Value Added Tax (VAT) is a valuable source of government revenue. As a business owner you must be aware that when your business grows larger you may be required to register as a VAT vendor. You will have to charge your customers or clients VAT and pay it over to the South African Revenue Services (SARS). If you do not comply, you are breaking the law.
Who must register for VAT?
If the taxable value of your business’ goods and services (turnover) exceeds R1 million at the end of any 12 month period, you must register for VAT. If at the commencement of any month, you have written contractual commitments that will exceed R1 million within the next 12 months, you must also register for VAT. You have 21 business days in which to register VAT.
You can register voluntarily
If your business’s turnover exceeds R50 000 in the previous 12 months, you can voluntarily register for VAT. If you expect your turnover to exceed R50 000 within 12 months from the date of VAT registration, you can also register for VAT voluntarily. This applies to companies as well as self-employed individuals such as freelancers.
Can SARS automatically register my business for VAT?
If the South African Revenue Services (SARS) discovers that your business has exceeded the R1 million annual turnover threshold, they can register you automatically. SARS can backdate the registration to when the business first crossed the threshold, leading to unexpected penalties and interest, even if you never charged your customers VAT. This can lead to serious cash flow issues in your business. You will need to file VAT returns.
How does VAT work?
If you are registered for VAT, you must add 15 percent on to the price of your goods and services, which is the final price the customer pays. When the customer pays you the additional 15 percent, remember that this is not your cash and needs to be paid to SARS when you complete your VAT return.
You then claim back the VAT that you paid when purchasing goods and services from your suppliers that are VAT registered. If you collect more VAT on your sales than you paid to your suppliers, you must pay the excess over to SARS. If you paid more VAT to your suppliers than what you collected from your sales, then SARS will refund you the excess.
Can I cancel my VAT registration?
If the value of your turnover falls below the R1 million threshold, or your business closes, you can apply to cancel your VAT registration. The cancellation is not automatic, you need to apply to SARS, and they will cancel the registration only if they are satisfied you no longer need to be registered.
You must notify SARS as soon as possible and the business will remain liable for any outstanding VAT debts while it was registered.
The article was first published on https://smartaboutmoney.co.za/
An initiative by the Association for savings and investment South Africa (ASISA)