VAT registration is compulsory above a turnover threshold and voluntary below it. Registering when you did not have to is a decision many small businesses regret.
Compulsory registration
Registration becomes compulsory once your taxable supplies exceed the prescribed threshold in any twelve month period, or where you have a contractual commitment that will take you over it.
The test is rolling, not annual. It is not about your financial year.
Voluntary registration
Below the compulsory threshold you may register voluntarily once you meet a lower minimum turnover requirement. Whether you should is a business decision, not a compliance one.
Your customers are VAT registered businesses who claim the VAT back, so your price is effectively unchanged to them.
You have significant input VAT on stock, equipment or overheads that you can claim.
You are bidding for work where the tender requires VAT registration.
You sell mainly to the public or to unregistered small businesses. Your prices effectively rise by 15 percent or your margin absorbs it.
You add bi-monthly returns, stricter record keeping and penalties for late filing to a business that may not have the admin capacity.
What registration commits you to
- Charging VAT on taxable supplies
- Issuing valid tax invoices with all required details
- Filing returns, usually every two months
- Paying over VAT collected, on time
- Keeping records for five years
The cash flow trap
VAT you charge is not your money. Businesses that treat collected VAT as working capital and spend it face a payment they cannot make at the end of the period.
Set it aside as it comes in, or accept that you will be borrowing from SARS at penalty rates.
Deregistration
If your turnover falls below the threshold you may apply to deregister. There are consequences, including output VAT on assets on hand, so take advice before doing it.
Stop chasing your own numbers
Monthly bookkeeping, VAT and payroll calculations, management reporting and a financial health score. From R1,200 a month.
General information, not tax advice. Thresholds, rates and deadlines change. Confirm current requirements with SARS or a registered tax practitioner before acting.