How Does VAT Registration Work and Requirements

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In America, they call it Sales Tax. In South Africa and some other countries, it is known as Value Added Tax or VAT. It is the same thing by a different name. Value Added Tax is a general indirect tax that you as a seller, must charge on whatever you sell when you meet specific requirements. This tax applies to almost all goods and services offered by a registered VAT vendor. 

According to the law, this vendor must be a person. This person can be an actual individual or a legal person, such as a company or trust. The principle behind VAT is that consumers pay a tax on purchases based on the value of the product or products they buy. 

In South Africa, You must register for VAT if your turnover exceeds R1 million in a 12-month period. VAT is charged at a standard rate of 15%. This tax is payable by all registered vendors.

When your business reaches the stage where you have to register, you can do it on the VAT 101 and for VAT 102 forms downloadable from the SARS website of the receiver of revenue.

You will have to supply 

  • details of the applicant and whether you apply as an individual or a business entity.
  • addresses and bank numbers
  • In the case of a business or a trust, you must also supply details of the representative taxpayer.
  • Documents containing details such as proof of identity and address must accompany your application. 

The application must be filed in black or blue out using block letters.

Applicants must initial when they make alterations to the application.

You can confirm on the SARS website whether your application has been processed.

After the registration for vat, the vendor has specific duties to perform:

  • All prices advertised or quoted must include VAT.
  • Vendors must submit returns and payments on time.
  • It is also the vendor’s responsibility to collect the VAT.
  • Tax invoices if must exist for all supplies made.
  • Vendors must keep adequate records.

You can pay VAT in one of three ways.

  • SARS eFiling; 
  • Bank EFT
  • At a bank counter

Once you are registered, you enter a VAT category.

Category A and B vendors.

Most VAT vendors fall into these categories. They are what you can call default categories. If you are in this category, you will have to return VAT returns to SARS with your payment every two months. 

For category A the deadlines for returns are uneven months, for example, January. January is the first month. It has an uneven or odd number associated with it. The same goes for March, May, etc. 

Category B is the same thing as Category A, except that the deadlines are in even months. 

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Category C is meant for more prominent vendors whose revenue exceeds R30 million a year. Returns are submitted monthly. If their income falls below this number, they can apply for an amendment.

Category D is for micro-businesses and farmers. It has a six-monthly return period.

There is also a Category E. There are several criteria for VAT payers to register in this category, and not many of them are accepted. This category requires that your only business is the renting or letting of properties or moveable goods or managing the renting of these items.

Different kinds of VAT.

VAT output and VAT input

When you sell a product, you must charge VAT at 15 percent. That is pretty much true across the board. In some cases, however, you may manufacture the product you sell. In other words, you pay VAT to buy the raw materials. That VAT is called input VAT because the items are coming into the business. When you sell the end product, you collect and pay the VAT. That VAT is called output VAT. You can claim back the input VAT from SARS.

In a case such as this, the vendor must show that he or she bought the raw materials to make the product and paid VAT on them. He and she must make sure that they have the necessary documentation as proof.

When you sell a product and collect the VAT on it, you must keep in mind that the VAT amount does not belong to you. It may reflect on your bank statement, but the money belongs to the Receiver of Revenue. It is vital that you keep track of this money or maybe open a separate account for it to be available when you have to pay it to the taxman.

Zero-rated items

Although the overwhelming majority of items carry a VAT of 15 percent, some items have a VAT of zero percent. These include:

  • Brown bread
  •  
  • Maize meal 
  • Rice
  • Bread and cake flour
  • Sanitary pads
  • Eggs
  • Samp
  • Fresh fruit and vegetables
  • Lentils
  • Vegetable cooking oil
  • Milk
  • And fuel which is regulated by the petroleum industry.

Exempted items

There are also some items and services that are exempted from Value Added Tax altogether. They include:

  • Financial services
  • Passenger services (bus, train).
  • Donations
  • Educational services, such as schooling and university fees.
  • Taxi operators also pay no VAT.
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