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Should My Business Register for VAT? Here’s How to Decide:

Article compiled and drafted by Mr. Uaripfa C. Peter Nemukula, Chartered Business Accountant in Practice (CIBA – Chartered Institute of Business Accountants)

As a South African Accountant working closely with small and medium-sized enterprises (SMEs), one of the most common (and often misunderstood) questions I hear from business owners is: “Should I Register for VAT?” It’s not just a bureaucratic box to tick. Getting it right (or wrong) can have profound implications for cash flow, pricing, and compliance.

In this article, I want to walk you through:

1. When VAT registration is required (the threshold)

2. When voluntary registration makes sense

3. The pros (advantages) and cons (disadvantages) of registering

4. How to register with SARS

5. Strategic tips for SMEs as they grow

1. Understanding the VAT Registration Thresholds in South Africa  

Compulsory Registration

  • According to SARS, a business MUST register for VAT if the value of its taxable supplies (i.e. goods or services subject to VAT) exceeds R 1 million in any consecutive 12-month period.  
  • Even if you haven’t hit R 1 million yet, a written contract that obliges you to provide taxable supplies totaling more than R 1 million within a 12-month period triggers the same requirement.
  • Once you cross that threshold (or have a binding contract), you need to apply for VAT registration within 21 business days.
  • For non-resident suppliers (especially of certain electronic services), there are also specific VAT registration rules once R 1 million is exceeded.

Voluntary Registration

  • Even if you do not reach the R 1 million mark, you can choose to register voluntarily. SARS allows this when your taxable supplies in the prior 12 months have exceeded R 50 000.
  • There are other conditions too, such as expected expenditure (e.g. capital goods) or contracts in the pipeline.
  • Important: for voluntary registration, the liability date (i.e., when you officially become a VAT Vendor in SARS’ books) is typically the date you apply. Backdating is more limited than for compulsory registrations.

2. Pros (Advantages) and Cons (Disadvantages) of Registering for VAT

Before you decide to register, it’s worth weighing the benefits and the trade-offs. Here’s what I advise my SME clients.

ADVANTAGES (Benefits):

1. Input Tax Credit

  • When you’re VAT registered, you can claim back VAT (input tax) on your business expenses – things like equipment purchases, rent expense, office supplies, or stock – as long as your suppliers are also VAT registered. This can be a significant saving.

2. Improved Credibility

  • Being VAT-registered often lends more credibility to a business, especially when dealing with larger companies or corporate clients. It signals that you’re serious, established and compliant.

3. Cash Flow Opportunities

  • If managed well, VAT can actually help cash flow: you collect VAT from your customers and only pay SARS the net (what you collected minus your input VAT). For capital-heavy businesses, this may help cushion cash flows.

4. Compliance and Avoiding Penalties

  • If you should be VAT-registered but aren’t, SARS can register you automatically once they detect you’ve crossed the threshold. They could backdate your VAT liability, which would create a sudden (and possibly large) VAT liability, plus penalties or interest. By proactively registering, you avoid future negative surprises.

DISADVANTAGES (Drawbacks / Risks):

1. Administrative Burden

  • VAT registration comes with additional paperwork: you’ll need to issue tax invoices, maintain detailed VAT records, track input credits, and file regular VAT returns.
  • Depending on your size, you may need to file monthly or bi-monthly.

2. Cash Flow Risk

  • While VAT can help, it can also hurt if your (credit) customers are slow to pay. You collect VAT on sales, but if a big invoice is late, you still owe SARS.
  • For voluntary registrants especially, VAT payments could tighten cash flow unless carefully managed.

3. Cost of Compliance

  • You might need ACCOUNTING software (or more sophisticated accounting), training, or even accounting services just to handle VAT properly.
  • Mistakes can be costly: incorrect returns, failure to claim input correctly, or late submission may attract penalties.

4. Potential Pricing Complexity

  • When you add VAT to your prices, clients may balk (especially end consumers). You may need to decide whether to absorb VAT or pass it on, and how that affects your competitive positioning.

5. Threshold Inertia

  • The R 1 million threshold hasn’t changed in many years, despite inflation. Some SMEs argue that it places an increasing burden as costs rise but the threshold remains static.

