Does my business qualify for Turnover Tax??

[rubenrog3rs]

I have a marketing company/agency. I would like to know if I can register for Turnover Tax?? According to SARS, companies that provide professional services do not qualify for Turnover Tax. Professional services being accounting, actuarial science, architecture, auctioneering, auditing, broadcasting, consulting, draftsmanship, education, engineering, financial service brokering, health, information technology, journalism, law, management, real estate brokering, research, sport surveying, translation, valuation or veterinary science.

Thanks

 

[dunkyd]

Google SARS turnover tax, it's all there.

 

[Idiosyncratic]

I have a marketing company/agency. I would like to know if I can register for Turnover Tax?? According to SARS, companies that provide professional services do not qualify for Turnover Tax. Professional services being accounting, actuarial science, architecture, auctioneering, auditing, broadcasting, consulting, draftsmanship, education, engineering, financial service brokering, health, information technology, journalism, law, management, real estate brokering, research, sport surveying, translation, valuation or veterinary science.

Thanks

Are you in online marketing? Surely that's IT then... if not, does your company do research, consulting or broadcasting?

Either way, I'm thinking it's a no. It's better that way anyway. If you don't make a profit, no tax, if you make a profit, you pay tax. With turnover tax, if you lose, you still pay tax.

 

[Greig Whitton]

The turnover tax system is a scam designed to trick startups, micro enterprises, and informal traders into registering for tax under the guise of easier compliance. As Idiosyncratic correctly observes, it is a tax on turnover - not profit. Which makes it a horrible option for small businesses that are likely to trade at a loss or nominal profit initially (i.e. the very taxpayers that the system is purported to "help").

 

[Thor]

Are you in online marketing? Surely that's IT then... if not, does your company do research, consulting or broadcasting?

Either way, I'm thinking it's a no. It's better that way anyway. If you don't make a profit, no tax, if you make a profit, you pay tax. With turnover tax, if you lose, you still pay tax.

^^, I don't know why turnover tax is allowed to exist, its stealing.

 

[redarrow]

What are you guys talking about.. Turnover tax was the best thing for me, went from like R15k tax per annum to less than R2k, love it.
Also it only kicks in at a turnover of > R335 000.00 below that you pay nothing. If you're turning over more than R335k and yet making zero profit then something is very wrong.


On topic, they're not very clear about what exactly qualifies or doesn't, I just applied with a full details of the business and the application was accepted.

 

[Greig Whitton]

Also it only kicks in at a turnover of > R335 000.00 below that you pay nothing.

This is one of my biggest criticisms of Turnover Tax: it incentivises entrepreneurs to limit the growth of their business. And it's far from the only economic policy to do so. Broad-Based Black Economic Empowerment, affirmative action, the Consumer Protection Act, and the amended Labour Relations Act all do the same. All of the rhetoric around supporting small business is at odds with the regulatory environment that stifles their growth potential.

If you're turning over more than R335k and yet making zero profit then something is very wrong.

Not all business models scale seamlessly. Many enterprises will take a profitability hit as they grow due to operating cost increases that are a prerequisite for fulfilling additional demand.

 

[redarrow]

This is one of my biggest criticisms of Turnover Tax: it incentivises entrepreneurs to limit the growth of their business.

Well I've never felt any incentive to limit my business and personally I think anyone who did is weird, why would you want to make less money just so you can pay less tax?

Not all business models scale seamlessly. Many enterprises will take a profitability hit as they grow due to operating cost increases that are a prerequisite for fulfilling additional demand.

Sure I guess, but someone who can afford to run a business that's turning over > R335k with zero profit is probably a more wealthy individual who already has other sources of income and therefore doesn't even qualify for TT in the first place.

 

[Greig Whitton]

Well I've never felt any incentive to limit my business and personally I think anyone who did is weird, why would you want to make less money just so you can pay less tax?

It's not just about paying less tax. It's the accumulation of headaches that accompany growth.

Once you go over R1M turnover, your business no longer qualifies for turnover tax (and if you're accustomed to the simplicity of the turnover tax system, making the transition to income tax, VAT, capital gains tax, etc. is going to be uncomfortable).

