Turnover tax vs normal income tax for South African freelancers

Key points

• Turnover tax is an optional, simplified system for micro businesses with turnover up to R1 million a year
• It is charged on turnover, not profit, so expenses aren't deducted
• Normal tax is charged on profit at your marginal rate, after deducting allowable expenses
• Freelancers whose income comes mostly from professional services often don't qualify for turnover tax

How normal income tax works

Your business profit (income minus allowable expenses) is added to any other income and taxed at your marginal rate. Most freelancers pay provisional tax twice a year.

How turnover tax works

Qualifying micro businesses pay a low, sliding rate on turnover and file a simpler return. The catch: expenses don't reduce the tax, and some professional-service income is excluded. Check SARS's current qualifying rules before you apply.

Which one suits you?

• Low expenses, simple trading business: turnover tax may save admin and tax
• High expenses (equipment, software, staff): normal tax often works out cheaper
• Professional services such as consulting, accounting or legal work: usually stay on normal tax

Switching

You generally have to register for turnover tax before the start of a tax year, and once you leave it you can't simply rejoin. Run both calculations first, ideally with a tax practitioner.