Registering for VAT - minimum annual threshold

[missionimpossible]

I registered my company recently and got a nasty surprise that you can no longer do CC and you have to register PTY LTD. Nonetheless, I went ahead. Next step for me is to open up a business bank account which should not be too complicated (I hope).

I called SARS with regards to VAT registration and was told that I need to have an annual turnover of R50k. However they can only register me in the next 3 months and even then they will evaluate my business at that point to see if I would qualify for VAT.

I'm currently stuck between a rock and a hard place:
I will be doing some freelance work for a company and expect to bill them anything from R5 000 to R10 000. However because I am not VAT registered, the company I am invoicing cannot claim the VAT.

What should I do? Should I just invoice them the R5 000 (for instance) and not charge them VAT?
Is there a voluntary VAT declaration? And if so, how does that work?

 

[ant_man]

You can't charge VAT if you havent got a VAT Number.
When you get your number you will then only be allowed to charge VAT
All invoices prior to you getting the Number will be excluded.
You cant back date VAT

 

[missionimpossible]

thanks for that.
(Blonde Question) So what should I say to the company if they would like to claim the VAT on the R5 000?

 

[ant_man]

Simply tell them they wont be able to claim VAT back, as you cant charge them.
VAT is purely an Input and Output cost, so itshouldn'tt make a difference to them.

 

[missionimpossible]

thanks.

 

[Ekstasis]

@tweety2007, do the VAT application immediately and keep the paperwork to show to your client.
Then on your tax invoice you can add VAT but note on the invoice "VAT number pending".
If you don't charge VAT your invoice heading should only read "Invoice" and not "Tax Invoice"

 

[ant_man]

@tweety2007, do the VAT application immediately and keep the paperwork to show to your client.
Then on your tax invoice you can add VAT but note on the invoice "VAT number pending".
If you don't charge VAT your invoice heading should only read "Invoice" and not "Tax Invoice"

I think it all comes down to what you think your yearly turnover will be.
Rather stay away from VAT, if you can, as its extra paperwork to do
Why charge the VAT when you dont have to.

 

[Ekstasis]

I think it all comes down to what you think your yearly turnover will be.
Rather stay away from VAT, if you can, as its extra paperwork to do
Why charge the VAT when you dont have to.

Sometimes companies don't want to do business with you if you're not VAT registered.
You're right about the paperwork. Rather get a bookkeeper for that.

Also the annual turnover for voluntary VAT registration is R50000 and above but not more than R1 million
The annual turnover for compulsory VAT registration is over R 1 million

 

[MickZA]

Sometimes companies don't want to do business with you if you're not VAT registered.
You're right about the paperwork. Rather get a bookkeeper for that.

Usually public sector, municipalities & the like - I avoid them like the plague, getting paid is often a nightmare.

Never had any problems with private sector companies, I was VAT registered but kicked it into touch because of the paperwork - no regrets.

 

[Praemon]

@tweety2007 Just a heads up - I've just gone through a VAT application, and while the initial application is fairly straight forward, you need to ensure you have the right supporting documents, otherwise SARS will just decline it. This includes 3 months worth of bank statements showing that you qualify for at least voluntary registration (which is why you can't apply now), as well as a bunch of invoices/orders which correspond to the amounts coming into your account (this is one thing that's not always mentioned).

But (most of) the advice above is correct. You can't charge VAT unless you're VAT registered, and then there's a list of requirements the Tax Invoice must contain for a company to claim VAT back. There shouldn't be much of a difference for companies that transact with you, unless you intend to keep the same price when you become VAT registered and absorb the additional cost, because otherwise they will still be paying the same amount (e.g. R5000 now, and then R5700 once VAT registered (R700 VAT)). The only thing I disagree with is what Ekstasis said about using "VAT number pending" on a tax invoice before the registration has gone through. I'm no accountant, but SARS clearly states that a company cannot claim input tax on a tax invoice that does not have a VAT registration number printed on it (excluding some rare situations, which I don't believe apply here). And since a tax invoice is a financial document, you cannot change it later. I suspect there's some leeway when you're in a situation and you're forced to register as you've surpassed the threshold, but it sounds like trouble if you're doing a voluntary registration and it's possible that it could be denied.

Check out the VAT 404 guide over on SARS' site, it's actually quite helpful - http://www.sars.gov.za/home.asp?pid=194

 

[missionimpossible]

thanks

@tweety2007 Just a heads up - I've just gone through a VAT application, and while the initial application is fairly straight forward, you need to ensure you have the right supporting documents, otherwise SARS will just decline it. This includes 3 months worth of bank statements showing that you qualify for at least voluntary registration (which is why you can't apply now), as well as a bunch of invoices/orders which correspond to the amounts coming into your account (this is one thing that's not always mentioned).

But (most of) the advice above is correct. You can't charge VAT unless you're VAT registered, and then there's a list of requirements the Tax Invoice must contain for a company to claim VAT back. There shouldn't be much of a difference for companies that transact with you, unless you intend to keep the same price when you become VAT registered and absorb the additional cost, because otherwise they will still be paying the same amount (e.g. R5000 now, and then R5700 once VAT registered (R700 VAT)). The only thing I disagree with is what Ekstasis said about using "VAT number pending" on a tax invoice before the registration has gone through. I'm no accountant, but SARS clearly states that a company cannot claim input tax on a tax invoice that does not have a VAT registration number printed on it (excluding some rare situations, which I don't believe apply here). And since a tax invoice is a financial document, you cannot change it later. I suspect there's some leeway when you're in a situation and you're forced to register as you've surpassed the threshold, but it sounds like trouble if you're doing a voluntary registration and it's possible that it could be denied.

Check out the VAT 404 guide over on SARS' site, it's actually quite helpful - http://www.sars.gov.za/home.asp?pid=194

 

[za1]

Avoid registering if you can. I have yet to lose business because of it, though accountant says I need to register, dragging my feet and trying to keep volume low, don't need the extra paper work headache.

 

[AchmatK]

Avoid registering if you can. I have yet to lose business because of it, though accountant says I need to register, dragging my feet and trying to keep volume low, don't need the extra paper work headache.

While registering for VAT will not affect your clients that are VAT registered as they wuold simply be claiming this amount back, to your non VAT registered clients this would be a 14% increase. Unless you decide keep your pricing the same and state that it includes VAT. This would then mean that you would be taking the knock on behalf of your non VAT registered clients.

VAT registration does reduce your expenses as you would now be able to claim the VAT on all you input costs such as rent, electricity, adsl, cellphone, consumable, etc. whereas before your total expenses paid for these supplies would go on your Income Statement.

You need to decide if the administrative burden and costs outweigh the VAT you would be able to claim from your input costs before deciding to register.

If your input costs from VAT registered suppliers are R22 800, when you become VAT registered this would become R20 000 as the R2 800 would go to your Balance Sheet and claimed from SARS. If it costs you R800 to pay someone to manage your VAT, I would rather pay the R800 and get the R2 000 back from SARS.

My advice would be to speak to friends and family and ask them to recommend a good accountant/bookkeeper as they normally would build a relationship much like a family doctor. Most of my client base is from referrals from existing clients.