How VAT affects you as an individual is very different to how it affects you as a business owner, says Daniel Baines, author of How to Get a SARS Refund for Small Businesses and tax consultant at Mazars.
An individual pays VAT on certain items that are purchased (such as sweets) and services that they receive (such as having your car serviced); for an individual, VAT is just an expense that you bear and forms part of the cost of most things that you buy or services rendered to you.
VAT for a business is very different. As a business owner you may be required to charge VAT to your customers/clients on the sale price of goods or services.
However, not all businesses are required to charge VAT; it is only if a business is a VAT vendor that the business must charge VAT on the purchase price of the goods sold or services rendered, Baines said.
When a business is set up it is not automatically a VAT vendor; becoming a VAT vendor requires an application to SARS. In certain circumstances a business may voluntarily register as a VAT vendor, in other circumstances it is required to, he said.
A business may voluntarily register as a VAT vendor if the business is carrying on an enterprise and the turnover of the business (in the form of taxable supplies – explained below) exceeds R50,000 in the past 12 months or can reasonably be expected to exceed R50,000 from date of registration, Baines pointed out.
If a business carries on an enterprise and makes taxable supplies that exceed R1 million in any consecutive 12 month period or will exceed R1 million in terms of a written contract, the business must register as a VAT vendor. Failure to do so will result in penalties and interest being levied by SARS, the tax expert said.
The effects of being a VAT vendor
When your business has registered as a VAT vendor it is obliged to charge VAT (or output tax) at 15% on all goods sold and services rendered to your customers/clients (unless the goods are zero-rated or exempt).
This VAT is paid over to SARS when your VAT return is filed and makes your product more expensive to your customer/client, said Baines.
“However, as a VAT vendor, your business is entitled to claim input tax (i.e. the 15% VAT that you pay when purchasing goods) on all goods or services purchased by or rendered to the business provided that these goods/services are used to make taxable supplies. This essentially means that the business reduces the cost of goods purchased or services rendered by claiming the input tax back from SARS.”
This is a major advantage of being a VAT vendor – remember if your business is not a VAT vendor, it would not be able to claim the input tax and the VAT paid would be an expense it would bear just as an individual does, Baines said.
Remember that if your business has not registered as a VAT vendor then your business cannot charge VAT on the sale of goods or rendering of services to your customers/clients.
Taxable supplies are goods/services that are subject to VAT at either 15% (standard rated) or 0% (zero-rated). If your business only makes exempt supplies (e.g. passenger transport) then it cannot register as a VAT vendor, Baines said.