Once you go over R2M turnover, your business no longer qualifies as a consumer for the purposes of the Consumer Protection Act (which means your business enjoys less legal protection).

Once you go over R10M turnover, your business no longer qualifies as an Exempt Micro Enterprise for B-BBEE purposes (which means you will need to undergo the time and cost of getting certified if there is market pressure to have a valid B-BBEE certificate and/or if you want to apply to government funding programs).

The list goes on, but I think you get the picture.

The obvious counter is that bigger companies have more resources for dealing with these challenges. While there's some truth to this, it's not as simple as just throwing money at the problem (and even if it was that simple, you wouldn't want to throw money at it having invested so much blood, sweat, and tears into growing your business in the first place).

Sure I guess, but someone who can afford to run a business that's turning over > R335k with zero profit is probably a more wealthy individual who already has other sources of income and therefore doesn't even qualify for TT in the first place.

Not necessarily, sometimes it's just more tax efficient to minimise business profitability. Let's say I run a small business that makes R500K per year. By maxing out my salary, I can ensure that my business generates nil profit. Under the standard income tax system, my business pays zero tax. But under the turnover tax system, my business still has to pay R1,650.

 

[redarrow]

It's not just about paying less tax. It's the accumulation of headaches that accompany growth.

Once you go over R1M turnover, your business no longer qualifies for turnover tax (and if you're accustomed to the simplicity of the turnover tax system, making the transition to income tax, VAT, capital gains tax, etc. is going to be uncomfortable).

Once you go over R2M turnover, your business no longer qualifies as a consumer for the purposes of the Consumer Protection Act (which means your business enjoys less legal protection).

Once you go over R10M turnover, your business no longer qualifies as an Exempt Micro Enterprise for B-BBEE purposes (which means you will need to undergo the time and cost of getting certified if there is market pressure to have a valid B-BBEE certificate and/or if you want to apply to government funding programs).

The list goes on, but I think you get the picture.

The obvious counter is that bigger companies have more resources for dealing with these challenges. While there's some truth to this, it's not as simple as just throwing money at the problem (and even if it was that simple, you wouldn't want to throw money at it having invested so much blood, sweat, and tears into growing your business in the first place).

Ok fair enough, not an issue to me personally because I was a provisional tax payer before so not really a stranger to it.

Not necessarily, sometimes it's just more tax efficient to minimise business profitability. Let's say I run a small business that makes R500K per year. By maxing out my salary, I can ensure that my business generates nil profit. Under the standard income tax system, my business pays zero tax. But under the turnover tax system, my business still has to pay R1,650.

I don't follow this though, if you pay yourself more you're just going to pay more personal tax which could easily be more than the measly R1650.00 under TT (it was in my case).

 

[Greig Whitton]

Ok fair enough, not an issue to me personally because I was a provisional tax payer before so not really a stranger to it.

Fair enough. Also important to mention that some guys are perfectly content with a small business making R500K p/a. Nothing inherently wrong with that. However, that isn't economically viable for many industries; those where it is viable often involve professional services that don't qualify for Turnover Tax.

I don't follow this though, if you pay yourself more you're just going to pay more personal tax which could easily be more than the measly R1650.00 under TT (it was in my case).

Yep, you might, but a lot depends on your personal circumstances since personal income tax is subject to tax deductions and benefits (medical aid credits, RA contributions, etc.) that don't apply to business income tax. Under certain circumstances, it can work out to be more tax advantageous to take the salary hike.

The key point here, though, is that you have less tax optimisation flexibility with Turnover Tax. If your business makes R500K turnover, then you're paying R1,650 regardless of your salary or whether you make a profit or not. With income tax, you could adjust your salary (or other operating costs) and submit a null tax return. You might even decide to run at a strategic loss (e.g. hire several salespeople with the expectation that they will drive significant future growth) so that you can use the assessed loss to offset future profits.

 

[redarrow]

You raise valid points, and I'll concede that TT may be lousy for many reasons and in many cases, I don't advocate that people should run blindly into it. I just don't think it's fair to outright dismiss it without looking at the individual circumstance.