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:
- Welfare organisations (i.e., charities)
- The acquisition of an existing business (as a going concern)
- Activities listed in General Notice R446 (as published in the Government Gazette No. 27725 of 29 May 2015). This includes agriculture, farming, forestry, fisheries, mining, ship and aircraft building, the manufacturing or assembly of a plant, machinery, motor vehicles, or locomotives, property development, infrastructure development, or beneficiation.
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:
- as at the registration application date, payment has exceeded R50 000; or
- in any consecutive 12-month period commencing before and ending after the registration application date, payment will exceed R50 000; or
- in the 12 months following the registration application date, payment will exceed R50 000.
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:
- Create or log on to your eFiling profile.
- Navigate to the ‘SARS Registered Details’ screen.
- On the ‘Individual’ portfolio, select ‘Home’ to find ‘SARS Registered Details’ on the left menu. On the ‘Tax Practitioner’ and ‘Organisations’ portfolio, the ‘SARS Registered Details’ functionality is under the ‘Organisations’ menu tab.
- Select ‘Maintain SARS Registered Details’ on the left menu. Once the screen has loaded, select ‘I Agree’ to confirm that you are authorised to perform maintenance functions of the registered details of the vendor.
- Select VAT under ‘My tax products > Revenue’ on the left menu.
- Select ‘Add new product registration’ to register a new or additional VAT branch registration.
- Complete the following in the VAT container: Registered particulars (if not pre-populated), ‘Trading As’ name (where applicable), and ‘Liability Date’.
- Select the ‘Business Activity’ code. The codes may be obtained in the VAT 403 Vendors and Employers Trade Classification Guide.
- Select Farming Activity Code, if applicable. (Note: If you select a different business activity code after you have received the containers for Diesel concession, you will receive the following error: ‘Mark here if you derive farming income in addition to your main business activity income. If you select this indicator, the ‘Farming Activity Code’ field will be mandatory).
- Select the relevant registration option.
- Enter the following information: Value of taxable supplies, accounting basis (‘invoice’ or ‘payments’ basis), tax period.
- Complete the following fields if not pre-populated: Contact details, physical address, postal address, and banking details.
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.
This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your adviser for specific and detailed advice. Errors and omissions excepted (E&OE).