When may and must a business register for VAT?

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When may and must a business register for VAT?

Taxpayers may register for Value-Added Tax (‘VAT’) on either a voluntary or compulsory basis.  Requirements for registrations are contained in section 23 of the VAT Act, 89 of 1991.

Generally, a taxpayer may register for VAT on a voluntary basis if that taxpayer can illustrate to SARS that its taxable supplies has in the previous 12 months exceeded R50,000, or that it can be reasonably expected that its taxable supplies in the coming 12 months will exceed R50,000 (section 23(3)(b) of the VAT Act).  An exception is contained in the definition of ‘enterprise’ in section 1 of the VAT Act and as relates to taxpayers carrying on an enterprise comprising the providing of commercial accommodation (generally the provision of board and lodging).  These enterprises must illustrate that taxable supplies to be made by it in the coming 12 months will exceed R120,000 (or that it has exceeded that amount in the previous 12 months).

The compulsory VAT registration threshold amount is R1,000,000 and applies to taxable supplies made by a taxpayer.  In other words, if taxable supplies made by the taxpayer in the past 12 months have exceeded R1,000,000, that taxpayer is obligated to register for VAT.  The same applies if taxable supplies exceeding R1,000,000 will be made in the coming 12 months in terms of a written contractual agreement (a rental agreement concluded by a lessor for example).  However, where the R1,000,000 threshold will be breached solely as a result of any of:

  • any cessation of, or any substantial and permanent reduction in the size or scale of, any enterprise carried on by that person; or
  • the replacement of any plant or other capital asset used in any enterprise carried on by that person; or
  • abnormal circumstances of a temporary nature,

then compulsory registration will not be required.  ‘Once-off’ or non-recurring events are thus sought to be disregarded when considering whether an enterprise would have breached the R1,000,000 threshold amount or not.  For example, where a taxpayer whose taxable supplies normally amount to R500,000 for a 12-month period sells the property from which it conducts business for R3,000,000, the sale of that property will be a taxable supply made by the taxpayer, and will result therein that taxable supplies will exceed the R1,000,000 threshold amount for that particular 12-month period.  However, on the basis that such supply of the property may amount to an ‘abnormal circumstance’ not normally associated with the activities of the enterprise, strong arguments would exist to suggest that the taxpayer in this example would not be required to register for VAT.

This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

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