VAT registration in South Africa, explained properly

When registration is compulsory

You must register as a VAT vendor when the value of your taxable supplies exceeds R1 million in any rolling 12-month period, or when you have a contractual commitment that will take you over R1 million in the coming 12 months. Two things trip people up:

• It is rolling, not per financial year. Any consecutive 12 months count. A strong nine months can put you over before year-end does.
• The clock does not wait for you. Once you cross the threshold you must apply within 21 business days. Register late and SARS can hold you liable for VAT on sales made after you should have registered - VAT you never charged your customers and now pay out of your own margin.

Voluntary registration

A business with taxable supplies of at least R50 000 in the past 12 months may register voluntarily. Some categories can register below that where SARS is satisfied the business will reach it. Voluntary vendors take on exactly the same duties as compulsory ones - the choice is whether the benefits outweigh the admin, which we cover below.

What being a VAT vendor means practically

• You charge 15% on your sales. Every taxable sale carries output VAT at 15% (zero-rated and exempt supplies aside). That money is SARS's, not yours - treat it as collected on their behalf.
• You claim VAT back on purchases. Input VAT on business expenses from other vendors comes off what you owe, provided you hold valid tax invoices.
• Your invoices must comply. A valid tax invoice needs the words "tax invoice", your VAT number, the customer's VAT number on larger invoices, and the prescribed details. Sloppy invoices cost your customers their input claims, and sloppy supplier invoices cost you yours.
• You file VAT returns. Most vendors file a VAT201 every two months, with payment due with the return; some are put on monthly or other cycles depending on size and category. Nil returns are still returns.
• Your prices are VAT-inclusive to consumers. Advertised prices to the public must include VAT, so registering effectively raises your consumer prices or squeezes your margin by up to 15%.

Should you register voluntarily?

It tends to help when your customers are VAT-registered businesses (they claim your VAT back, so your price is not really higher to them), you buy significant VAT-bearing inputs (stock, equipment, fuel, rent from a vendor), or big clients and tenders treat a VAT number as a credibility filter.

It tends to hurt when you sell to the public, who cannot claim VAT back - registering makes you 15% more expensive or 15% less profitable overnight. It also adds real admin: return cycles, invoice discipline and record-keeping that SARS can audit. A service business with few inputs selling to consumers usually should not register before it must.

Common mistakes

• Watching the financial year instead of the rolling 12 months and registering months late, with historic VAT owed out of pocket.
• Charging VAT before the registration is approved. You may only charge VAT once you are registered; charging it without a VAT number is unlawful.
• Spending the VAT. The 15% collected is not revenue. Vendors who bank it as cash flow meet SARS debt, penalties and interest two months later.
• Claiming input VAT without valid tax invoices, or on items where claims are denied or limited, such as entertainment and most passenger vehicles.
• Missing return deadlines. Late VAT201s attract penalties and interest and turn your tax compliance status red - often discovered mid-tender.

Frequently asked questions