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How do you know when your business owes VAT?
Here’s a primer for small-business owners on your value-added tax obligations.
As a small-business owner or entrepreneur, you’ll know that South African businesses have certain tax obligations to the South African Revenue Service (SARS), including value-added tax (VAT). You are required to add VAT correctly on your goods and services and pay the accumulated VAT to SARS every month.
Here’s a useful explainer
Value-added tax
You must register your business for VAT if the total value of your goods and services in any consecutive 12-month period exceeds or is likely to exceed R1 million.
- You can choose to register your business voluntarily for VAT if your income earned in the past 12 months exceeded R50,000.
- If your business is registered as a micro business, with annual income of less than R1 million, you may also register for VAT and choose to submit returns and payments every 4 months, on the last day of June, October and February.
- A person can only register for VAT if they are carrying on an enterprise. A ‘person’ in this sense is legally defined in the VAT Act and can mean you as an individual, or a company, partnership, trust fund or municipality. An ‘enterprise’ is also defined in the Act – it refers to any activity carried on continuously or regularly by any person in or partly in South Africa who supplies goods or services to another person for a consideration, whether or not this is for profit. Anything done to start or terminate an enterprise is also included as conducting an enterprise for VAT purposes.
- Exemptions from VAT for activities that SARS does not consider ‘carrying on an enterprise’ include providing financial services, residential accommodation or public transport, as well as the following categories
- An employee earning a salary or wage from an employer (excluding an independent contractor). If you are a non-executive director of a company, SARS classifies you as an independent contractor and not an employee.
- Hobbies and private recreational pursuits not conducted in the form of a business.
- Private occasional transactions – for example, the sale of household goods, personal effects or a private motor vehicle.
- If your business includes non-resident suppliers of certain electronic services, these are liable for compulsory VAT registration at the end of the month in which the total value of taxable goods supplied exceeds R1 million. If you’re an intermediary on behalf of such a supplier, you’re allowed to register and account for VAT on those supplies, on behalf of your non-resident supplier.
If you’re entitled to a VAT refund, SARS must pay it within 21 business days
Your obligations as a VAT vendor
If you qualify as a VAT vendor, you have VAT obligations and recordkeeping duties. You must charge your customers VAT on your products and services, then pay it to SARS. As a VAT vendor, you act as an intermediary, collecting VAT and passing it on to SARS.
You must keep tax invoices for all VAT charged and bills of entry for goods imported or exported. These documents are your proof that you have complied with the tax laws, should SARS require an audit. You are required by law to keep these records for 5 years. Fortunately, you can buy accounting software that helps you keep track of the VAT you need to collect and pay to SARS.
Registering for VAT
If you do qualify and need to register as a VAT vendor, doing so through SARS eFiling is the easiest way, or you can make an appointment through the SARS website. Have the correct documents ready to submit with your application to avoid processing delays. You’ll find a full list on the SARS site, along with any other information you need on small businesses and VAT. If there are no risks or errors in your application, SARS will issue a VAT reference number immediately.
Submitting VAT returns and making payments
If you are registered for eFiling, you must submit your VAT returns and pay the VAT (or claim a refund, where applicable*) on or before the 25th day (or the last business day) of the month. Late payments of VAT will attract penalties and interest. You can pay your VAT through eFiling, via EFT, or through selected banks, including Nedbank.
* You can apply for a refund if the total amount of VAT charged to you when you acquired goods or services exceeds the total amount of VAT you charged for those goods and services in a particular tax period, or if you’ve overpaid VAT to SARS in error. If you’re entitled to a VAT refund, SARS must pay it within 21 business days of receiving your correctly completed VAT return. If the refund is not paid within this time, SARS must pay you interest on the amount.
Nedbank has a full range of tax and small-business planning services to offer guidance, if you’re not sure whether you should be registered for VAT or how to go about it.
