Three words every business owner dreads: Value Added Tax (VAT). We see it on our till slips as the sneaky percentile added to the bill. Truth is, it’s not sneaky at all and has existed for over 30 years.
There comes a time in a business’s growth journey when it needs to register for VAT. And although it seems like a headache, we live in a time where innovation can lighten any load.
This article explores the rules and benefits of being a VAT vendor, and how to glide through the VAT submission process.
Topics covered include:
- What does it mean to be a VAT vendor?
- Should you register for VAT?
- How to register for VAT
- Other VAT rules to watch out for
- How automation saves the day
What does it mean to be a VAT vendor?
VAT replaced the General Sales Tax (GST) in 1991 and is an indirect tax charged for economic consumption. It aims to levy the public on goods and services instead of their income or corporate profits.
The current standard VAT rate is 15% (2023). VAT is only charged on taxable supplies made, i.e., supplies for which VAT is charged at either the standard rate (15%) or zero rate (0%). Some goods or services are exempt from VAT.
A registered VAT vendor is responsible for levying VAT (output tax) on each client invoice and paying it to SARS. Fortunately, SARS lets you reduce your VAT liability by deducting the input tax of the manufacturing or development of your product or service–i.e., you can reclaim the VAT you paid to other businesses.
For example, you charge R3,000–excluding VAT–for a service because it costs you R1,600 excluding VAT to develop it, and you want to make a decent profit of R1,400.
So, this is what your VAT calculation will look like:
- Output tax (VAT charged for the service): R3,000 x 15% = R450
- Input tax (VAT included in the cost of developing the service): R1,600 x 15% = R240
- Total VAT liability: Output tax (R450) – Input tax (R240) = R210
Note: Remember to detail your input and output tax when submitting your VAT return to SARS.
Make sense? Let’s move on.
Should you register for VAT?
VAT legislation only requires small businesses to register for VAT if the taxable supplies are over R1 million over 12 months. You can also register for VAT voluntarily if your annual taxable supplies exceed R500,000 in 12 months.
“But why would I voluntarily register for VAT if I don’t have to?”
Good question–and there’s good reason to:
- Yes, it’s more admin and compliance, but registering as a vendor means you pay less VAT overall as a business by claiming Input VAT you would not otherwise be entitled to as a non-vendor.
- Being a registered vendor enhances your credibility when doing business with others
- If you sell mostly zero-rated supplies, you can claim back the VAT on the standard-rated supplies you buy.
- If you have high capital expenditure, you can claim back the VAT charged for large expenses such as vehicles, equipment, or property.
Before you leap for joy, check if your supplies are zero-rated or exempt.
How to register for VAT
You can either register through eFiling, or you can make a virtual appointment with SARS.
How to register through eFiling:
- Step 1: Log into your eFiling profile
- Step 2: Navigate to SARS Registered Details on the left menu or under the “Organisations” tab
- Step 3: Select “Main SARS Registered Details” on the left menu and click on “I Agree” to confirm your authorisation
- Step 4: Navigate to “My tax products” > “Revenue”, and select “VAT” from the left menu
- Step 5: Click on “Add new product registration” or “Addition VAT branch registration”
- Step 6: Complete the form with your particulars, trading name, liability date, and business activity code
- Step 7: Follow the form and fill in the relevant boxes
Any questions? You can visit the SARS website for more information and registration documents.
Other VAT rules to be aware of
As expected, you must comply with specific rules and deadlines.
Here are some tips:
- Check your cycle: There are specific deadlines related to each business, and VAT returns and payments must be submitted within 25 days before the cycle ends.
- And don’t be late: Submitting and paying late could incur penalties and interest on outstanding amounts.
- Make space for VAT: Every invoice and quote, including zero-rated supplies, must have a VAT line item.
- Words matter: Include the words “Tax Invoice” on every invoice.
- Don’t take chances: Inflating input tax claims to reduce your VAT liability is illegal.
- Match, don’t mix: Ensure the revenue on your statements matches what you’ve declared on your VAT returns.
- Commit to submitting: Keep submitting returns, even if there’s no VAT due.
- Information is key: Always include your VAT number, that of your customer (if they are registered), and the customer’s name and physical address on your invoices.
- No VAT uncharged: You must add VAT to any commission earned or paid.
- Debt relief: You can claim back any VAT already paid to SARS for invoices with irrecoverable bad debt.
How automation saves the day
There’s no way around paying relevant taxes and VAT. The good news? You barely need to do anything with automated VAT 201 submissions.
Sage Accounting Accountants Edition lets you prepare, submit, and track VAT 201 declarations directly to SARS–eliminating human error, remediation, and time spent on frustrating admin.
No catch, just the benefits of:
- Easy integration: Simply select the ISV activation within Sage SARS eFiling, let the VAT 201 wizard help you integrate VAT amounts, and leave it to do its magic.
- Automation: Your submissions will upload automatically, reducing the need for manual processes while streamlining the compliance process.
- More time: Increased efficiency, reduced admin, and minimised errors allow you to advise customers and focus on growing the business.
- Always compliant: Any legislation changes are automatically updated on the software.
- Many functions, one solution: You can manage your customers, invoices, compliance, and processes from a central location, which means you don’t need confusing spreadsheets and sticky notes populating your system.
- Complete visibility: You can track the status of your submission from Sage Accounting and have all your customer, employee, and business data organised and ready to use when you need them.
Recommended Next Read
Hire young workers and give your business a boost with the Employment Tax Incentive
The Quick Guide to Payroll Compliance 2023/24
Get the latest expert advice on managing and maintaining compliance and staying on top of tax and legislative changes.