Article written by: Fatima Bapukee | Accounting Manager | MD Accountants & Auditors Inc.
Pre 2008 you would have had to be registered for VAT if your turnover was over R300 000 per annum.
When SARS introduced the increase in the threshold to R1 million, many entities deregistered as VAT vendors.
With the introduction of Turnover Tax, many entities moved over to this system.
As at 01 March 2012 SARS has allowed entities to remain VAT registered whilst remaining on the Turnover Tax system and in the recent budget speech, the Minister has also sweetened the pie by increasing the threshold of your taxable turnover from R150 000 to R335 000 before you start paying tax on the Turnover Tax system.
You have done neither and due to the current economic climate, would now like to ensure compliancy with the least cost or reduction in your bank account.
Firstly what is Turnover Tax?
As per the SARS website Turnover Tax is defined as the following:
Turnover tax is a simplified system aimed at making it easier for micro business to meet their tax obligations. The turnover tax system replaces Income Tax, VAT, Provisional Tax, Capital Gains Tax and Dividends Tax for micro businesses with a qualifying annual turnover of R 1 million or less. A micro business that is registered for turnover tax can, however, elect to remain in the VAT system (from 1 March 2012).
Any individual or company whose qualifying turnover is less than R1 million for a year of assessment, may register for Turnover Tax. Specific factors can disqualify you from the turnover tax system. These can be found in paragraph 3 of the Sixth Schedule to the Income Tax Act.
SARS has a simple test which you can use to ascertain if you qualify for Turnover Tax:
http://www.sars.gov.za/TaxTypes/TT/How-Register/Pages/Quick-test-for-companies.aspx
The registration application should be submitted before the beginning of a year of assessment (a year of assessment runs from 1 March to 28 February), or a later date prescribed by the Commissioner in a Government Notice. Should a person commence trading activities during a year of assessment and wish to register for turnover tax, an application should be submitted within two months from the date that business activities commenced
So what are the implications on your bottom line using the following simple example?
Sales: R912 000 including VAT
Vatable purchases: R 467 400 including VAT
Non vatable purchases: R150 000
Salaries (Member/shareholder): R100 000
Cash in bank: R194 600
The above situation will change should your customers be registered VAT vendors. They will request a reduction in your selling price as they will no longer be able to claim the VAT that they have paid you as part of their inputs on their VAT return.
This will impact your bank balance as you will not be receiving the VAT on sales but will still be paying over the VAT on your vatable purchases.
Cash in bank prior to paying taxes will now be R82 600.
| Normal |
Turnover Tax
|
|||||
| VAT Registered | Not VAT registered – Non VAT vendor customers |
Not VAT registered – VAT vendor customers
|
VAT Registered | Not VAT registered – Non VAT vendor customers |
Not VAT registered – VAT vendor customers
|
|
| R | R | R | R | R | R | |
| Cash in bank | 194 600 | 194 600 | 82 600 | 194 600 | 194 600 | 82 600 |
| Output VAT | 112 000 | 112 000 | ||||
| Input VAT | 57 400 | 57 400 | ||||
| VAT payable | 54 600 | 54 600 | ||||
| Profit/Turnover | 140 000 | 194 600 | 82 600 | 800 000 | 912 000 | 800 000 |
| Tax rate | 28% | 28% | 28% | R6 650 + 3% of the amount above R750 000 | R6 650 + 3% of the amount above R750 000 | R6 650 + 3% of the amount above R750 000 |
| Tax payable | 39 200 | 54 488 | 23 128 | 8 150 | 11 510 | 8 150 |
| Cash in bank after paying taxes | 100 800 | 140 112 | 59 472 | 131 850 | 183 090 |
74 450
|
Moving onto the Turnover tax system does not only reduce your tax liability, it also reduces tax paid on dividends declared, as the first R200 000 of dividends paid during the tax year is exempt from dividend tax.
Although staying VAT registered places a higher administrative burden on an entity, the cash flow benefits outweigh the administrative burdens should your customers be predominantly VAT vendors.
All entities should do a comprehensive exercise prior to moving onto the Turnover Tax system as there may be other factors pertaining to their respective entity which may yield a different result e.g. SBC rates etc.
