What is a Business For VAT?
You must register your business for Value Added Tax (VAT) if the total value of taxable goods or services is more than R1 million in a 12-month period, or is expected to exceed this amount.
A business may also register voluntarily if the income earned in the past 12-month period exceeded R50 000.
How To Register A Business For VAT In South Africa?
As a start-up you will be thrilled when the business performs well and you see your turnover gradually increase. But, one thing you need to be cognisant of is that as you make more money, you will be required to register for VAT.
What is VAT?
The essential characteristics of VAT (Value-added Tax) are:
- The tax applies generally to transactions related to goods and services.
- It is proportional to the price charged for the goods and services.
- It is charged at each stage of the production and distribution process.
- The taxable person (vendor) may deduct the tax paid during the preceding stages that is the burden of the tax is on the final consumer.
VAT is only charged on taxable supplies made by a vendor. Taxable supplies include supplies for which VAT is charged at either the standard rate or zero rates, but does not include:
- Salaries and wages;
- Hobbies or any private recreational pursuits (not conducted in the form of a business);
- Occasional private sale of personal or domestic items;
- Exempt supplies.
The South African VAT is destination based, which means that only the consumption of goods and services in South Africa is taxed. VAT is therefore paid on the supply of goods or services in South Africa as well as on the importation of goods into South Africa.
VAT is presently levied at the standard rate of 14% on most supplies and importations, but there is a limited range of goods and services which are either exempt, or which are subject to tax at the zero rate (for example, exports are taxed at 0%).
The importation of services is only subject to VAT where the importer is not a vendor, or where the services are imported for private or exempt purposes. Certain imports of goods or services are exempt from VAT.
Who needs to register for VAT?
- Persons who make taxable supplies in excess of R1 million in any 12-month consecutive period are liable for compulsory VAT registration, but a person may also choose to register voluntarily provided that the minimum threshold of R50 000 has been exceeded in the past 12-month period.
- Persons who are liable to register, and those who have registered voluntarily, are referred to as vendors.
Vendors have to perform certain duties and take on certain responsibilities if they are registered or liable to register for VAT. For example, vendors are required to ensure that VAT is collected on taxable transactions, that they submit returns and payments on time, that they issue tax invoices where required, that they include VAT in all prices advertised or quoted etc.
Who can’t register for VAT
The following are circumstances where you will not be required or allowed to register:
- Where it is unlikely that your sales (taxable supplies) will exceed R1 million per annum.
- If only exempt supplies are made.
- Employees who earn a salary or wage from their employers (excluding independent contractors).
- Where the supplies are made from outside RSA (for example, a foreign branch located in another tax jurisdiction).
- Hobbies or any private recreational pursuits not conducted in the form of a business.
- Private occasional transactions. For example, the sale of domestic/household goods, personal effects or a private motor vehicle.
- If your sales or fees earned from making taxable supplies are more than R50 000, but do not exceed R1 million, you can register for VAT voluntarily if you meet certain conditions.
How to register for VAT
If liable, you must complete a VAT 101 form and submit it to your local SARS office not later than 21 days from the date of liability.
You should submit your application for registration to the SARS branch office nearest to the place where your business is carried on. Where you have several enterprises/branches/divisions which will operate under one VAT registration number, you should register in the area where the main enterprise/branch/division is located.
It is very important that you submit the correct documents with your application to register; otherwise there may be a delay in obtaining your VAT registration number.
Once you have been registered, you will receive a VAT registration certificate (VAT 103). You can also check if your registration has been processed by entering your details under “VAT vendor search” on the SARS website. SARS employees are not allowed to advise you verbally of your VAT registration number.
If you have not yet received your certificate and require some proof of registration, you can request the local SARS office to give you a letter confirming this fact. Allow at least 10 working days for your documents to be processed.
The certificate will be posted to the postal address given on your registration application and should be received within two weeks of your application being processed.
What are the requirements to register as a VAT vendor in South Africa?
You must register your business for Value Added Tax (VAT) if the total value of taxable goods or services is more than R1 million in a 12-month period, or is expected to exceed this amount.
A business may also register voluntarily if the income earned in the past 12-month period exceeded R50 000.
How much does it cost to be VAT registered?
There is no VAT registration cost: you can use an accountant to complete your return, or file it yourself. Before you begin, you will need the following information to hand in order to register for VAT:
National Insurance (NI) number or ‘tax identifier’ – a unique taxpayer’s reference.
Is it worth becoming VAT registered?
The key benefits of being VAT registered include: Increased cash flow – better cashflow is the one big benefit of being VAT registered.
Once registered, you can claim back your VAT costs. If your set-up costs are high and include a VAT element, claiming that back can make a huge difference.
What are the disadvantages of being VAT registered?
The drawbacks of VAT registration are:
Administrative burden. As a VAT-registered business, there are VAT rules and record keeping requirements you’ll need to comply with.
It makes your goods or services seem more expensive.
You may be faced with an unexpected VAT bill.
How does VAT affect a small business?
The main way that VAT impacts your business is to do with the amount you charge people for your goods and services.
Once registered you must charge a further 20% on all sales when the invoice is paid which is when VAT is deducted.