VAT Registration in South Africa: Thresholds and Timing

VAT registration is a milestone most growing South African businesses hit, and many hit it later than they should, or for the wrong reasons. This guide explains when registration is compulsory, when voluntary registration makes sense, what SARS requires, and the mistakes that turn a simple registration into penalties.

When VAT registration is compulsory

You must register as a VAT vendor when the total value of your taxable supplies exceeds R1 million in any consecutive 12-month period, or when there is a written contract that will take you over R1 million in the next 12 months. This is a rolling test, not a financial-year test, and it applies to the enterprise as a whole.

Voluntary registration: when it makes sense

What SARS needs to register you

• Company registration documents and income tax reference number.
• Proof of business address and bank account.
• Proof of turnover, invoices, contracts or financial statements showing the threshold has been or will be reached.
• Details of the representative vendor (usually a director) with ID.
• For voluntary registration, evidence that supplies exceed R50,000 or a business plan supporting expected turnover.

After registration: the obligations that actually cause penalties

VAT201 returns and payment

Returns are due by the 25th of the month after the tax period (or the last business day if filing and paying via eFiling). Late payment attracts a 10% penalty plus interest, and SARS applies it automatically.

Valid tax invoices

Input VAT can only be claimed on a valid tax invoice with the prescribed details, 'TAX INVOICE' wording, supplier VAT number, your details for invoices over R5,000, and a description and amount. Claims without valid invoices are disallowed on audit.

Timing and apportionment

VAT is generally accounted for on the invoice basis, when the invoice is issued or payment received, whichever is earlier, not when the customer pays. Businesses with mixed taxable and exempt supplies must apportion input VAT.

Five VAT mistakes we fix most often

1. 1Registering late, SARS backdates the liability to when you crossed the threshold, with penalties on VAT you never charged.
2. 2Claiming input VAT on non-qualifying items, entertainment, passenger vehicles and personal expenses.
3. 3Missing the invoice-basis timing and accounting for VAT only when cash arrives.
4. 4Not reconciling VAT201s to the ledger, the VAT control account should agree to every return filed.
5. 5Ignoring zero-rated vs exempt, exports and certain foodstuffs are zero-rated (claim inputs); financial services and residential rent are exempt (no inputs).

Deregistering from VAT when you no longer qualify

Registration gets all the attention, but the more expensive mistake is leaving a registration open after the business no longer needs it. SARS keeps expecting a VAT201 for every tax period until the registration is formally cancelled, and every unfiled nil return counts as non-compliance.

You may apply to deregister when your taxable supplies fall below the compulsory threshold and you no longer wish to remain registered voluntarily, or when the enterprise ceases to trade. The application is made to SARS with supporting figures, and it is not instant.

• File everything outstanding first. SARS will not process a cancellation while returns are missing.
• Expect an exit charge. VAT is generally payable on assets still held at deregistration, on the basis that you claimed input tax on them. Budget for it rather than being surprised.
• Keep your records. The retention period runs from the last return, not from the date you stopped trading.
• Confirm the cancellation in writing. Do not assume it happened because you stopped filing.

Related reading: unfiled VAT returns are one of the fastest routes to a red SARS tax compliance status, your VAT turnover has to reconcile to the ITR14, and if you have staff you also carry PAYE, UIF and SDL.

How Synergy handles VAT

VAT registration, VAT201 preparation and submission, and VAT control account reconciliation are part of our Compliance & Reporting service, included in the Growth and Scale packages. We also handle the registration itself for new vendors.