Updated on May 25, 2022
South Africa’s indirect tax system was replaced by VAT (Value Added Tax) on September 29, 1991, when GST (General Sales Tax) was implemented. The Value-Added Tax Act 89 of 1991 governs its collection. Exemptions, exceptions, deductions, and adjustments are all permitted under the South African Value-Added Tax Act. In 1991, a statutory 10% VAT rate was implemented. Following an increase to 14 percent in 1993, the rate was raised to 15 percent on April 1st, 2018, and has not changed since.
How does it work?
VAT vendors must register with the South African Revenue Services (SARS) and submit VAT returns to SARS if their commercial activity (enterprise) generates taxable supplies of R1 000 000 or more in any twelve-month period or is expected to exceed R1 million in a year. Vendor registration with SARS is now voluntary for anyone operating a business with a yearly revenue of more than R50 000 as of the 1st of March 2010.
Adding value to the goods or services is referred to as VAT. Buying a pencil for R3.00 and selling it for R4.00 has an extra value of R1.00, to use a simple example. If you’re a VAT vendor, you must pay SARS a percentage of your sales, which is the Vat on R1.00. Buying the pencil costs R3.00 plus R0.45 in value-added tax, and selling it for R4.00 includes an additional R0.56 in value-added tax. Once you’ve paid SARS the R0.15 difference, you’re good to go. Vat on R1.00 = R0.15, which is the exact amount.
Frequently, business owners inquire about ways to reduce their VAT costs. Without the assistance of your business tax services specialist, you run the risk of breaking the law by omitting critical criteria or attempting to save money through shortcuts.
You must first grasp the VAT process in order to begin reducing VAT bills.
This is a breakdown of VAT’s most important qualities.
All transactions involving goods or services are subject to VAT.
The value added tax (VAT) on these items is based on the cost.
Each step of the manufacturing and distribution process is subject to VAT.
The burden of the tax falls on the eventual customer, not the business owner, notwithstanding the deductions available.
To reduce VAT costs, items would need to either fall under the exempt categories, or deduct tax that has been paid during previous stages. You will not have to register for VAT unless you make taxable sales that exceed R1 million over 12 consecutive months. This means that smaller businesses may be exempt from VAT.
There are numerous other elements to consider;
Is your place of business also where you live?
Is your commercial property taxed by your municipality?
Trade with foreign clients and the export of goods and/or services is something your company does, right?
In terms of VAT and other taxes, the professionals at PATC (Professional Accountants and Tax Consultants) have a wealth of knowledge and expertise. For your company, we can help you save money and speed the VAT process. In order to collect VAT, a business must produce taxable goods and services for customers. Exempt supplies do not include products and services such as salary, private goods and services, or the selling of private objects. VAT only applies to things sold within South Africa or imported into South Africa if you are a South African business owner.
As of right now, the average import tax rate is 15%, with some things like exports being exempt or taxed at zero percent. Unless the importer is a business owner, or the products and services are imported for private use, or they come within the exempt supply category, imported goods do not have to be taxed on VAT. Post, SARS, EFT/debit orders, eFiling or any major bank can be used to pay VAT for businesses registered for the tax. SARS provides a form (VAT201) that must be completed in order to file a VAT return.
Once registered, sellers receive a VAT vendor number that must be included on all VAT returns and correspondence with SARS. Suppliers’ VAT registration numbers will be suspended if they have not filed a return in the last five years or if their VAT201 filings for the previous year show a liability of zero. Vendors are subject to penalties and interest if their VAT returns are not submitted within 25 days of the end of each cycle. Interest is charged at a regular rate of ten percent per cent of the amount owing. It is mandatory for small businesses to submit VAT returns every four months. However, they have the option of continuing to return every two months. After five years from the date of the final entry in any book, vendors will likewise be required to maintain all financial records.
VAT Tips for Small Businesses
In contrast to popular belief, which holds that VAT registration is only required by larger corporations, small businesses in South Africa are legally obligated to register for the tax regardless of the value of the goods or services they provide. The implications of noncompliance could be dire, and many small enterprises are unable to recoup from fines or other consequences.
These VAT suggestions for small businesses can help you stay on top of your VAT obligations:
To ensure that all invoices (among other things) are valid and in order, all invoices must show the relevant VAT registration numbers for both the supplier and the recipient of goods and services.
SARS periodically checks to see if your revenue and financial accounts are in sync. SARS may be obligated to ask inquiries if the financial statement data do not match your Vat returns’ turnover figures.
Using a professional accountant to handle your taxes is always a good idea because you can rest assured that your claim will not be overstated. There are a number of ways in which an overstated input claim could lower your VAT liability or result in an excessive refund. This is a criminal offence as well.
On all your debts that are no longer collectable, you can claim back the VAT that was paid on them. To begin with, you’ll need to write off this debt. Consult with your accountant to learn how to do this.
Even if the VAT rate is zero percent, all quotes must include VAT. Every quote you send out to customers and clients must contain VAT.
Even if you don’t charge VAT, you can still claim VAT back on the things you’ve provided, but documentation proving that you have the right to do so must be kept on file at all times or SARS will raise an alert.
If SARS does not process your VAT refund within 21 days of receiving your VAT201 return, you can expect SARS to pay you interest at the stipulated rate. Make sure that SARS processes your VAT refund on time!
SARS requires VAT to be paid on your commission, which is known as output tax. Once you’ve done this, you can send tax invoices to the companies that pay you commission.
You must submit returns even if you calculate that you do not owe any VAT to SARS. As a registered vendor, you must still do so. Your returns can be handled by a professional accountant on your behalf, ensuring that everything is in order to meet SARS compliance.
Key Points to Know About VAT
Accountants can help you figure out the amount of VAT you owe to SARS if your business sells goods or services to the general public. The following are some significant VAT-related considerations:
If you own a business, you must include a 15% tax on all of your required prices by law. Taxpayers in South Africa will have to pay this proportion to the country’s tax agency (SARS).
As a business owner, you are able to claim back any VAT that you incur while running your company, which we call input VAT.
Adding up the VAT you’ve added to your invoices and removing the input VAT from things like purchases, rent, water, energy, and other expenses might help you figure out how much VAT you owe SARS. SARS will be reimbursed for the difference.
SARS requires all firms with a turnover of more than R1 million in a year to register and pay VAT to SARS.
An annual revenue of less than R1 million but larger than R50 000 may be voluntarily registered by businesses with a 12-month turnover. There is no need to register for VAT for businesses with a turnover of less than R50 000 for 12 months.
Generally, VAT returns must be submitted every two months, and they include a summary of both the VAT collected and the input VAT your company has paid. When it comes to calculating your VAT, the bookkeeping team at PATC (Professional Accountants and Tax Consultants) can help.
Getting your personal or corporate VAT in order can be a time-consuming and unpleasant endeavour. If you’d like to make use of the skills, knowledge, and experience of a team of tax experts:
If you have any questions, feel free to get in touch with us right away.
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