A question often asked is at what point should you register for value-added tax (VAT) and what are the consequences if you do not.
It is not only close corporations (CCs) or companies that have to register for VAT. An individual, trading as a sole proprietor, may also be required to register. Even if you are working for commission, you may be required to register for VAT, although this only applies if you are not an employee.
However, the broad definition of employee for employees' tax purposes means you may be liable to register as a VAT vendor even though employees' tax is being deducted from payments made to you. This is often the case for insurance brokers who are not formally employed, but are tied to a company and entitled to regular payments from it. If you think you are in this situation, contact a tax consultant.
The first step in establishing whether you should register is to establish whether you are conducting an enterprise. This is defined as any business or continuous activity in the course of which taxable supplies are made.
Taxable supplies are any goods or services on which a registered vendor would have to charge VAT at 0 percent mainly exports or 14 percent. Taxable supplies do not include exempt supplies mainly financial services like interest charges.
An "enterprise" specifically excludes hobbies. The term "activity", however, is very broad, which is why there is the specific exclusion for services provided in the course of employment.
Next, you must establish whether you make taxable supplies (turnover on which VAT would be charged if you were registered) of more than R150 000 for a twelve-month period.
If you consistently have a turnover of R8 000 a month, and for two months your turnover is R13 000 due to a special contract, you need not register for VAT. Also, if you sell an asset as a once-off, and this is not likely to recur regularly, you do not need to register.
But if you think the increased turnover is sustainable, and in the next twelve months your turnover will be R150 000 or more, then you must register.
If you would like to register for VAT because, for example, your customers would prefer it, or you have been charged VAT which you would like to claim as a refund from the South African Revenue Service (SARS) (this may be particularly relevant for exporters), but you do not have to have taxable supplies of R150 000 you may register "voluntarily". However, you must be making taxable supplies.
To register complete a VAT101 form and submit it with a certified copy of your ID (or the shareholders' or CC members' IDs). You must provide your bank account details and you should be registered for income tax.
What if you should have registered because your taxable supplies have exceeded R150 000, but have not done so?
Even though you are not registered, the supplies are still taxable and the SARS may levy VAT on them, on the basis that the price you charged included VAT. This will make you 12,28 percent worse off because your selling prices will have been reduced (if you charged a customer R100, the SARS will want R12,28 on the basis that the charge was R87,72 plus VAT of R12,28).
However, because you weren't registered you will not be able to claim any VAT charged to you as an input tax refund. In addition, if your customers are registered vendors, because you did not send VAT invoices to them, they will not be able to claim a refund of the VAT you charged to them.
For failing to register the SARS may also impose a penalty of 10 percent of the VAT levied, and interest of 1,2 percent a month for the period that each amount of VAT has been outstanding. Your name may also be published in the government gazette as a VAT offender.
If you point out to the SARS that your non-registration was an error, it may waive the penalty. If you ask the SARS to backdate your registration to the date your taxable supplies exceeded R150 000, you may be able to claim a refund of VAT charged to you. However, this will be at the SARS's discretion.
It would be wiser for you to keep an eye on your taxable supplies and register when you are required to.