Accounting guide
When to register for VAT in South Africa, and what it does to your accounting software
The R1 million threshold, the voluntary route at R50 000, and the software settings that decide whether your VAT201 comes out right.
VAT registration changes what your accounting software has to do. The threshold is the easy part. The settings that decide whether your VAT201 comes out right are where businesses lose weeks.
When you have to register
Registration becomes compulsory once the value of taxable supplies exceeds R1 million in any consecutive twelve month period, or where you have a written contract that will take you past it. That is a rolling test, not a financial year test, which catches people who only look at it once a year.
You can register voluntarily from R50 000 of taxable supplies. Whether you should is a separate question. Registering means charging fifteen percent to customers, submitting returns, and keeping records that support every claim. If most of your customers are not VAT registered, adding fifteen percent to your price is a real competitive cost.
What changes in your software on day one
Three settings matter. Your VAT registration number goes onto every tax invoice, because an invoice without it is not a valid tax invoice and your customer cannot claim on it. Your VAT periods have to match what SARS allocated you, which for most businesses is every two months. And every item and account needs the right tax code.
That last one causes the most trouble. Standard rated, zero rated and exempt are not interchangeable, and neither is a supplier who is not registered. If the codes are wrong, the return is wrong, and the correction is a reworking of history rather than a setting change.
The invoice basis and payment basis question
Most businesses account for VAT on the invoice basis, meaning output tax is declared when you issue the invoice rather than when you are paid. That is a cash flow consideration, because you can owe SARS output tax on an invoice a customer has not paid.
The payments basis is available to certain smaller businesses. If you qualify and cash flow is tight, it is worth asking your accountant about, and worth confirming that your software supports the basis you are on rather than assuming.
Producing a VAT201 you can defend
The return itself is submitted on eFiling. What your software should give you is a VAT report that agrees to the ledger and can be broken down transaction by transaction, so that when a figure looks odd you can find the invoice behind it in under a minute.
Reconcile the VAT control account every period rather than at year end. A difference found in the same month is a small correction. The same difference found eleven months later is a forensic exercise.
Keeping documents that support the claim
Input tax claims need valid tax invoices behind them. SARS can and does ask. Software that attaches the supplier document to the transaction turns a verification request into an afternoon rather than a fortnight of digging through email.
This is the practical argument for document capture tools such as the receipt capture built into Sage Accounting or a connected app on the other ledgers. The subscription cost is small next to a disallowed claim.
Common questions
01What is the VAT registration threshold in South Africa?
Compulsory registration applies once taxable supplies exceed R1 million in any consecutive twelve month period. Voluntary registration is available from R50 000. Confirm the current thresholds with SARS, as they are set by legislation and can change.
02How often do I submit a VAT201?
Most businesses are on a two monthly cycle allocated by SARS. Larger vendors submit monthly. Your software should be set to the same period SARS allocated you, not a period you chose.
03Does accounting software submit my VAT return to SARS?
Generally no. The products sold here produce the figures and the supporting report. Submission happens on eFiling. Treat any claim of automatic submission with care and confirm exactly what is automated.
04Should a small business register for VAT voluntarily?
Only if your customers are mostly VAT registered businesses who can claim the input tax, or if you carry significant input VAT on purchases. If you sell to consumers, adding fifteen percent to your price is a real cost with no offsetting benefit.
Editorial note
This guide is general buying guidance and not accounting, legal or tax advice. Amounts and deadlines set by SARS change, so confirm the current figures for your own business before you rely on them.