A deep dive into your company’s VAT requirements

Value-added tax (VAT) is a consumption tax that is levied on the value added to goods and services at each stage of the production and distribution chain. It is a critical aspect of South Africa’s tax system, and companies operating in the country must comply with various VAT requirements. In South Africa, companies are required to register for VAT if their annual taxable turnover exceeds R1 million. However, companies can also register voluntarily if their annual turnover is less than R1 million. Voluntary registration can have both advantages and disadvantages, which we will explore later in this blog.


Let’s first look at the essential VAT requirements for companies operating in South Africa:
  • VAT registration: As mentioned earlier, companies whose annual taxable turnover exceeds R1 million must register for VAT. The process is done online, and once registered, the company will receive a VAT number and must start charging VAT on all taxable goods and services.
  • VAT returns: Registered companies are required to submit VAT returns to the South African Revenue Service (SARS) every two months. The returns must include details of all VAT charged and paid during the period.
  • VAT payments: Companies must pay the VAT owed to SARS within 25 days of the end of each tax period. Failure to do so can result in penalties and interest charges.
  • VAT invoices: All invoices issued by registered companies must include the VAT charged and the VAT registration number.
  • VAT records: Companies must keep accurate records of all VAT transactions, including invoices, receipts, and payments. These records must be kept for a period of five years.
  • VAT audits: SARS may conduct audits of registered companies to ensure compliance with VAT requirements. Companies must cooperate with these audits and provide all relevant documentation.
You may also be wondering: Can my company deregister for VAT and what are the implications?

Yes, a business can deregister for VAT if they no longer meet the requirements for registration. The implications of deregistering for VAT depending on whether the business is a vendor or a purchaser.

For vendors, deregistration means that they will no longer charge VAT on their supplies and can no longer claim input tax on their purchases. However, they will still need to submit their final VAT return and pay any outstanding VAT liabilities.

For purchasers, deregistration means that they will no longer be able to claim input tax on their purchases. This can significantly impact the business’s cash flow, especially if they make many purchases that attract VAT.

It is important for businesses to carefully consider the implications of deregistering for VAT and to seek the advice of a qualified tax professional before making the decision. A company can also reregister for VAT after they have deregistered, provided they meet the necessary requirements for registration. However, the company must wait at least 12 months before reregistering for VAT if they voluntarily deregistered. If the company was compulsorily deregistered, they can apply for reregistration immediately.

It’s important to note that reregistering for VAT may come with additional requirements or consequences, such as having to pay back any VAT credits received during the time of deregistration or being subject to increased scrutiny from the South African Revenue Service. As such, companies should carefully consider their reasons for deregistering in the first place and weigh the potential costs and benefits of reregistering.

Now let’s explore the pros and cons of voluntary VAT registration:

Pros:

  1. Increased credibility: Registering for VAT voluntarily can enhance a company’s credibility in the eyes of customers and suppliers.
  2. Ability to claim back VAT: Voluntarily registered companies can claim back VAT paid on business expenses, which can result in significant savings.
  3. Preparation for future growth: Voluntarily registering for VAT can prepare a company for future growth and expansion.

Cons:

  1. Additional administrative burden: Registering for VAT voluntarily can result in additional administrative work, such as submitting VAT returns and maintaining accurate records.
  2. Cash flow implications: Charging VAT on goods and services can impact a company’s cash flow, especially if customers take longer to pay invoices.
  3. Increased scrutiny: Voluntarily registered companies may be subject to increased scrutiny from SARS, which can result in audits and additional compliance requirements.

In conclusion, VAT is a critical aspect of South Africa’s tax system, and companies operating in the country must comply with various VAT requirements. Voluntary VAT registration can have advantages and disadvantages, and companies should carefully consider their options before deciding. Seeking the advice of a qualified tax professional can help companies make an informed choice and ensure compliance with all VAT requirements

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