Tax for small businesses, in plain language
Tax is the part of running a business that worries new owners most, mostly because nobody explains it simply. Here are the taxes a small business in South Africa needs to know about, when each one applies, and the habits that keep you out of trouble with SARS.
Income tax
Every business pays income tax on its profit. A sole proprietor declares business profit on their personal income tax return. A company files its own return and pays company tax. A company registered with CIPC is normally registered for income tax with SARS automatically.
Provisional tax
If you earn income that has no tax taken off it, such as business profit, you are generally a provisional taxpayer: instead of one bill at the end of the year, you pay tax in advance twice a year based on an estimate. Companies are provisional taxpayers too.
Turnover tax: a simpler option
Very small businesses below a turnover limit set by SARS can choose turnover tax, which replaces income tax and some other taxes with a simple tax on turnover. It is designed to make compliance easier for micro businesses. Check the current limit and rules with SARS or an accountant.
VAT
A business must register for VAT once its taxable turnover passes the compulsory threshold set by SARS, and may register voluntarily below it. Once registered, you charge VAT, issue proper tax invoices and submit VAT returns. Check the current threshold with SARS, because it is reviewed from time to time.
When you employ people
As an employer you register with SARS for PAYE (tax taken from salaries above the tax threshold), and for UIF. See how to hire your first employee.
Habits that keep you safe
- Keep every invoice, receipt and bank statement, organised by month.
- Put money aside for tax every time you are paid, so the bill is never a shock.
- Submit returns on time, even if you cannot pay in full, and talk to SARS early if you are struggling.
- Get a registered tax practitioner. See how to check one.
Common questions
What taxes does a small business pay in South Africa?
Income tax on profit (personal for sole proprietors, company tax for companies), usually as provisional tax paid twice a year. VAT once turnover passes the compulsory threshold, and PAYE and UIF once you employ people. Very small businesses may choose turnover tax instead of income tax.
When must I register for VAT?
When your taxable turnover passes the compulsory VAT registration threshold set by SARS. You may also register voluntarily below it. Check the current threshold with SARS.
What is turnover tax?
A simplified tax for micro businesses below a turnover limit set by SARS. It replaces income tax and some other taxes with a single tax calculated on turnover.