In South Africa the consumption of goods and services are taxed with the exemption of a few products. Tax known as Value-Added Tax is paid on goods and services as well as the importation of goods at a rate of 14%.
It is compulsory to register your business for VAT when your business earned R1 million or you expect to earn R1 million in any consecutive twelve month period. Alternatively, a company can register on the voluntary basis even if their taxable supplies are less than R1 million in a twelve month period. In order to register on the voluntary basis the business must have a taxable supply exceeding R50 000 in the last 12 months.
Advantages of registering for VAT:
- Especially for a small business it creates a good impression with larger companies as it implies that the business has a turnover of more than R1 million per annum. This also applies to companies who go the voluntary route with VAT registration.
- In a capital-intensive business it will aid cash flow as you can only claim back VAT if your company is registered for it.
Disadvantages of registering for VAT:
- You have to file VAT returns every two months.
- VAT is paid on the invoice basis, meaning the business will be held accountable for the VAT even if the invoices have not yet been paid by your debtors.
- VAT increases the selling price of your product or service, possibly pricing you higher than your competitors.
How to register for VAT:
Once it has been established that the business either earned or is projected to earn R1 million or more, the business must complete a VAT 101 – Application for Registration form which should be submitted to the local SARS branch. This should be done within 21 days from the date of reaching or exceeding the R1 million.
It is very important to submit the correct documents with your application as it may cause delays in your VAT registration otherwise. Once you’ve been registered you will receive a VAT registration certificate with your VAT registration number.
If you need to register for VAT contact Ptynow to help you simplify the process.