Many small businesses out there are not too sure what Value-Add Tax (VAT) is, how it works and whether it applies to them or not. But not to worry, it took us a while to grasp it too. So let’s answer some of those questions you may have and uncover what it is that you need to know about VAT, when you should register, how to use it and when to file those VAT returns.

Do I need to register for VAT?

First things first, VAT only applies to you if you are registered to do so.

Not every business needs to register for VAT. In South Africa, you must register your business for VAT if your income is more than R1 million over a 12-month period (I mean way to go if you are), or if you think you will exceed this amount. A business can also register voluntarily if the income you made in the past 12-months is more than R50 000, but just make sure this is the right thing for your business.

What is VAT?

VAT stands for Value Added Tax, it is a tax that is added to the goods or services people buy.

And if you have a VAT registered business, you need to add this tax to the goods and services you sell to your customers. As a consumer yourself, I’m sure you have had to buy mayo every now and again, you may have noticed you are charged VAT for the mayo you buy.

VAT works two ways

1. Payable VAT - this is the VAT that you charge your customers and have to pay back to SARS.

2. Claimable VAT - this is VAT you have paid for when buying goods and services for your business. Next time you pop to the shops, take a look at your receipt and you will see the VAT charge.In South Africa, a 15% VAT tax is added onto the price of the goods you sell. This % can change based on which country you live in so make sure to check what the % is where you are based.

Example:

1. If your business sells a bag of Jelly beans for R50.00, a 15% VAT charge gets added so the price of your jelly beans becomes R57.50. You keep the R50.00 and pay R7.50 to SARS. You have lost nothing, just make sure to collect and not spend that money!
2. If your business buys a ream of paper for R110 including VAT. You will be able to claim back 15% of that, R14.35 to be exact. In this example, you gain something back 🙂

What are my VAT responsibilities?

As a VAT-registered business, you must charge VAT on the goods or services you sell. You can also claim VAT on any business-related purchases, aka your business expenses.

If you are charging VAT to customers, you are required to provide a VAT invoice or receipt which includes VAT whenever a sale is made.

VAT returns

Every month or every second month you will need to submit your VAT returns to SARS. You will be required to submit a VAT 201 form, accompanied by a payment to SARS for the VAT you’ve charged and collected.

As a VAT business, you can offset the amount of VAT you owe to SARS (known as payable or output tax) against your business-related expenses VAT (known as claimable or input tax)

Example: Total VAT charged - Total VAT spent = Total VAT owed to sars

FYI: Always submit your VAT returns, even if there’s no VAT due to SARS.

How to make sure my invoices are VAT compliant

Not much has to change from a regular invoice but there are a few details that have to be included. The following information needs to be shown on your invoices:

1. It has to contain the words "Tax Invoice" "VAT Invoice" or "Invoice"
2. Business details: (Business name, Address, Contact details)
3. VAT number
4. A unique invoice number
5. Date the invoice was created
6. An itemised list of goods and services being purchased ( You need accurate descriptions and quantity or volume of these goods and /or services (make sure to indicate if some items are second hand goods)
7. Total excluding VAT
8. VAT total
9. Total including VAT

stub makes VAT invoicing a breeze by doing all the VAT calculating for you 🙂

How to register for VAT

Registering for VAT in South Africa is really simple with SARS. Follow this link to find out more about Registering for VAT