Turnover Tax — The Simplified Tax System for Small Businesses

Turnover tax is a simplified tax system for micro businesses in South Africa. Instead of calculating tax on your taxable profit after deducting allowable expenses, you pay tax based directly on your gross revenue. One tax, one calculation, one payment twice a year.

The appeal is reduced compliance. Under the standard income tax system, a small business tracks all income, records all deductible expenses, calculates taxable profit, submits provisional tax returns twice a year, and files an annual return. Under turnover tax, the recordkeeping requirement is substantially lighter and the calculation is straightforward. For businesses with limited accounting capacity, that saving in time and professional fees is real.

The tradeoff is that you pay tax on revenue regardless of whether the business made a profit. If you have high costs and thin margins, turnover tax can cost more in absolute terms than the standard system. More on that below.

What Turnover Tax Replaces

Registering for turnover tax removes most of your other tax obligations in one step. Turnover tax replaces:

• Income tax
• Provisional tax
• Capital gains tax
• Dividends tax
• VAT, unless you choose to stay in or register for the VAT system

You can be registered for both. If you are already VAT-registered when you move to turnover tax, you can elect to remain in the VAT system. If you are not, you can register voluntarily once you meet the voluntary requirements. Running both means keeping two sets of tax records, so weigh that against the input VAT you would recover. If your turnover passes R2.3 million, you leave turnover tax and VAT registration becomes compulsory, because both limits are now the same.

PAYE, UIF, and SDL are not replaced. If you employ staff, those obligations apply regardless of which income tax regime you are on.

Who Qualifies

From 1 April 2026, the qualifying turnover limit increased from R1 million to R2.3 million per year. This is the most significant change to the regime since it was introduced and means a substantially larger group of businesses can now consider it.

Qualifying businesses include natural persons (sole proprietors), partnerships, companies, close corporations, and co-operatives. This is a correction to what many guides say. The original regime was limited to natural persons and partnerships; companies and close corporations are now also eligible.

The 20% tainted income rule applies. If more than 20% of your receipts come from investment income, property rentals, or the rendering of personal services, you do not qualify. Professional services businesses where income depends on a specific professional qualification (law, medicine, accounting, engineering, architecture) are excluded if more than 20% of receipts come from that activity. Personal service providers as defined by SARS are excluded entirely.

In practice, turnover tax is primarily available to small trading businesses, retailers, food businesses, tradespeople, and light manufacturing operations. Most consulting, agency, and professional services businesses are excluded by the personal services test.

Qualifying turnover is not the same as total revenue. Capital receipts — for example, proceeds from selling equipment your business used — are excluded from the turnover calculation. This matters if your business sells assets occasionally, because those amounts do not push you toward the limit.

The 2026/27 Rates

The rates below apply to years of assessment beginning 1 March 2026 for individuals and 1 April 2026 for companies. The tax-free band rose to R600 000 from R335 000, and the bands above it changed too.

Check the current bands at www.sars.gov.za/types-of-tax/turnover-tax before calculating your liability, because some third-party guides still show the old figures.

The 2026/27 rates:

At the R2.3 million limit the tax comes to R39 500 a year, about 1.7% of turnover. That is low for a business that keeps a good share of its revenue as profit, and high for one that keeps very little.

How the Tax Is Calculated and Paid

Turnover tax is paid twice a year, not monthly. The first payment is due by 31 August, based on estimated turnover for the full year. The second payment is due by 28 February, settling the balance.

You submit a TT03 return to SARS. Note that turnover tax returns cannot be filed through eFiling in the way most tax returns are. The TT03 must be submitted via a SARS branch appointment or through the SARS Online Query System (SOQS). This is a practical point worth knowing before you register. If SARS appointment availability in your area is poor, the "simplified" regime can end up being procedurally more cumbersome than eFiling-based returns.

Record-keeping under turnover tax is lighter than the standard system. You do not need to track all deductible expenses in detail, because the tax is not calculated on profit. You do need to keep:

• A record of all amounts received (your qualifying turnover)
• A list of assets costing more than R10 000 at year-end
• A list of liabilities exceeding R10 000
• Business bank statements

Retain these records for at least five years.

When Turnover Tax Makes Sense — and When It Does Not

This is the decision that requires calculation, not intuition.

