The importance of businesses, both large and small, for our economy, goes without saying, especially their role as taxpayers. All businesses have tax obligations to meet, including paying Value Added Tax (VAT) to SARS, but don’t fear, it’s not all bad news, as there are several benefits to acquiring a VAT number. This post looks at what the SA business owner needs to know about VAT and its benefits.
When does it become compulsory for business owners to register for VAT?
The rule is that a business must register as a VAT vendor if its income earned in any continuous 12-month period exceeds R1 million. If your income earned is less than this threshold, but more than R50 000, it may still be advantageous for your business to register voluntarily. Although this will add to your administration, you can then claim the VAT back on your expenses (which is then deducted from the VAT you owe SARS).
A small business that is registered as a micro-business under the Sixth Schedule of the Income Tax Act may also register for VAT and may choose to submit returns and payments every four months, ending on the last day of June, October, and February.
Registering for VAT can be a complex decision for a new small business, so let’s take a look at the advantages and disadvantages of being a VAT vendor.
- It’s a dead giveaway to consumers that you have a turnover of less than R1 million per year by not registering as a VAT vendor. Should you wish to make a good impression for possible investors or corporate clients, registering is an easy way to keep up appearances.
- You can claim back the VAT you pay on your capital. If you have a capital-intensive business, your cash flow will take a lot of strain if you’re not a VAT vendor.
- VAT registration has a lot of admin involved, which requires methodical record-keeping, accurate invoicing and VAT Return submissions to SARS.
- When registering for VAT, be sure to select the payment arrangement that suits you best. If you don’t specify this, you will have to pay your VAT on invoice from SARS, whether you have received payment for it from your client yet or not. This can sometimes cause cash flow issues for your business.
What processes are you required to complete once registered?
There are certain responsibilities you will have to perform and take on as a VAT vendor. These include:
– charge and collect VAT
– file returns and payments on time
– maintain adequate records for supplies made and received
When should the VAT be paid?
If you are filing your VAT returns electronically as a registered eFiler, VAT must be paid by no later than the last business day of the month after the end of the VAT return submission period. If you are not filing electronically, the VAT must be paid by no later than the 25th of that month.
What information do businesses need to keep in case of audits?
An audit is something all businesses want to avoid. It is a detailed scrutiny, analysis, and verification of the business’ accounting records, transactions, and documents. It is certainly an intensive process, and when you are preparing for an audit, all your records need to be in order.
Companies should keep the following documents for 7 years: documents, accounts, books, writings, records, reports presented at AGMs, copies of annual financial statements, copies of accounting records, a record of directors and past directors, minutes and resolutions of directors’ meetings, audit committee and directors’ committees, written communication to holders of securities.
Close Corporations should keep the following documents for 15 years: accounting records, annual financial statements.
In terms of the Value Added Tax Act, VAT vendors should keep these documents for 5 years: a record of all goods and services, records of importation of good and documents, information relating to charts and codes of accounts, accounting instruction manual, system and programme documentation, documentary proof substantiating the zero-rating of supplies.
Consider the experts
Dirmeik Consulting has an extensive understanding of tax and VAT laws and can give the correct and up to date advice on all your VAT matters. We make sure to keep up to date with any new rules or regulations made by SARS and have the bookkeeping systems in place to process your transactions to submit your returns timeously and accurately.
Furthermore, we can advise on all South African tax matters and endeavour to create the best solution for you and your business. Contact us via our website, to get request a consultation and get a quote for our services.