VAT vs turnover tax: which is right for your business?

<h2>Two Tax Options for Small SA Businesses</h2><p>South African small businesses can choose between the standard VAT system and the Micro Business Turnover Tax system. Getting this wrong can cost you thousands — or make you non-compliant. Heres a clear breakdown.</p><h2>VAT (Value Added Tax)</h2><h3>The Basics</h3><p>VAT is charged at 15% on most goods and services. If your annual taxable turnover exceeds R1 million, VAT registration is compulsory. You can also register voluntarily if your turnover exceeds R50,000.</p><h3>How it Works</h3><p>You charge your customers VAT (output tax) and claim back VAT youve paid on business expenses (input tax). You remit the difference to SARS every 2 months (or monthly for large businesses).</p><h3>When VAT Works For You</h3><ul><li>Your customers are VAT-registered businesses (they claim the VAT back, so your price is effectively the same)</li><li>You have significant VAT-able business expenses to claim back</li><li>Your turnover exceeds R1 million (mandatory)</li><li>You want to appear more established/credible</li></ul><h2>Turnover Tax (Micro Business)</h2><h3>The Basics</h3><p>Turnover Tax is a simplified system for qualifying micro businesses with turnover under R1 million per year. It replaces income tax, provisional tax, CGT, and dividends tax — all in one simple calculation.</p><h3>Tax Rates (2026)</h3><ul><li>R0 – R335,000: 0%</li><li>R335,001 – R500,000: 1% of amount above R335,000</li><li>R500,001 – R750,000: R1,650 + 2% of amount above R500,000</li><li>R750,001 – R1,000,000: R6,650 + 3% of amount above R750,000</li></ul><h3>When Turnover Tax Works For You</h3><ul><li>Youre a sole trader or small company under R1 million turnover</li><li>Your customers are mostly consumers (not VAT-registered businesses)</li><li>You want to reduce admin and filing burden</li><li>Your profit margins are high (you dont have many VAT-able input costs to claim)</li></ul><h2>The Key Trade-off</h2><p>VAT gives you the ability to claim back input VAT, reducing your effective costs. But it adds admin (bi-monthly returns, record keeping, potential audits). Turnover Tax is simpler but you cant claim VAT back on purchases.</p><h2>Get Professional Advice</h2><p>Every business situation is different. Consult a registered tax practitioner or accountant before deciding. Many SA accountants offer free initial consultations.</p>