There are three types of tax that are applicable to small businesses – turnover tax, employee taxes (PAYE, UIF and SDL) and VAT (Value-Added tax).
In accordance with the VAT Act, registered VAT vendors have to issue proper tax invoices and charge their customers VAT at 15%, and pay this over to SARS on a monthly or bi-monthly basis. This payment can be reduced by the input VAT that the small business is being charged by their suppliers.
One of the biggest changes to VAT, announced in 2018, was an one percentage point increase in the VAT rate to 15% on the supply of goods and services by registered vendors effective from 1 April 2018.
We answer all your other frequently asked questions (FAQs) about registering for VAT.
What is VAT?
VAT is the abbreviation of Value-Added Tax. On the SARS it is explained as an indirect tax on the consumption of goods and services in the economy. Revenue is raised for government by requiring certain businesses to register and to charge VAT on the taxable supplies of goods and services. These businesses become vendors that act as the agent for government in collecting the VAT.
VAT is charged at each stage of the production and distribution process and it is proportional to the price charged for the goods and services.
VAT is levied on the supply of most goods and services and on the importation of goods. The VAT on the importation of goods is collected by customs. There is a limited range of goods and services which are subject to VAT at the zero rate or are exempt from VAT.
What goods are exempted from VAT?
Basic food items that are exempted from VAT include maize meal, rice, brown bread, dried beans, vegetables, fruit and samp. You can find a list of VAT exempt goods and services on this SARS’ website.
Who should register for VAT?
It is required by the South African Revenue Services (SARS) that any business with an annual income that exceeded or is likely to exceed R1-million in any consecutive 12-month period, should be registered for Value-Added Tax (VAT).
A business generating an income exceeding R50 000, within a 12-month period, may voluntary register for VAT.
According to SARS, you can register once for all different tax types using your client information system.
The term “person” is not limited to companies but also includes: individuals, partnerships, trust funds, foreign donor funded projects and municipalities.
According to SARS, a small business that is registered as a micro business under the Sixth Schedule of the Income Tax Act may also register for VAT and may elect to submit returns and payments every four months, ending on the last day of June, October and February.
How to register
In order to register for VAT, an application form must be completed and a specific process must be followed, both of which you can find on SARS’ website. If you would like any assistance with your VAT registration, you can chat to a professional by joining Startwise, an online platform with VAT experts who have over 10 years’ experience in helping SME’s navigate the complexities of VAT registration and tax compliance.
What processes are you required to complete once registered?
Once a business is registered for VAT, the vendor or representative vendor is obliged to perform certain duties and take on certain responsibilities, such as:
– include VAT in all prices advertised or quoted;
– charge and collect VAT;
– file returns and payments on time;
– issue tax invoices for supplies made;
– maintain adequate records for supplies made and received.
When should a vendor submit returns and make payments?
A vendor is required to submit VAT returns and make payments of the VAT liabilities (or claim a VAT refund) in accordance with the tax period allocated to the vendor.
The VAT returns and payments are normally submitted or made on or before the 25th day after the end of the tax period. Late payments of VAT will attract a penalty and interest.
When should the VAT be paid?
For E-filing: For businesses that file their VAT returns and make payments electronically (i.e. the vendor must be registered as an eFiler, in which case the VAT returns must be filed using this platform and VAT payments must be made using this platform), the VAT must be paid by no later than the last business day of the month after the end of the tax period.
For non-electronic payments: For all other businesses, the VAT must be paid by no later than the 25th day after the end of the tax period. More information on tax periods for VAT vendors is available here.
How should the VAT be paid?
VAT can only be paid via:
– SARS eFiling;
– EFT at the Bank;
– Over the counter at the bank branch.
How do you cancel a VAT registration?
The cancellation of a VAT registration can be initiated by the vendor or the Commissioner.
Where a vendor initiates the cancellation of the VAT registration, the vendor must apply to the Commissioner if:
1. the value of taxable supplies will be less than the compulsory registration threshold of R1 million in any consecutive period of 12 months, or
2. the vendor has ceased to carry on all enterprises.
If the vendor has ceased to carry on all enterprises, the vendor must also state the date of cessation of the enterprises and whether it intends to carry on any enterprise within 12 months from date of cessation.
Where the Commissioner initiates a cancellation of a vendor’s VAT registration, the Commissioner must be satisfied of any of the circumstances listed:
1. the value of taxable supplies will be less than the compulsory or the voluntary registration threshold (whichever is applicable) in any consecutive period of 12 months;
2. the vendor has failed to furnish a return that is required for purposes of calculating the tax, or
3. the vendor was registered under the voluntary registration category and –
3.1 has not fixed place of abode or business;
3.2 does not keep proper accounting records;
3.4 has not opened a bank account in respect of the enterprise; or
3.5 was previously registered as under the VAT Act or Sales Tax Act and failed to perform any duty imposed under those Acts.
In the case where the vendor has ceased all enterprises, the cancellation normally takes effect from the last day of the tax period in which the vendor ceased to carry on all enterprises. However, the Commissioner may determine the effective date to be another date.
SARS cannot finalise your cancellation of registration as a VAT vendor until all the outstanding liabilities and obligations in terms of the VAT Act have been resolved or settled.
You can find out about the process of cancelling your VAT registration, here.
Where to go for help
If you need any assistance you can visit a SARS branch or call the SARS Contact Centre on 0800 00 SARS (7277).
All information in this article was sourced from the South African Revenue Services website.