Small business turnover tax

**southafricanrob** · 07-Apr-09, 03:23 PM

Hi,
I am a Sole Prop turning 700k and profitting about 350k. Turnover tax lets me pay R18000 on this if I am correct. I have been to several accountants/firms to try and get advice and all have been non committal and given wishy washy answers to my questions at great expense..

I gather that there might be options for me to register a CC, qualify as an SBC and use dividends to filter some money to me and reduce tax burdeb but the cheapest quote I've found so far is R15000 plus a monthly fee depending on how many hours they need. I am currently not VAT registered and would prefer to keep it tha way as I dont charge my customers VAT at this stage as they are end users and I would have to take 14% off my takings.

>>> Basically I am looking for a no nonsense answer as to realistically what I would pay if I was clever and paid normal SBC tax. Only then can I do the easy comparison to see if Turnover Tax is better for me.

Any comments and suggestions truly welcome.

**Dave A** · 07-Apr-09, 04:49 PM

What a lovely pre-tax profit margin

This was the SBC concession for 2008 tax year, so it might have changed some:

The first concession is to be taxed on the basis of a progressive rate system, viz SBCs tax is calculated at a rate of 0% on the first R43 000 of taxable income, 10% on taxable income in excess of R43 000 but not exceeding R300 000 and thereafter at a rate of 29% for every R1 in excess of R300 000.

The second concession is the immediate write-off of all plant or machinery used in a process of manufacture or similar process in the tax year it is brought into use for the first time. Furthermore, an accelerated write-off allowance for depreciable assets (other than manufacturing assets) acquired on or after 1 April 2005 is available at 50% of the cost of that asset in the tax year during which that asset was brought into use for the first time, 30% in the second year and 20% in the third year. [See
also under Special Allowances, par (n)]

Unless you're doing something pretty special in the way of depreciable assets, it's hard to see you doing better than an R18k tax bill for the year. Add the admin costs you mentioned for the CC and it looks like Turnover Tax is the way to go for you.

I expect SBC will become important to you once your turnover goes over R1 million per annum.

**Ladel** · 07-Apr-09, 07:36 PM

Hi

I absolutely agree with Dave...

Unless you're doing something pretty special in the way of depreciable assets, it's hard to see you doing better than an R18k tax bill for the year. Add the admin costs you mentioned for the CC and it looks like Turnover Tax is the way to go for you

Based on the info you have given your SBC tax calc would look like this

(43 000 @ 0%) + (257 000 @ 10%) + (50 000 @ 29%)
thus 0 + 25 700 + 14 500 = 40 200.

On this info alone, and provided your line of business does qualify for Turnover Tax, 18000 is the obvious choice.

**Dave A** · 07-Apr-09, 08:25 PM

I'll tell you one thing that became apparent in that little excercise - the step through the R1 million turnover mark is going to be quite a shock to the system. It looks like the kind of level you'll have to burst through, or face ending up with significantly less money in the pocket for a while.

**Ladel** · 07-Apr-09, 08:43 PM

Yip tax could more than double after the 1 mil mark, and not only that, can you imagine the chaos after reaching it? Suddenly having to register for VAT and all kinds of tax with no paper trails? I'm v-e-r-y wary of this turnover tax craze, but hey I'm an optimist

let's hope that in the end it works out after all!

**Dave A** · 07-Apr-09, 09:05 PM

If you can get a saving, enjoy it while you can, I reckon.

Point is crossing the mark deserves some careful planning and I'm trying to think of the strategic decisions.

One is it is probably worth trying to hover under the R1 million mark for a while and build reserves for the transition.

Another is having a tidy little pile of stock and assets that you can claim input tax on upon VAT conversion, which might ease the pain a little

Certainly, if you don't go into it with a plan, there could be some fairly serious cash flow implications.

**Ladel** · 07-Apr-09, 10:02 PM

Originally Posted by Dave A

If you can get a saving, enjoy it while you can, I reckon.

Lol true enough! And point taken, I guess best to advise clients who do consider Turnover Tax to always keep in mind that there'll be a huge increase in the tax bill when they do reach R1 mil.

Anyways it's been nice sharing some views, we'll chat again!

Ladel