Demystifying VAT: A Guide to Registration and Automation with GL Accounts

Value Added Tax (VAT) is a term that often instils a sense of dread among business owners. We encounter it daily on our receipts, as that additional percentage added to our bills. But VAT is not as sneaky as it may seem—it has been in existence for over 30 years and plays a crucial role in the economy.

As your business grows, there comes a point when registering for VAT becomes necessary. While it may initially appear daunting, the good news is that we live in an era of innovation where technology can simplify the process. In this article, we will delve into the rules and advantages of being a VAT vendor, as well as explore how automation can streamline your VAT submissions.

What does it mean to be a VAT vendor?

VAT was introduced in 1991, replacing the General Sales Tax (GST). It is an indirect tax imposed on economic consumption, aiming to levy the public on goods and services rather than their income or corporate profits.

Currently, the standard VAT rate is 15% (as of 2023). VAT is only charged on taxable supplies, which include goods and services subject to either the standard rate (15%) or zero rate (0%). Certain goods and services are exempt from VAT.

As a registered VAT vendor, it is your responsibility to apply VAT (output tax) to each client invoice and remit it to the tax authority. Fortunately, you can reduce your VAT liability by deducting the input tax paid on the manufacturing or development of your products or services. This means you can reclaim the VAT paid to other businesses.

Let’s take an example to illustrate this:
Suppose you charge R3,000 (excluding VAT) for a service, and it costs you R1,600 (excluding VAT) to develop it. To calculate the VAT liability:

Output tax (VAT charged for the service): R3,000 x 15% = R450 Input tax (VAT included in the development cost): R1,600 x 15% = R240 Total VAT liability: Output tax (R450) – Input tax (R240) = R210

Remember to include the details of your input and output tax when submitting your VAT return to the tax authority.

Should you register for VAT?
According to VAT legislation, small businesses must register for VAT if their taxable supplies exceed R1 million over a 12-month period. Additionally, you can voluntarily register for VAT if your annual taxable supplies exceed R500,000 within 12 months.

You might wonder, “Why should I voluntarily register for VAT if it’s not mandatory?”

There are several compelling reasons:

1. Reduced overall VAT payment: By registering as a vendor, you can claim input VAT that you wouldn’t be entitled to as a non-vendor, resulting in lower VAT payments for your business.
2. Enhanced credibility: Being a registered vendor lends credibility to your business when engaging in transactions with others.
3. Claiming back VAT: If you predominantly sell zero-rated supplies, you can claim back the VAT on standard-rated supplies you purchase.
4. Capital expenditure benefits: High capital expenditures, such as vehicles, equipment, or property, can enable you to claim back VAT charged on these significant expenses.

Before rejoicing, ensure that your supplies are zero-rated or exempt from VAT.

How to register for VAT

You have two options for VAT registration: through eFiling or by scheduling a virtual appointment with the tax authority.

To register through eFiling:

1. Log into your eFiling profile.
2. Navigate to “SARS Registered Details” under the “Organisations” tab.
3. Select “Main SARS Registered Details” and confirm your authorization.
4. Go to “My tax products” > “Revenue” and choose “VAT” from the menu.
5. 5. Click on “Add new product registration” or “Addition VAT branch registration.”

1. Complete the form with your details, trading name, liability date, and business activity code.
2. Fill in the relevant boxes as guided by the form.

If you have any questions or need more information, visit the SARS website, where you can find additional resources and registration documents.

Compliance with specific rules and deadlines is crucial when it comes to VAT. Here are some tips to keep in mind:

1. Check your cycle: Each business has specific deadlines, and VAT returns and payments must be submitted within 25 days before the cycle ends.
2. Avoid late submissions: Submitting and paying VAT late can lead to penalties and interest on outstanding amounts.
3. Include VAT line items: Every invoice and quote, even those with zero-rated supplies, should have a VAT line item.
4. Use the right words: Include the phrase “Tax Invoice” on each invoice.
5. Don’t inflate claims: Illegally inflating input tax claims to reduce VAT liability is not advisable.
6. Ensure matching revenue: Make sure the revenue on your statements matches what you’ve declared on your VAT returns.
7. Commit to regular submissions: Keep submitting VAT returns, even if there is no VAT due.
8. Provide complete information: Always include your VAT number, the VAT number of your registered customers (if applicable), and their name and physical address on your invoices.
9. Charge VAT on commissions: VAT should be added to any commission earned or paid.
10. Claiming back VAT on bad debt: You can claim back VAT already paid to the tax authority for invoices with irrecoverable bad debt.

While paying taxes and VAT is unavoidable, automation can significantly simplify the process. With GL Accounts and Sage Accounting Accountants Edition, you can effortlessly prepare, submit, and track your VAT 201 declarations directly to the tax authority, eliminating human error, remediation, and time-consuming administrative tasks.

Here are some of the benefits of automation:

1. Easy integration: Activate the integration within Sage SARS eFiling, use the VAT 201 wizard to integrate VAT amounts, and let the system handle the rest.
2. Streamlined processes: Automated submissions reduce the need for manual tasks, enhancing efficiency and simplifying compliance.
3. Time savings: With reduced administrative burdens and minimized errors, you can focus on advising customers and growing your business.
4. Continuous compliance: Any legislative changes are automatically updated in the software, ensuring you always remain compliant.
5. Centralized management: You can handle customer management, invoicing, compliance, and processes from a single platform, eliminating the need for complicated spreadsheets and sticky notes.
6. Enhanced visibility: Keep track of your submission status directly from Sage Accounting and access organized customer, employee, and business data whenever you need it.

Automation with GL Accounts and Sage Accounting Accountants Edition enables you to navigate the VAT landscape with ease, allowing you to devote more time and energy to strategic business activities.

Understanding VAT and its implications is essential for every business owner. By registering as a VAT vendor, you gain access to various benefits and opportunities to optimize your VAT liability. With the assistance of automation tools, such as GL Accounts and Sage Accounting Accountants Edition, you can simplify VAT registration, submissions, and compliance, freeing up valuable time to focus on growing your business.

Embrace the power of automation and let GL Accounts and Sage streamline your VAT processes, providing you with accuracy, efficiency, and peace of mind. Take control of your VAT obligations and unlock the full potential of your business.