If you are a small business owner or entrepreneur who is unsure where to begin with Value-Added Tax, this basic guide will assist you.
What exactly is VAT?
VAT is an abbreviation for Value-Added Tax.
VAT is an indirect tax on economic consumption of goods and services. The South African Revenue Service administers and collects VAT (SARS). It is the government's second largest source of revenue.
VAT increased from 14% to 15% on 1 April 2018, and it is levied on all goods and services subject to certain exemptions, exceptions, deductions, and adjustments specified in the Value-Added Tax Act of 1991.
Who should register for VAT?
According to SARS regulations, VAT registration becomes mandatory when your company's revenue from taxable supplies exceeds R1 million per year. A vendor is someone who has registered for VAT.
Voluntary registration was introduced for businesses that are not yet earning (generating) as much revenue but want to offer and receive the benefits associated with it. A vendor who makes taxable supplies worth more than R50,000 but not more than R1 million per year may apply for voluntary registration.
When you register as a VAT vendor, you are required to charge (levy) VAT (or output tax) of 15% on all goods sold and services rendered to your customers/clients (unless the goods are zero-rated or exempt).
What are the advantages of registering for VAT?
Once you have registered for VAT, potential clients and customers may regard you as a reliable and trustworthy business.
Input tax deductions, or the VAT you pay for goods and services, effectively reduce your business costs by the VAT amount.
As a VAT registered entity, you provide the same benefits to your clients, making doing business with you more appealing.
You are required by law to file returns on a regular basis, which is usually every two months, so you will need to keep detailed and up-to-date financial records, which is beneficial to your business.
To be eligible to compete for tenders, particularly with the government, your company must have a VAT number. When sending quotes and invoices, large companies prefer to deal with businesses that have a verifiable VAT number.
Because VAT is calculated as a percentage of the actual price of a product, the burden of this tax is always borne by the consumer. As a result, as a business or vendor, you don't have to worry about it being deducted from your operational costs.
Things to remember
If your company has not registered as a VAT vendor, it cannot charge VAT on the sale of goods or the provision of services to its customers/clients.
Every two months, VAT returns must be filed (even or uneven months). This means you'll have to keep your administration up to date on a regular basis. Otherwise, you may face fines and interest. It should be noted that there are other periods for filing VAT, such as annually, every six months, or even every month.
Your transactional documentation must be updated to meet all SARS standards. To be compliant, your invoices must contain specific wording and numbers.
VAT is generally calculated using the accrual system. That is, the VAT is calculated on the invoices you have issued, whether or not they have been paid. As a result, it is critical that you budget your cashflow to account for VAT payments to SARS.
It is in your best interest to ensure that VAT is properly managed. Make certain that you charge the correct VAT on each transaction.
If the value of taxable supplies falls below R1 million or all business activities have ceased, you may apply to cancel your VAT registration.
A = How much VAT did you charge your customers? B = How much VAT did you charge your customers?
B = What percentage of VAT did you pay to your suppliers?
The amount of VAT payable/refundable to/from SARS is equal to A minus B.
It is in the best interests of your company to have an experienced accountant handle your VAT. Taking this seriously from the start can mean the difference between a successful business and having to declare bankruptcy.