Should I register for VAT?
There’s no option if your VATable turnover exceeds R1m per annum. If it is less, then you can voluntarily register if it is expected to exceed R50 000 per annum.
Let’s take a look at the pros and cons of voluntary registration. But first we need to establish whether , given that your turnover exceeds R1m, you need to register.
If the R1m is made up of items not included below as exempt, then they are VATable.
Exempt items/services include –
Public road and rail transport
Rental of residential property
Approved educational services
Certain financial services, such as interest.
Don’t confuse these with zero-rated items which are VATable, but at zero rate.
Right, so now you know whether you are obliged to register, and be warned, if you should and you don’t, SARS will deem all of your invoices to have included VAT and will demand that the deemed VAT be paid over.
If you don’t have to register, then the only good reasons to do so are –
- Your customers insist that you do.
- You are selling services rather than goods, mostly to the general public.
The first is a no-brainer, so let’s look at the second.
You are selling services, which means that you are not buying stuff, possibly making something with it and then re-selling it, so your inputs (which are mostly salaries) don’t carry a VAT charge. There’s nothing to claim, so your costs are the same as your competitor’s. If you register for VAT, you will be adding 15% to every invoice and that could make you overpriced when compared to your non-VAT registered competitor. And you won’t keep any of that 15% as it must be paid over to SARS. So, don’t register.
What if you are buying materials and selling goods? There’s not a lot in it, because if you are not VAT registered and you buy for R1 000 plus VAT = R1 150. You mark up by R1 000 and charge R2 150. If you are VAT registered, you buy for R1 000 plus VAT = R1 150, mark up by R1 000 and charge R2 000 plus VAT = R2 300. The customer pays an extra R150 assuming that you only want to make the same R1 000 profit in both cases. If your customer is not VAT registered, that R150 can hurt your business. On the other hand, if they are VAT registered, they’ll claim the full R300 and their cost will be R2 000, saving them R150. So, if your customers are small businesses or the general public, don’t register, but if they are mostly VAT registered, then you need to register as well.
How easy is it to register? Darned near impossible! Get an expert to do it for you.