For many small business owners in South Africa, managing taxes can be complex and time-consuming. The Turnover Tax (TOT) system, introduced by SARS, offers a simpler and lower-tax alternative for qualifying small businesses. Instead of paying multiple different taxes (like VAT, Income Tax, and Provisional Tax), businesses registered for Turnover Tax pay a single tax based on their annual revenue.
If you’re a small business owner looking to reduce tax compliance burdens, this guide will explain how Turnover Tax works, who qualifies, and whether it’s the right option for you.
What Is Turnover Tax?
Turnover Tax is a simplified tax system for small businesses with an annual turnover of R1 million or less. Instead of calculating profit-based tax, businesses are taxed based on their total revenue. This eliminates the need for complex accounting, deductions, and provisional tax payments.
Key benefits of Turnover Tax:
✅ Simplifies tax administration – Less paperwork and record-keeping
✅ Lower tax rates – Businesses often pay less tax compared to normal Income Tax
✅ No VAT registration required – Unless turnover exceeds R1 million
Who Qualifies for Turnover Tax?
To register for Turnover Tax, your business must meet the following criteria:
✅ Annual turnover must not exceed R1 million
✅ The business must operate as a sole proprietor, partnership, close corporation, cooperative, or private company (PTY Ltd.)
✅ Less than 20% of total income should come from investment or professional services (e.g., consulting or accounting firms may not qualify)
✅ The business cannot be a personal service provider (PSP) or involved in certain excluded industries, like financial services or real estate rental
Example:
If you run a small catering business with an annual turnover of R800,000, you can apply for Turnover Tax instead of the standard Corporate Income Tax system.
Turnover Tax Rates for 2024/2025
Turnover Tax is calculated based on the total revenue of the business, not its profit. SARS uses a sliding scale for taxation:
Annual Turnover (R) | Tax Payable |
|---|---|
0 – 335,000 | 0% (Tax-Free) |
335,001 – 500,000 | 1% of turnover above R335,000 |
500,001 – 750,000 | R1,650 + 2% of turnover above R500,000 |
750,001 – 1,000,000 | R6,650 + 3% of turnover above R750,000 |
Example Calculation:
Let’s say ABC Plumbing has an annual turnover of R600,000. Their tax payable would be:
1. First R335,000 → Tax-free
2. Next R165,000 (R500,000 - R335,000) → 1% = R1,650
3. Remaining R100,000 (R600,000 - R500,000) → 2% = R2,000
4. Total Turnover Tax = R1,650 + R2,000 = R3,650 per year
Compared to standard Company Income Tax (28%), ABC Plumbing saves money and avoids complex tax calculations!
How to Register for Turnover Tax
You can apply for Turnover Tax through:
📌 SARS eFiling – Register online at www.sarsefiling.co.za
📌 SARS Branch Visit – Submit the TT01 form at your nearest SARS office
Important Deadline: You must register before the start of a new tax year (1 March) to apply for Turnover Tax for that year.
Turnover Tax vs. Standard Tax System
Factor | Turnover Tax | Standard Tax (CIT & VAT) |
|---|---|---|
Tax Type | Based on revenue | Based on profit |
VAT Registration | Not required (unless turnover > R1M) | Mandatory for businesses over R1M turnover |
Accounting Complexity | Very simple | Requires financial statements |
Who Benefits? | Small businesses with low expenses | Businesses with high expenses and deductions |
Best for: Sole proprietors, small retail stores, local service businesses, and freelancers with minimal operating costs.
Turnover Tax: Pros & Cons
✅ Advantages:
✔️ Less paperwork & admin burden
✔️ Lower tax rates compared to standard income tax
✔️ No VAT obligations (unless turnover exceeds R1M)
❌ Disadvantages:
✖️ Cannot claim business expenses or deductions (e.g., rent, salaries)
✖️ Not suitable for high-expense businesses
✖️ Strict eligibility criteria
Who Should Use It?
✔️ Small businesses with low overhead costs
✔️ Businesses earning steady revenue below R1 million
✔️ Startups that want to simplify tax compliance
Is Turnover Tax Right for Your Business?
Turnover Tax is a great option for small businesses in South Africa looking to reduce tax admin and costs. However, if your business has high expenses or deductions, it may be better to stick with the standard Income Tax system.
Need help with Turnover Tax? Our experts at XRA can assist you with registration, compliance, and tax planning to ensure you pay the lowest tax legally possible.
Contact us for more information