Value-Added Tax (VAT) is an important part of South Africa’s tax system. However, there may come a time when your business no longer meets the requirements to be VAT registered. Knowing how to properly deregister for VAT can save you time and potential penalties down the road. In this guide, we break down everything you need to know about deregistering for VAT in South Africa.
Read our blog: Can You Claim Input VAT from a Non-Vendor?
When Do You Need to Deregister for VAT?
There are a few key instances when you must deregister from being a VAT vendor with SARS (South African Revenue Service):
- Your taxable supplies fall below R1 million in any 12 month period. This is the standard VAT registration threshold.
- You cease all taxable activity. For example, if you close or sell your business.
- Your business activities change so that you longer make any taxable supplies. For example, switching your business model to be entirely VAT exempt supplies.
It is important to deregister at the right time when any of the above conditions are met. Failure to do so can lead to penalties, interest and unpaid taxes.
Step-by-Step Guide to Deregister for VAT
Deregistering for VAT in South Africa is straightforward. But it’s important you follow the proper procedures outlined by SARS to avoid issues down the line:
1. Submit VAT Deregistration Form
The first step is to complete the VAT-REG-CAN form, which formally informs SARS that you need to deregister as a VAT vendor. This is available to download on the SARS website.
On this application form you will be asked to provide:
- Business details like trading name, registration number, contact details, bank account details etc.
- Reason for deregistration. You need to select one of the valid reasons mentioned earlier.
- Expected date you will cease to make taxable supplies.
- Details and value of any stock you still hold at the date of application if you are ceasing trade or selling your business.
2. Calculate Final VAT Refund or Pay Outstanding VAT
Based on your final VAT201 return, SARS will calculate if you have any outstanding VAT to pay or if you are owed a VAT refund.
If you have a refund due, include your bank details on the deregistration form so SARS can pay the money directly into your account once approved.
If you have outstanding VAT to pay, you will have to settle this with SARS before they can approve your deregistration.
3. Receive Deregistration Confirmation
Once SARS has received your form and finalized any outstanding payments/refunds, they will send you a notice confirming the deregistration has been approved. This usually takes about 8 weeks but can vary.
They will also notify you if any issues have arisen with approving the deregistration request.
4. Complete Final VAT Returns
For the tax periods between submitting your application and receiving SARS’ confirmation of deregistration, you must continue to submit VAT returns as per normal.
You remain a registered VAT vendor with all associated responsibilities during this time. SARS provides guidance on any final prorated tax periods to simplify completing your last few VAT returns as a registered vendor.
Other Impacts of VAT Deregistration
Beyond settling up your VAT payments and refunds, deregistering for VAT also impacts a few other areas of your finances and tax responsibilities:
- You can no longer charge VAT on sales to customers. Ensure your invoices, pricing and accounting system reflects this.
- Certain business expenses are no longer deductible from company income tax. For example, only registered VAT vendors can deduct input VAT paid on business purchases.
- You may need to repay some VAT claimed previously on assets purchased. Speak to your tax advisor about the Capital Goods Adjustment rules.
- Going forward, you fall under the more simplified provisional tax and income tax return filing requirements for small businesses instead of complex VAT reporting.
Get Help with Your VAT Deregistration
Deregistering from VAT may seem complicated, but getting expert assistance makes the process smooth and efficient.
Professional services like bookkeepers, accountants and tax advisors can help SME owners correctly complete all the SARS deregistration requirements. They can also provide ongoing services like income tax, accounting and managing your company finances in the most tax efficient manner post VAT-deregistration.
Investing in this expertise typically costs far less than the penalties and wasted time caused by incorrectly deregistering for VAT. And leaves you free to focus on more important areas of running your African business.
Use a VAT Calculator to Stay Compliant
Keeping on top of your VAT obligations can be tricky as a small business owner. Fortunately, there are simple online tools that can help.
Using a South African VAT calculator gives you an easy way to accurately estimate the VAT components of any price or transaction. This helps ensure you remain fully tax compliant whether you are registered for VAT or have deregistered.
Some key benefits of using a VAT calculator include:
- Quickly calculate 14% or 15% VAT to add or remove on invoices and quotes.
- Estimate the VAT-exclusive cost for budgeting and accounting purposes.
- Avoid errors that lead to SARS VAT audits and penalties.
- Determine if total 12-month revenue will exceed the R1 million VAT threshold
- Understand VAT implications on expenses, purchases and assets.
Rather than struggling with confusing VAT calculations in spreadsheets, save yourself time and money with an online South African VAT calculator. There are excellent free tools available so you can focus on growing your business, not worrying about tax!
Try out our VAT Calculator here to see how a VAT calculator can help you remain compliant, cash flow positive and audit protected whether you are registered, deregistered or considering VAT registration.
Knowing when and how to properly deregister as a VAT vendor is crucial for South African small business owners should their situation change. While the process involves some vital steps like submitting forms, finalizing taxes and keeping SARS informed, getting professional help makes compliance assured and headache-free. Equipped with this advice, African entrepreneurs can smoothly transition out of the VAT system when the time comes.
What happens to past VAT returns after I deregister?
SARS can still perform VAT audits and issue assessments for up to 5 years after effective deregistration. You need to retain VAT related records as per SARS legal requirements should they request them.
I have business assets purchased with VAT claimed, what now?
Depending on the current value and original purchase cost, you may need to complete a Capital Goods Adjustment return and potentially repay some of the VAT claimed when the assets were acquired. Discuss your specific situation with a tax advisor.
My products are zero-rated, do I still need to deregister?
Yes, zero-rated supplies like basic food stuffs still count as taxable turnover. If this falls under the VAT registration threshold of R1 million over 12 months, you must deregister. The same deregistration process applies regardless of what VAT rating you charge currently.
My business structure is changing, can I retain VAT registration?
Potentially yes, but you need to advise SARS upfront through their new Complex Conversions Unit. This unit will review restructuring like changing from sole prop to PTY Ltd and advise the best route to retain registration if eligible. Without their approval, deregistration would be required in most restructure cases.