When do I need to register for VAT?
S23 of the VAT Act covers registration for VAT purposes. This article highlights a part of it and applies to “enterprises that are making taxable supplies” as defined in the VAT Act. If you make “exempt” supplies you may not register for VAT. There is compulsory VAT registration and the option for voluntary VAT registration.
You are obliged to register as a VAT Vendor if:
- You are carrying on an enterprise
- You make taxable supplies in the course or furtherance of that enterprise exceeding R1 million in any consecutive period of 12 months, or
- You will exceed that amount in terms of a written contractual obligation.
The R1 million compulsory VAT registration threshold applies to the total value of taxable supplies (turnover) and not the net income (profit) that your business has made for the period.
A person is referred to as a “vendor” from the date that person first became liable to register, subject to confirmation of such date by the Commissioner.
There are pros and cons to voluntary registration which should be considered very carefully before a decision is made as it would not only have an implication on your business, but on your customers too. These, however are the requirements per GN R447, before SARS will consider your voluntary registration application:
- Taxable supplies exceeded R50 000.00 in the preceding 12 months; or
- Taxable supplies did not exceed R50 000.00 in the preceding 12 months but are reasonably expected to exceed R50,000 in the following 12 months, based on one or more of the following situations:
- Taxable supplies made for 2 months or more. The actual value of taxable supplies exceeded either an average of R4,200 per month for a minimum of 2 months and a maximum of 11 months immediately preceding the date of registration, or an actual value of R4200 in the month immediately preceding the date of registration, or
- Taxable supplies only made for 1 month. An actual value of R4200 in the month immediately preceding the date of registration,
- Written Contracts in terms of which a contractual obligation exists in writing, to make taxable supplies in excess of R50,000 in the following 12 months reckoned from the date of registration; or
- Finance Agreements wherein the total repayments in terms of that financial, credit or other agreement will in the following 12 months reckoned from the date of registration exceed R 50,000 or
- Expenditure incurred or to be incurred or capital goods acquired and payments made, will in the following 12 months reckoned from the date of registration exceeding R 50,000
When not to Voluntarily Register
It is not always beneficial to register voluntarily. It would generally not be beneficial to voluntarily register where:
- The main or only supplies are services and where there are minimal expenses on which input tax would be claimed; or
- The enterprise’s main expense is in respect of salaries and wages (an expense on which no input vat may be claimed); or
- The enterprise makes most of its supplies to the ordinary man in the street who is the final consumer of those goods or services (not registered for VAT).
When you should Voluntarily Register
The nature of the business’s clients and the goods and services rendered will usually determine if the business should register. A business may wish to register if:
- After registration the input tax is likely to exceed the output tax; or
- The business is supplying mainly to customers who are vendors and who are able to claim input tax.
You would be required to levy VAT on all taxable supplies, but you would also be able to claim all the input VAT back on the goods and services acquired from vendors to the extent that they are used for taxable supplies.
In terms of implementing VAT compliance into your business, you would need to submit returns, make VAT payments on time and keep proper records for at least 5 years from the date of liability.
This article is for informational purposes only and should not be relied upon by any other person for any purpose whatsoever, as legislation and rules are subject to change. Due care is taken to ensure that the article written is correct; however, having regard to the circumstances AstraFin will have no responsibility to you or to any other person for any claim of any nature whatsoever arising out of or relating to this article, and you indemnify AstraFin and agree to hold it harmless against any such claim.