Reap the rewards of VAT registration
Do you have a VAT number? Are you registered for VAT? These may be questions that you hear frequently as a farmer, but what is ‘VAT? A large number of countries, including South Africa, use the value-added tax (‘VAT) system to collect tax from consumers, while others use sales tax or consumption tax systems.
VAT is levied whenever a product or service is sold and the tax is then collected from the buyer – not by the government, but by the seller of the products or the person delivering the service (the ‘vendor’).
The vendor then has to pay the tax over to the South African Revenue Service (SARS) at the end of a fixed period. The VAT that the vendor has paid on goods and services used in its business may be recovered from SARS by reducing the amount paid over to them. Therefore, the government effectively only receives the VAT on the value that the vendor had added through its process.
Only businesses that are registered as vendors may collect VAT on behalf of the government.
TO REGISTER OR NOT TO REGISTER
Registration and the administration of the process of collecting VAT from the vendors are done by SARS, and they have some basic rules that you need to be aware of:
- Only persons or businesses that supply goods or services are allowed to register for and collect VAT from their customers.
- Smaller businesses will have lots of administration for very little benefit to themselves or the government; and therefore only vendors that have a turnover of more than R1 million a year are obliged to register for VAT.
You may feel that you will benefit from registering, even if your turnover is not yet that high. You would be allowed to register voluntarily if you can prove that your turnover will be more than R50 000 in a year.
How to register
To register, you need to visit a SARS office or alternatively you may make use of a registered tax practitioner. Most reputable accounting firms are registered as tax practitioners and will be able to assist and guide you through the process.
If you are farming, include this information in the registration in order to get the benefit of having VAT levied at 0% by your suppliers on selected goods, such as feed, seed and fertiliser. This is a special benefit only available to farmers.
Once you have registered, you should:
- Make sure all your suppliers have your correct VAT number on their documents and are aware that you are registered as a farmer. This is to ensure that you can claim back the VAT that you pay to your suppliers. This is referred to as input VAT – being the VAT you paid on the goods and services that went into your business.
- Update your sales invoices to comply with all the requirements for a valid tax invoice, according to the VAT rules.
- Start to add VAT to the selling price of livestock and crops that you sell from this date onward. This is referred to as output VAT – being the VAT charged on what goes out of your business.
Output VAT is usually charged at 15% of the price of the items you sell.
Wheat, soy beans, sunflower and livestock are examples of items where VAT is charged at 15%. However, in certain cases VAT is charged at 0%. Some of the most relevant items that are taxed at 0% include maize, fresh fruit and vegetables, milk, eggs and rice.
SCHEDULED VAT RETURNS
Depending on the period defined in your registration from SARS, you then have to submit a VAT return to SARS every two or six months. The returns are due on the 25th of the month after the end of the VAT period. For example, if the VAT period is March and April, the return is due on 25 May.
The process of completing the scheduled VAT returns basically involves the summarising of your accounts and then reporting to SARS the total of:
- Sales made at 15%.
- Sales made at 0%.
If the output VAT is more, you have to pay the difference to SARS with the submission of the return. Late payment is penalised.
- Goods and services bought or paid for where VAT was charged at 15% by the supplier.
- Assets bought where VAT was charged at 15% by the supplier.
If the input VAT is more, you will be refunded the difference by SARS into your business bank account.
SARS may from time to time request certain further details in order for them to make sure you are declaring these amounts correctly.
The VAT returns are completed and submitted on the SARS e-filing platform. You can register to do this yourself but, unless you have some experience in these matters, it is highly recommended that you obtain professional assistance.
Late or incorrect submissions as well as failing to reply or giving incorrect replies to SARS on any further information requested from time to time, could result in expensive additional taxes or penalties charged to your business.
For more details, refer to https://www.sars.gov.za/wp-content/uploads/Ops/Guides/LAPD-VAT-G02-VAT-404-Guide-for-Vendors.pdf.
Publication: November 2022
Author: EBEN BAKKER, CHARTERED ACCOUNTANT