When Must A Business Register For VAT in South Africa?

ByMandla

Value-added tax (VAT) is an important consideration for any business operating in South Africa. All businesses that meet certain turnover thresholds are required to register for VAT and charge VAT on goods and services supplied. Failure to register when required can result in penalties and interest. This article provides an overview of the VAT registration requirements and thresholds in South Africa.

What is VAT?

VAT is an indirect tax that is charged on most goods and services supplied by registered vendors. It is based on the value added to goods and services at each stage of production and distribution. As a business, you act as an agent for the South African Revenue Service (SARS) by charging VAT on taxable supplies and goods and paying it over to SARS. This guides you when VAT registration becomes compulsory for your business.

Read our guide on How to register a company for VAT in South Africa?

Compulsory VAT Registration

Two turnover thresholds determine when VAT registration becomes compulsory for a business in South Africa:

1. R1 million turnover per 12-month period

If your taxable supplies (standard-rated and zero-rated) have exceeded R1 million within the past 12 months, you must register for VAT with SARS. This applies to businesses that supply goods or services or import goods into South Africa. Once your turnover has gone over the R1 million threshold, you have 30 days to register.

2. R50,000 turnover in 12 months with future taxable supplies over R50,000

If you have not reached the R1 million turnover threshold but have made taxable supplies over R50,000 in the past 12 months, and expect to exceed R50,000 in taxable supplies in the next 12 months, you must register for VAT. The R50,000 threshold includes zero-rated and standard-rated supplies only.

When calculating if your turnover requires compulsory registration, you do not include any exempt supplies. Exempt supplies include:

  • Financial services
  • Residential accommodation
  • Educational services
  • Transport services
  • Donations and grants

Voluntary VAT registration

Even if your business is not required to register for VAT yet, you can choose to register voluntarily if:

  • Your taxable supplies exceed R50,000 in the past 12-month period.
  • You expect your taxable supplies to exceed R50,000 within the next 12 months. 

The main benefit of voluntary registration is that you can claim input tax credits on goods and services purchased for your business. This can improve cash flow, especially in the initial stages of operating your business.

How to Register for VAT?

Registering for VAT is done online via e-filing through the SARS website. You will need to have the following information ready:

  • Business address details
  • Banking details
  • Financial records like invoices issued and expenses
  • ID documents if registering as a sole proprietor

The VAT registration process itself is fairly straightforward but it is highly recommended you consult an accountant or tax practitioner before registering to ensure you take the necessary steps.

When Must A Business Register For VAT in South Africa?

Businesses in South Africa must register for VAT when they reach the compulsory VAT registration turnover threshold. The current VAT registration threshold is R1 million in taxable supplies over 12 months. This means that as soon as a business has made R1 million or more in sales of VAT-applicable goods or services over the past year, it must register for VAT with SARS within 21 days.

There are some exceptions however where businesses making less than R1 million can also register voluntarily if they meet certain requirements. Businesses can also be registered automatically in some cases, such as commercial rental enterprises.

Some key facts about compulsory VAT registration include:

  • This applies to enterprises making over R1 million in taxable supplies
  • Turnover includes all sales of VATable goods and services
  • Businesses must register within 21 days of crossing the threshold
  • VAT registration can be backdated if the threshold was crossed a while back

There are penalties involved for not registering when the business should be VAT registered, so it is essential that proper accounting is done to monitor taxable supplies. As soon as the threshold is expected to be reached, the VAT registration process should be immediately started with SARS.

So in short answer, regular monitoring of taxable transactions and turnover levels is vital, and VAT registration must take place as soon as a business exceeds the £1 million compulsory registration threshold over 12 months.

VAT Registration Exceptions

There are some exceptions where a business is not required to register for VAT even if it exceeds the compulsory registration thresholds. This includes:

  • Welfare organizations
  • Share block companies
  • Associations not for gain e.g. churches, sports clubs
  • Small businesses selling unmodified agricultural products like fruit and eggs

These exceptions are covered in more detail in the VAT Act 1991.

FAQs

I make crafts and sell them online for R80,000 per year. Do I need to register for VAT?

No, you do not need to register for VAT if your turnover is under R1 million per 12-month period. However, you can choose to register voluntarily if your taxable supplies exceed R50,000 per year. As a small business selling handmade goods, you may benefit from voluntarily registering for VAT to claim input tax credits.

My property rental income exceeds R1 million per year. Should I be charging VAT on the rental and registering? 

No. Residential rental income is exempt from VAT, so you do not include this income when determining if turnover exceeds the VAT registration threshold. You would not need to or be eligible to register for VAT or charge VAT solely on residential rental income over R1 million.

I run an NPO that receives funding and grants over R200,000 per year. Must I register?

No, non-profit organizations (NPOs) are exempt from registering for VAT regardless of turnover value. Grants and donations are exempt supplies so they are excluded when calculating taxable turnover for registration purposes.

My business sells fresh produce from our farm for R1.2 million last year. Are we required to register for VAT?

No. The sale of unmodified natural agricultural products like fruit, vegetables, and eggs is exempt from VAT registration even with a turnover over R1 million. Primary agricultural products typically do not need to be registered unless highly processed or sold in an altered form.

Conclusion

Understanding the VAT registration thresholds and exceptions is an important part of tax compliance for any South African business. Failing to register when required can lead to penalties, interest, and even criminal proceedings in serious cases of non-compliance. Consulting an accounting professional can help guide you on whether and when your business needs to register based on your unique circumstances. Keeping up with your VAT obligations is essential as your business grows and expands. If you want to calculate the VAT then use our VAT Calculator and easily do your correct calculations.

Mandla

Mandla is a highly skilled financial expert specializing in taxation and VAT. With a Bachelor's degree in Accounting and professional certifications as a Certified Tax Practitioner (CTP), Mandla possesses a deep understanding of South Africa's tax system. With over a decade of experience, he has provided valuable guidance to a diverse range of clients, including small businesses and multinational corporations. Mandla's expertise and analytical approach make him a trusted advisor in navigating the complexities of VAT calculations in South Africa.

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