TURNOVER TAX: WHAT YOU NEED TO KNOW

Article by:  Fourways Accountant: ANNJA LOUCA

In South Africa, if you're a registered company or sole proprietor, you have the option to pay the standard small business income tax rates or choose turnover tax. Turnover tax is designed to simplify tax rates and reduce administration for small businesses with an annual turnover of less than R1 million. However, if your turnover exceeds R1 million, you'll need to register for VAT and pay tax at the standard rates. It's possible to be registered for both turnover tax and VAT (voluntary registration).

With turnover tax, record-keeping is made easier as the system automatically estimates a company's business expenses when calculating taxable income, which means tax-deductible expenses don't need to be tracked and reported. Under the turnover tax system, small business owners may pay a lower tax rate than the standard system and could potentially pay no tax at all based on their annual income.

Opting for turnover tax over the standard small business tax can be advantageous for many small business owners. However, it's important to note that under the turnover tax system, expenses are estimated rather than calculated based on actual expenses. Therefore, if you have high tax-deductible expenses that would significantly reduce your taxable income, it may be better to claim them under the standard tax system.

It's important to remember that there's no one-size-fits-all solution, so consider your business situation and make the decision that's right for you. One significant advantage of turnover tax is that you don't need to keep documentation to support your expenses, which can simplify record-keeping.

The following records must be kept if you are on turnover tax:

• Records of all amounts received.
• Records of dividends declared.
• 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.

If you would like to see if you qualify or would benefit from turnover tax, please get in contact with us.

What can I deduct as business expenses for tax?

SARS defines tax-deductible business expenses as any expense related to generating income or running a business. This can include the cost of stock purchased for resale or office stationery. It's important to maintain a record of these business expenses. In South Africa, both companies and sole proprietors are eligible to claim business expenses on their taxes. Freelancers who work from home can also claim valid expenses.

If you run a business as a sole trader:

a) Day-to-day business expenses

These are general day-to-day office or business expenses, including items like stationery, petrol, and internet.

These expenses should all fall into one of the following categories:

• cleaning costs
• electricity, water and other utilities
• employee costs and administration costs
• financial charges (such as bank fees)
• insurance fees
• legal fees
• marketing, advertising and promotional expenses.
• material and equipment costs
• office rental costs
• office supplies
• phone and internet costs
• security costs
• travel and transport, including business vehicle running costs
• uniforms and PPE
• wholesale purchase costs for inventory

Other

• The cost of staff training that directly relates to their role at the company can be claimed as a business expense
• Entertainment costs for clients can be deducted i.e. drinks, meals or live entertainment – you must be able to prove that these costs were in the production of income
• Business start up costs – this is costs before you started trading that you had to incur to start the business

b) Capital expenses

These are large expenses that don’t crop up on a daily or monthly basis. Usually, these long-term expenses are budgeted for well in advance. Examples include:

• business vehicles
• equipment and machinery
• hardware, such as computers
• renovation costs
• signage

If you are a commission earner

Commission earners are permitted by SARS to deduct all commission-related expenses from their commission income, including expenses such as telephone usage, petrol, accommodation, wear and tear, and entertainment. However, it's necessary to provide evidence that these expenses were directly related to commission work. SARS may scrutinize these claims, particularly for more ambiguous expenses like entertainment, due to past misuse of the system.

Claiming home office expenses
If you work from home, there are several home office expenses that you may claim, such as data or internet expenses, electricity usage, rent, rates, and cleaning costs. The claimable amount is based on the proportion of your home used as your office space. To determine the amount you can claim, you need to calculate the percentage of your home's floor space taken up by your dedicated workspace. You can only claim expenses for that percentage since the remainder is for personal use.
For remote workers who utilize a coworking space like The Workspace, office fees remain claimable as a business expense. This applies to freelancers and remote workers who are full-time employees of a company.

Documents you need to support your claims:
Regardless of your business structure, tracking your expenses regularly is key to managing your finances effectively, maintaining positive cash flow and ensuring accurate record-keeping.

In some cases, it may be necessary to demonstrate the proportion of business versus personal use for certain expenses. For instance, if you use your personal phone for work purposes, you'll need to indicate what portion of its usage is business-related versus personal. You are only eligible to claim expenses for the business-related portion.

For more information, please visit our website anlo.co.za or give us a call on 0116581324