You only need to register your small business for Value Added Tax (VAT) with SARS if your taxable turnover is more than one million Rand in a twelve month period. If your turnover is below this amount, you do not have to register, but you can choose to register voluntarily if you want to claim back VAT on your business expenses or if your clients require you to be a VAT vendor.
Compulsory VAT Registration
SARS sets a strict threshold for VAT. If your business makes more than one million Rand in total sales over any consecutive twelve months, you must register for VAT. You cannot ignore this rule. If you cross this threshold, you have 21 days to submit your VAT registration application to SARS. If you fail to register in time, SARS can charge you heavy penalties and interest, even if your business has not actually collected the VAT from your customers yet.
Voluntary VAT Registration
If your business makes less than one million Rand a year, you can still register for VAT voluntarily. However, SARS will not just approve anyone. You must prove to SARS that your business is actually trading and making a steady income. SARS will ask for recent bank statements, signed contracts, and invoices showing that your business is active. Many small business owners register voluntarily because big corporate clients or government departments often refuse to buy from businesses that are not VAT registered.
How VAT Works in Plain English
VAT is a tax on the value added at every stage of producing and selling goods or services. The current standard rate in South Africa is 15 percent. When you are a VAT vendor, you charge your customers an extra 15 percent on your prices. This is called output VAT. When you buy supplies or stock for your business from other VAT vendors, you pay them 15 percent VAT. This is called input VAT. At the end of every tax period, you subtract your input VAT from your output VAT. If your output VAT is higher, you pay the difference to SARS. If your input VAT is higher, SARS pays you back.
Steps to Register for VAT
You cannot register for VAT if your business is not legally registered. Here is the exact sequence of steps you must follow.
- Register your company with the CIPC. You need a Pty Ltd or another formal business structure to get a VAT number. A sole proprietor can also register for VAT, but SARS prefers formal companies.
- Get your SARS income tax number. Your business must already have an income tax reference number before you can apply for VAT.
- Gather your proof of trading. SARS wants to see that your business is real. Get three months of business bank statements, recent invoices, quotes, and any signed contracts.
- Prepare your compliance documents. You need a valid proof of address for your business and a certified copy of the ID of the public officer or owner.
- Submit the application. You can do this on the SARS eFiling website or by walking into a SARS branch. You must appoint a public officer, who is the person SARS will communicate with about your VAT.
- Wait for SARS to process. SARS will review your documents and decide if they will issue you a VAT number. This can take several weeks depending on how busy SARS is.
The Reality of Charging VAT
Before you rush to register for VAT, think about your customers. If you sell directly to the public in a township, adding 15 percent VAT to your prices makes your goods more expensive. Your customers feel that increase directly. If your competitors are not VAT registered, they can keep their prices lower than yours. However, if you supply other businesses, those businesses can claim back the VAT you charge them, so the 15 percent does not hurt them. Always check who your main customers are before deciding to register voluntarily.
Submitting Your VAT Returns
Once SARS gives you a VAT number, you must submit VAT returns regularly. Most small businesses are placed on a bi-monthly cycle, which means you submit a return every two months. You must declare how much output VAT you charged and how much input VAT you paid during those two months. Even if you made zero sales during a tax period, you still have to submit a nil return. If you submit late or fail to submit, SARS will add administrative penalties to your account. These penalties add up quickly and can ruin a small business.
Getting Your Documents Ready with KAGO
SARS is very strict about paperwork. If your company documents are not in order, your VAT application will be rejected. KAGO helps South African entrepreneurs get their foundations right before they deal with SARS. We can register your company with CIPC for a fixed price of R995. If you need your share certificates, CIPC disclosure, and a formal compliance file ready for SARS, our Compliance Kit is R2,495. Having these documents perfectly organised makes dealing with SARS much easier, though SARS always makes the final decision on your VAT application.
Questions people also ask
Can I register for VAT as a sole proprietor?
Yes, you can register for VAT as a sole proprietor, but SARS will scrutinise your personal and business income closely. You still need to prove your turnover meets the voluntary or compulsory thresholds.
How long does SARS take to approve VAT registration?
SARS does not have a guaranteed turnaround time, but it usually takes a few weeks if your documents are perfect. If SARS asks for more information, the process will take longer.
What happens if I do not register when I hit the threshold?
If you cross the one million Rand threshold and do not register within 21 days, SARS will penalise you. You will be liable for the VAT you should have charged, plus interest and late submission penalties.
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