeding on this basis. SARS offers a guide, the Tax Guide for Small Businesses which provides useful background information and covers topics such as: the different types of businesses, the SARS requirements that small businesses have to comply with, the requirements of other authorities that small businesses have to comply with, and record-keeping.

The Tax Guide for Small Businesses is available on the SARS website at www.sars.gov.za Should you require further information or any other information on the interpretation and administration of tax and customs legislation, you may contact your local SARS office; contact the SARS Call Centre on 0800 00 72 77; visit the SARS website at www.sars.gov.za; or contact your own tax advisor/practitioner Comments or suggestions on this guide may be sent to policycomments@sars.gov.za.