There’s a compulsory threshold, but there may be advantages to voluntary registration. Value-added Tax (VAT) registration is a crucial obligation for businesses operating in South Africa. Knowing when to register for VAT is essential to comply with tax laws and avoid penalties. This article discusses the circumstances under which businesses must register for VAT in South Africa, the registration process, and the benefits and responsibilities that come with VAT registration.
When you are required to register for VAT:
Businesses are required to register their taxable supplies with SARS as a VAT vendor, which include both goods and services that exceed (or are likely to exceed) the prescribed threshold within a consecutive 12-month period. This prescribed threshold for compulsory registration is currently set at R1 million.
It is essential to monitor the value of taxable supplies regularly to ensure timely VAT registration ─ particularly if your taxable supplies are starting to get close to the prescribed threshold. If a business surpasses the threshold during a 12-month period, they are required to register for VAT within 21 days from the end of that month.
However, if there is a reasonable expectation that their taxable supplies will exceed the threshold in the next 12 months ─ especially if a written contractual obligation has been entered into ─ they must register for VAT immediately.
Non-resident suppliers of certain electronic services are also liable for compulsory VAT registration at the end of the month in which the total value of taxable supplies exceeds R1 million. An intermediary is also allowed to register and account for VAT on behalf of supplies made by the non-resident supplier of electronic services.
Voluntary VAT registration:
Even if a business’s taxable supplies do not exceed the threshold, they have the option to voluntarily register for VAT. This decision might be advantageous for businesses that want to claim VAT input credits on their purchases or to appear more credible to potential clients. SARS will entertain an application for voluntary registration if the value of taxable supplies made (or to be made) is less than R1 million but has exceeded R50 000 in the most recent consecutive 12-month period.
Persons carrying out the following business activities are eligible to submit a voluntary registration application even if the total of their taxable supplies for the past consecutive 12 months has not exceeded R50 000:
For business activities not listed above, persons meeting the requirements and conditions listed in General Notice R447 (as published in the Government Gazette No. 27725 of 29 May 2015), which include the following:
Taxable supplies made for 1 month: Where taxable supplies have been made for only 1 month preceding the date of application, the value for that month must have exceeded R4 200.
Taxable supplies made for 2 months or more: Where the average value of taxable supplies made in the months preceding the date of application, exceeded R4 200 per month. The average is calculated using a minimum of 2 months and a maximum of 11 months before the date of application.
Written contracts: Where taxable supplies exceeding R50 000 in the 12 months following the date of registration must be made.
Expenditure: Expenses incurred or to be incurred for commencement or continuing an enterprise; or capital goods acquired in connection with the commencement of the enterprise; and payment or any extended payment agreement where:
Finance agreement: This would include a financial agreement with a registered bank; a credit agreement with a credit provider as per the National Credit Act; an agreement with a designated entity, public authority, or other person who continuously or regularly provides finance; or a financial agreement with a non-resident. The total repayment in the 12 months following the registration application date must exceed R50 000.
Voluntarily registered businesses must adhere to the same VAT rules and obligations as businesses that are mandated to register.
Benefits of VAT registration:
One of the primary advantages of being VAT-registered is the ability to claim VAT input credits. Registered businesses can offset the VAT paid on their purchases against the VAT collected on their sales, thereby reducing their overall VAT liability. This can result in significant cost savings for businesses, especially those that have substantial input VAT costs. Additionally, VAT registration can enhance a business’s image and credibility, as it signals that the business is established and operating above a certain turnover level. This can be particularly valuable when dealing with other businesses or tendering for contracts.
How to register for VAT:
VAT registration is done via the SARS e-filing platform (www.sarsefiling.co.za) following these steps:
Effective date of registration:
Voluntary VAT registrations
The VAT liability date will be set according to the date of application. The backdating of a voluntary registration is not allowed. If you want to backdate your voluntary registration application, you must provide SARS with the necessary supporting documents to justify the backdating request.
Compulsory VAT registrations
The SARS eFiling (RAV01) system only allows backdating up to 6 months from the date the compulsory registration threshold of R1 million was exceeded. If the backdating is more than 6 months from the date the compulsory registration threshold was exceeded, you will need to make an appointment to visit a SARS branch with the necessary supporting documents such as financial statements, signed contracts, invoices issued, etc.
Responsibilities of VAT-registered businesses:
Once registered for VAT, businesses assume several responsibilities. They must charge the appropriate VAT rate on their taxable supplies, issue VAT invoices to their customers, and file regular VAT returns with SARS.
VAT returns must be submitted on time, and any VAT owed to SARS must be paid promptly. The due date for the submission of the return and payment of any VAT due is the 25th of the month following the end of the tax period. If the 25th falls on a weekend or public holiday, the due date is the previous business day.
Businesses also have an obligation to keep accurate VAT records, including invoices, receipts, and relevant financial documents. These records are subject to review by SARS during tax audits.
Failure to fulfil these responsibilities or comply with VAT regulations can lead to penalties and interest charges. It is therefore essential for VAT-registered businesses to stay updated on VAT rules and regulations, to avoid potential pitfalls and ensure compliance.
WRITTEN BY Steven Jones
Steven Jones is a registered SARS tax practitioner, a practising member of the South African Institute of Professional Accountants, and the editor of Personal Finance and Tax Breaks.
While every reasonable effort is taken to ensure the accuracy and soundness of the contents of this publication, neither the writers of the articles nor the publisher will bear any responsibility for the consequences of any actions based on information or recommendations contained herein. Our material is for informational purposes.