3. How to Register for VAT (Step-by-Step)

Here’s a practical roadmap for SMEs wanting to register for VAT with SARS:

1. Determine Your Liability Date

  • Monitor your rolling 12-month taxable supplies closely. Use your accounting system to run a 12-month sum at the end of every month.
  • If you foresee crossing R 1 million, calculate when that liability starts (first day of the month when your 12-month sum exceeds the threshold).
  • If you have a contract obligating you to exceed R 1 million in the next 12 months, your liability may begin earlier – potentially at the start of the contract.

2. Prepare Documentation

  • Complete VAT101 – the SARS VAT registration application form.
  • Gather supporting documents: your financial statements, invoices, bank account details, proof of enterprise, and possibly contracts.
  • For non-resident electronic suppliers, you may need to send your VAT101 via email (specific SARS address) with attachments.

3. Submit the Application

  • You can apply via SARS e-Filing, or book a virtual appointment (video or phone) with SARS.
  • Alternatively, in some cases you may need to submit in person at the SARS branch nearest your business (or have a tax practitioner do it).
  • Submit within 21 business days of becoming liable.

4. Wait for Your VAT Number

  • SARS generally processes applications within 21 business days if there are no risk issues.
  • When approved, you’ll receive a VAT-registration number. If you’re e-Filing, you’ll receive your Notice of Registration via your e-Filing profile or email.
  • If issues arise or you need to backdate your liability date by more than 6 months (for compulsory registration), you may need to provide financials, contracts, or invoices to SARS in person.

5. Comply Going Forward

  • Once registered, you must charge the correct VAT rate (standard rate is 15% in South Africa)
  • Issue proper tax invoices to clients, especially when you are dealing with other VAT-registered businesses.
  • File VAT returns on time (monthly or bi-monthly depending on your VAT “vendor category”) and remit the net VAT amount to SARS.

4. Strategic Considerations for SMEs

As an Accountant advising SMEs, I often suggest thinking not just about “can I register” but “should I register now – or later?” Here are a few strategic tips:

1. Project Your Turnover and Cash Flow

  • Run cash-flow forecasts that include VAT: simulate how much VAT you’ll collect, how much you’ll pay to SARS, and how customer payment delays might affect you.
  • If you’re close to R 1 million, plan for the VAT Liability in your pricing strategy.

2. Evaluate Your Cost Base

  • If you have large VATable purchases (capex, stock, equipment), a VAT registration could drastically reduce your net costs through input credits.
  • Conversely, if your business model is “low inputs, low margins”, the administrative burden may outweigh benefits.

3. Negotiate With Clients

  • Let your customers know when you will start charging VAT so they can plan. Larger clients may be more comfortable with VAT invoices; SMEs or consumers may not be.
  • Consider whether to absorb VAT (i.e. not pass the full 15% to your clients) or build it into your pricing.

4. Leverage Professional Help

  • Get your Accountant or Tax Advisor to help you apply. They can ensure you complete the VAT101 correctly, gather the right documentation, and choose the right liability date.
  • Once registered, consider using accounting software that supports VAT tracking, or outsource your VAT return preparation if it’s not your forte.

5. Monitor Regulatory Changes

  • Even though the VAT rate is currently 15% tax policy can change – stay alert to budget announcements (by the Minister of Finance, usually addresses the country with regards to budget pronouncements early in the year around February for the main yearly budget and again around October/November for the medium-term budget policy statement (MTBPS) ) and SARS updates.
  • The R 1 million threshold has remained static for years despite inflation, and there is discussion (among commentators and tax payers) about whether it should be adjusted.

5. In Conclusion

VAT registration is a pivotal milestone for many growing SMEs in South Africa. While the R 1 million compulsory threshold is a clear line in the sand, the decision to register voluntarily below that limit is more nuanced. As an Accountant, I advise business owners to weigh not just the legal requirement, but also the cash flow implications, the benefits of input tax credits, and the administrative burden of compliance. 

If you’re approaching the threshold, or you’re evaluating whether voluntary registration might give you a strategic advantage, it’s worth having a detailed conversation with your Accountant or Tax Advisor sooner rather than later. With the right planning, VAT can be less of a burden – and more of a tool to support your business growth. 

IF you are a SMALL BUSINESS OWNER OR ENTREPRENEUR who would like the services of a professional accountant to advise your business then do not hesitate to contact UAN Consultancy Services (Pty) Ltd TODAY through the following avenues:

Dedicated Business Email Address: PeterN@uanconsultancyservices.co.za

Dedicated Business WhatsApp Line: +27 (0) 84 915 2289

Reach our Executive Director through LinkedIn Portal: Uaripfa Peter Nemukula CBAP