Turnover tax tends to win when:

Your profit is high relative to your turnover. Turnover tax is the same whatever you earn, so the more of your revenue you keep, the better it looks. A retailer turning over R1.5 million pays R15 500 in turnover tax. With a 20% net margin (R300 000 profit), income tax as a sole proprietor would be about R40 600, so turnover tax wins by about R25 000. As a qualifying SBC the tax would be about R14 100, close to the turnover tax figure, before any dividends tax on what the company pays out.

You have limited accounting infrastructure and the cost and complexity of maintaining full income and expense records under the standard system outweighs the potential tax saving.

You are in the early stages of business and your margins are not yet established.

Turnover tax tends to lose when:

Your margins are thin. The same retailer with a 10% net margin (R150 000 profit) would pay about R9 200 in income tax as a sole proprietor, or about R3 600 as a qualifying SBC, against R15 500 in turnover tax. At low profit, the standard system generally costs less.

You have significant deductible expenses that would meaningfully reduce your taxable income — large equipment purchases, depreciation, interest on business debt, substantial staff costs. None of those reduce your turnover tax bill.

You operate as a qualifying SBC PTY Ltd. As shown in KB-002, an SBC with R500 000 of taxable profit pays roughly R47 000 in tax under the SBC rates. Turnover tax on R500 000 in revenue would be calculated at a lower absolute figure, but the SBC comparison depends on your margin. Run both numbers.

A worked example clarifies the decision:

A sole trader has R800 000 in qualifying turnover. Her gross margin after cost of goods is 25%, leaving R200 000 profit. She has additional deductible business expenses of R80 000, making taxable income R120 000.

Under turnover tax (2026/27 rates): 1% of (R800,000 − R600,000) = R2,000.

Under the standard system as a sole proprietor: income tax on R120,000. With the tax-free threshold of R99,000, taxable income above threshold is R21,000, attracting roughly R3,780 in income tax.

In this case, turnover tax is cheaper by about R1,800, even with substantial deductible expenses. The new bands make it the cheaper option in many more cases than the old ones did. If deductible expenses rose to R101,000 or more, taxable income would fall to R99,000 or less and no income tax would be due, so the standard system would win by R2,000.

The higher the margin and the fewer the deductible expenses, the further turnover tax pulls ahead. The only reliable approach is to model both scenarios using your actual numbers.

Registering and Deregistering

You register for turnover tax through SARS eFiling or the SARS Online Query System. Turnover tax is elective — you choose whether to participate. Once registered, you remain in the system unless you voluntarily deregister or your qualifying turnover exceeds the limit.

If your turnover exceeds R2.3 million during a year, you must notify SARS within 21 days of crossing the threshold and deregister from turnover tax. From that point, you fall back into the standard income tax system. Any income already assessed under turnover tax for the partial year stays assessed under turnover tax. The remainder is assessed under the standard system.

You can also switch voluntarily. If you calculate mid-year that the standard system is cheaper, you can notify SARS, deregister, and move back. The timing of switches has implications for which tax type applies to which income, and your accountant should guide you through the transition.

The Practical Checklist Before Registering

Before you register for turnover tax, work through these questions:

1. Does your business type qualify? Check the personal services and investment income tests.
2. Is your qualifying turnover below R2.3 million?
3. Have you modelled the tax under both systems using your actual revenue, cost of goods, and deductible expenses?
4. Have you factored in the compliance cost saving? If an accountant costs you R3,000 per year less under turnover tax, that is part of the calculation.
5. Do you understand that PAYE, UIF, and SDL still apply, and have you decided whether to stay in or register for VAT?
6. Are you comfortable with SARS branch or SOQS submission rather than eFiling for your returns?

If the numbers favour turnover tax and your business type qualifies, it can be a genuinely useful simplification. It is not a default choice for all small businesses, and the decision deserves fifteen minutes of calculation rather than assumption.

This article provides general information only. It is not tax advice. Rates, thresholds, and qualifying criteria change annually. The turnover tax regime received its first major update in 2026 — verify current figures directly at www.sars.gov.za/types-of-tax/turnover-tax before making decisions.

Professional advice recommended

This topic involves legal, tax, or regulatory complexity that varies by individual circumstances. The information here is general guidance only. Consult a qualified professional before making decisions specific to your situation.

This article provides general information about South African business law and regulation. It is not legal, tax, or financial advice. Laws and regulations change — verify current requirements with a qualified professional or directly with the relevant authority before making decisions.

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