VAT Registration for Small Businesses: Is It Worth It?
Is the possibility that your small business might benefit from VAT registration something you’ve been thinking about? Especially now that Value-Added Tax will possibly be increased to 15.5% from May 2025? Many small business owners make the strategic choice to register for VAT for various reasons. Better cash flow, more credibility, and bigger contracts are all possible outcomes. But is it the right choice for your business? Let’s explore the benefits and practical steps to walk you through the VAT Registration process.
What does it mean to register your small business for VAT?
You must register your company for Value-Added Tax (VAT) if the total value of taxable goods or services exceeds R1 million in 12 months or is projected to exceed this amount. Small businesses earning less than R1 million annually can still apply for voluntary VAT registration, provided their taxable income exceeds R50,000 per year.
VAT registration is the process by which businesses register with the South African Revenue Service (SARS) to charge VAT on taxable goods and services. Businesses that register for VAT are required to submit VAT returns and remit VAT collected to SARS. To put it simply, VAT deductions need to be kept apart from your normal turnover/revenue and paid over to SARS within the allocated timeframe as set out here.
Now, let’s look at the different benefits of VAT registration for small businesses.
Main Reasons You Should Consider Registering for VAT as an SME
“Is VAT registration worth it?” is a subject that many small company owners wonder about. Consider you have a small catering business that frequently makes big purchases of products, equipment, and supplies. Without VAT registration, your business could be missing out on increasing your financial position by claiming back relevant expenses that attracted VAT. This is called VAT refunds. So, when should you seriously consider registering for VAT?
1. Landing Bigger Contracts
Companies that have registered for Value-Added Tax tend to attract larger clients. Important contracts could be lost due to a lack of VAT registration. The reason being that the client is unable to try and claim back the VAT if you are not registered. Registering for VAT might be a good idea if you are worried about missing out on a big contract because you aren’t registered yet.
2. Making a VAT Claim for Company Expenses
You might be losing out on potential revenue if your company often makes purchases of goods or incurs costs that are subject to Value-Added Tax. You can improve your financial position by registering and then claiming VAT on these expenses through VAT returns. If you have consistent expenses running your company that qualify for VAT refunds, this would be a good reason to think about it.
What Are the Advantages of Voluntary VAT Registration?
The biggest motivator for companies is the ability to claim start-up VAT on operations expenses and beginning costs. Before you make this decision, it’s important to look at how many expenses and operation costs can be VAT-refunded. If it’s minimal, you may want to wait.
Before taking any further action, carefully assess your client base and cash flow. However, there are very good reasons for Voluntary VAT Registration if you want to grow your business. The key benefits are gaining access to bigger contracts with VAT-registered clients and, in turn, expanding your business.
General List of Items That Can Count Towards VAT Refunds
One question our VAT experts often get is, “What are the main expenses or costs that can be deducted from VAT?” Before we explore the list, it is important to know that in order to get a VAT rebate, the cost MUST directly help the business make money.
8 Common Business Expenses Eligible for VAT Deductions
- When a business buys office supplies like stationery, printing, and office equipment, they can deduct VAT on these items.
- Business operations: Things that are used for running a business, like rent for a building, utilities for the business, and insurance payments for the business, are all VAT-deductible.
- Professional services: Legal fees, accounting and financial services, and consulting fees are all examples of professional services that allow you to deduct VAT.
- Travel and accommodation: You can subtract VAT on business travel and lodging costs when you go on business trips.
- For marketing and advertising, you can deduct the costs of advertising as well as the costs of marketing products and services.
- Technology: You can deduct for VAT the cost of computers and software used for business purposes, as well as the costs of building and running a website.
- When it comes to cars and transportation, you can deduct VAT on business vehicles (with some exceptions), fuel for business vehicles, and costs for repairs and maintenance.
- Expenses for employees: You can subtract VAT on costs for training and development for employees as well as costs for uniforms or safety gear.
What is a VAT refund?
A VAT refund is the amount of VAT that SARS pays to a vendor when:
- The total amount of VAT charged to the vendor on buying goods and services (input tax) and on importing goods (which can be deducted) is more than the total amount of VAT charged by the vendor on providing goods or services (output tax) for a calendar year; or
- A seller made a mistake and overpaid, which means they paid more VAT than they should have to SARS.
How do I get my VAT back?
When SARS gets a properly filled-out VAT return, they have 21 business days to pay the refund to the vendor if they are entitled to it. This is how long SARS has to pay interest to the seller if the refund isn’t paid by this date. There are a few situations where SARS may not give a return or extend the 21-business day period without interest being paid.
Please keep in mind that SARS can also refuse to give you your return if any of the following happens, as explained here.
Now that you know the pros, cons, and what can be deducted, let’s look at the process of VAT Registration at SARS.
Online VAT Registration Process (via E-filling)
Although it’s still quite a process, SARS has made it easier for small businesses to register for VAT online by streamlining the process.
Here is the step-by-step guide to online VAT Registration at SARS using the eFiling platform:
How Long Does the VAT Registration Process Take?
It can take anywhere from 10 days to 2 months to register for VAT at SARS. It depends on whether you already have a trading CIPC-registered business and how long it takes SARS to process your application. To verify information about your company, SARS may contact you for more details or even visit your location. If you work with SARS directly, getting registered for VAT usually takes a month. However, it could take up to two months to register for VAT if you don’t already have a business. This is because you need a registered business before you can register for VAT.
Simplify Your VAT Registration
Let Company Partners handle the VAT process for you fast, online, and hassle-free. We’ve helped 168 businesses register in just 3 months. From paperwork to compliance, we take care of it all so you can focus on growing your business.
Want a faster and easier way to register your company for VAT?
Leave it to Company Partners to get it done Online, Easy and Fast wherever you are in South Africa! Here are some ways we can be of service:
- By completing the VAT registration procedure with the assistance of Company Partners, you will be able to meet all of SARS’s requirements. Thanks to Company Partners’ professional assistance, 168 business owners were able to register for VAT quickly and easily in the last 3 months. This success opened their doors to bigger contracts and improved their cash flow in a matter of months.
- To avoid any delays, we will help you compile and submit the necessary paperwork at SARS.
- To keep you in compliance at all times, we offer a wide range of services, including the completion of VAT returns and assistance in meeting SARS deadlines.
Here are some ways in which we can help you:
- Tax Returns: Company Partners can help businesses prepare and file their tax returns. Our team of skilled SAIBA and SAIT-registered accountants guarantees that all relevant information will be reported correctly in line with current tax regulations.
- Monthly Accounting Services: Our monthly accounting services will keep your financial records correct and up to date. We offer many important accounting services, such as tracking, bank reconciliations, and making financial statements. This will help you keep an eye on your money and help you make smart business choices.
What Happens After VAT Registration?
- You will be issued a VAT registration number upon completion of VAT registration. This is a crucial number for your company since it enables you to deduct VAT from sales and claim VAT from purchases.
- In addition to making sure you’re in compliance with VAT requirements, keeping precise records of your purchases and sales is essential.
- Any time there is a change in VAT legislation that can have an impact on your company’s operations, you should be aware of them.
After VAT Registration the following is important:
- All taxable sales must be subject to VAT.
- Ensure your VAT invoices are compliant with SARS rules.
- Submit your VAT return to SARS at least once every two months.
- Maintain accurate financial records to facilitate the submission of VAT claims and calculations.
Final Thoughts
Determining whether VAT registration is worth it for your small business depends on your financial position, growth plans, and client base. If you frequently incur VAT on expenses or seek larger contracts, VAT registration may hold valuable financial benefits.
