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VAT (Value Added Tax) plays a crucial role in the financial operations of businesses in South Africa, yet many business owners struggle to fully understand the process. Misconceptions about VAT registration, VAT claims and VAT Registration requirements South Africa can lead to costly mistakes, whether it’s paying unnecessary amounts to SARS or missing out on potential refunds.
In this article, we’ll debunk the top 10 misconceptions surrounding VAT Registration for small business, helping you navigate the system with confidence and ensuring your business stays compliant while maximising your VAT benefits.
Before we dig into misconceptions, it’s important to know about the 2024-updated VAT (Value Added Tax) registration requirements in South Africa. Here’s a short video explaining the changes and how it affects SMEs wanting to complete VAT Registration online:
A lot of business owners think that any business, even if not actively trading right now, can register for a VAT number. When applications are denied or postponed, this causes confusion.
To register for VAT, you must actually be trading.
A company can only register for VAT if it can prove it is operational and actively trading. To verify that your business is active, SARS requires documentation like invoices and bank records. This is why companies should carefully evaluate their circumstances before applying for VAT registration.
There are two kinds of VAT registrations:
Despite not having met the R50,000 threshold, some organisations, including non-profits and government agencies, as well as individuals involved in agricultural and mining activities, are eligible to register for VAT by choice, should they meet the industry-specific criteria.
If you’re unsure if your business qualifies to register for VAT, it’s best to reach out to your accountant or a VAT specialist for guidance before you proceed.
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A lot of people think that VAT registration can be done in a day or two. In cases where the process takes longer than expected, this misconseption can lead to a lot of frustration.
It may take weeks of meticulous planning to register for VAT.
Although it may seem like a simple form to fill out, registering for VAT actually involves a much more complex process. Before applying, you need to ensure that both your individual and business tax returns are up to date. Any outstanding tax returns or discrepencies in you filings can cause SARS to delay or even decline your application.
Next, the submission of necessary supporting documents such as bank statements, proof of income, or contracts is essential for proving your eligibility. These documents must be thoroughly reviewed by SARS to ensure compliance with the VAT threshold, which can further slow the process.
After submission, SARS needs to process the application, verify your details, and issue the VAT number. During busy periods at SARS, the waiting period to get your application approved and the VAT number issued, can take weeks.
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For businesses with annual sales below R1 million, optional VAT registration may seem like unnecessary red tape. However, voluntary VAT registration could prove to be highly beneficial in specific instances.
Here’s how businesses can actually benefit from voluntary VAT registration:
Companies whose expenses are subject VAT may find that registering for VAT voluntarily allows them to claim back the VAT, particularly in the agricultural, welfare, and mining sectors.
For industries where VAT registration is expected, opting in for voluntarily VAT Registration can enahance credibility with larger clients and provide a competitive edge.
There is a common misconception among business owners that they can claim back VAT on expenses where VAT was paid before they are registered.
VAT Registration is a prerequisite to making VAT claims.
SARS does not allow businesses to claim VAT back unless they are registered for VAT. If a backdated liability date applies, you may need to take additional steps with SARS to ensure you can claim back VAT paid prior to the application date.
Here is how the VAT liability date works:
For voluntary VAT registrations, the VAT liability date is set based on the application date. Backdating is not allowed unless you provide SARS with supporting documents to justify your request.
For compulsory VAT registrations, SARS allows backdating up to 6 months from the date you exceeded the R1 million threshold. If you need to backdate further than 6 months, you’ll need to visit a SARS branch with supporting documents like financial statements, contracts, or issued invoices.
The idea that companies can caim all of their VAT costs after registration is another common fallacy.
The fact is that you may only claim VAT on some expenditures.
Not all expenses can be claimed as VAT. You can’t claim VAT for things like entertainment costs or some kinds of business vehicles. To ensure that businesses do not overclaim or fail to recognise valid deductions, it’s better to get a professional company that offers VAT Returns solutions and can assist in the recovery of legitimate VAT claimable expenditures.
A lot of companies think that getting their VAT number is the last hurdle to overcome when it comes to VAT compliance.
Unfortunately, ongoing VAT compliance is very important after registration.
Most businesses are obligated to file VAT returns every two months following registration. Non-compliance carries financial implications, such as administrative penalties and interest levied on VAT owed. SARS can also request VAT inspections or extended VAT audits at random, which is a lengthy process and requires in-depth financial records.
Ensuring VAT compliance, including filing your bi-monthly VAT201 Returns and maintaining accurate records, may require assistance from professionals Accountants.
The belief held by many business owners is that VAT registration is separate from their own personal tax obligation. Especially if there are persistent personal tax concerns, this could lead to rejection of the VAT application.
In actual fact, to register for Value-Added Tax, personal tax compliance is crucial.
The individual acting as the company’s SARS Registered Representative (usually a director) is directly responsible for maintaining compliance with SARS to register for VAT. If the individual or company has unpaid taxes, SARS will reject their VAT application until they are fully Tax compliant. To ensure a smooth VAT registration process, it is necessary to keep personal and company tax obligations up to date.
The idea that all businesses, no matter their industry, go through the same VAT registration process is another common misconception. However, there are industries that have unique VAT criteria and requirements.
VAT registration can be complicated by industry-specific issues.
Additional VAT registration requirements are often imposed on agriculture, farming, and non-profits. For instance, certain VAT regulations, like the fuel refund, may apply to farmers, whereas non-profits, under their zero-profit status, may have restricted returns. It may be necessary to exercise further caution and seek expert advice in some cases regarding VAT registration.
For many businesses, registering for VAT and VAT Returns is all they need. On the other hand, additional services like Monthly Accounting or PAYE may be required to guarantee that a company remains compliant with SARS.
Continuous accounting support may be required for VAT compliance.
Complying with VAT regulations does not end with registration. To be in good standing with SARS and handle the bi-monthly VAT returns, many enterprises need ongoing Bookkeeping and Accounting assistance. Professional bookkeeping and accounting ensures that your VAT submissions are accurate, submitted on time and help you stay out of audits.
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The assumption that all relevant VAT regulations and requirements is readily available on the SARS website is a source of great frustration for many businesses.
Unfortunately, the VAT regulations that are detailed on the SARS website might not be applicable in all cases.
The most current requirements for VAT registration may not be up to date on SARS’s webwsite. This can cause problems for businesses that are trying to register with outdated information. The registration process can go more smoothly, and errors due to out-of-date paperwork can be avoided by collaborating with expert service providers who stay updated on SARS regulations.
Navigating the VAT registration procedures in 2024 could pose a significant challenge alongside other responsibilities for businesses, but with proper guidance in place, handling VAT obligations becomes manageable and helps steer clear of costly errors. Whether it’s registration for VAT or voluntary compliance needing continuous assistance, Company Partners is ready and willing to lend a hand whenever needed. Allow us to handle all the paperwork efficiently, interact, and schedule your appointment with SARS to expedite your VAT registration process seamlessly.