Everything you need to know about VAT
For a lot of people, VAT is just something you see printed on a till slip or an invoice, and don’t really pay any attention to. However, for businesses, VAT is something that is important to understand. It can get a bit confusing, so we’ve put together all the
information you need to know about VAT so you can determine whether you qualify for VAT, and how to register and implement it in your business.
What is VAT?
Value-Added Tax is more commonly known as VAT and is an indirect tax placed on both goods and services. By getting enterprises to register for VAT, according to the VAT act, it enables funds to be raised for the government. Businesses must charge VAT on the supply of goods and services, as well as the importation of goods. The current VAT rate in South Africa is 15%. It is also important to
note that there are some goods and services that are exempt from VAT, such as entertainment, motor vehicles, and staff welfare.
Questions you may be asking about VAT
1. Do you have to register for VAT?
There are two points to consider in determining whether you need to register your business for VAT:
● If your turnover is R1 million or more over a 12-month period, you are required by law to register for VAT.
● If your business turnover is over R50 000 and under R1 million in a 12-month period, registering for VAT is a voluntary act. This is all dependent on the nature of your business and whether your clients are registered for VAT themselves. If your clients are not registered for VAT, then you can hold off on registering for VAT in the meantime. If they are registered for VAT, it might be beneficial.
2. Once you are registered for VAT, what happens next, and what is required?
● Firstly, you will be assigned a two-month VAT period.
● If the VAT period is in either January or February, you will be obliged to pay your business’s VAT by the end of March of that same year.
● You might be able to get a one-month VAT period, but this may only be valid when your business has a turnover of R30 million or more.
3. How do you calculate your VAT?
● You will first need to look into your input VAT and output VAT. What is the difference between input VAT and output VAT?
Output VAT is the Value-Added Tax which needs to be calculated and collected when you sell goods or services. Output VAT needs to be calculated on both sales to businesses and individual customers. Input VAT is the VAT that is included in the price when you purchase vat-able goods and services for your business. If your business is registered for VAT, you will be able to deduct the input VAT against the output VAT, when you or your accountant is doing your VAT return.
● For example, if output VAT is R15,00 and input VAT is R8,50, you will need to pay the outstanding R6,50.
4. Is it important to record your VAT amounts correctly?
Any person or business needs to be extremely strict with the correct documentation and recording of VAT. It is important to track correctly as the South African Revenue Services (SARS) can audit your business at any given time. If any VAT claims have
been made incorrectly, the claim may be denied, and SARS will issue additional penalties. You might be able to get a one-month VAT period, but this may only be valid when your business has a turnover of R30 million or more in order to apply for the VAT period.
5. What does it all mean for you and your business?
● It will be important to ensure that all invoices are recorded correctly. VAT is paid on accrual, which means that whether you created the invoice or received one, you need to pay the VAT. And VAT is payable on the creation of the invoice. Not only when the invoice has been paid.
● Having a real-time accounting system and an accountant that looks after your financials will further ensure that all amounts are tracked correctly and will allow your business to avoid any surprises or penalties when it comes to paying VAT.
How to register your business for VAT
Does your business need to register for VAT? There are 2 ways this can be done:
1. Visit the South African Revenue Services (SARS) website, www.sars.gov.za, and follow the easy steps to register for VAT on eFiling.
2. Visit the SARS website and book a virtual appointment with SARS through their online booking system and have a consultation to register for VAT. When registering, it is important to submit all the correct documents with your application. Failing to supply the correct documents for your VAT registration will lead to a delay.
If your business needs to register for VAT is important to know how VAT works and how to calculate and pay it correctly. At Cloudworx, our team of experts has years of experience assisting businesses in various industries with VAT compliance. Let us help
your business. Get in touch with Cloudworx today.