Pharsyde is doing a series of blog posts designed specifically to raise awareness with regards to statutory submissions. Business ownership overs a wide-range and long list of responsibilities and it is not uncommon for a small business owner to be unaware of the extent of his legal requirements. These posts cover the common statutory submissions: what they are, why they exist and when they are due. If you need more detail about a specific submission or help in getting it right, please give us a shout – we would be happy to go through them in detail with you.
Once your business has reached sales of R1 million or more in a twelve month period, you are required to register for VAT – Value Added Tax. Please note that this is a legal requirement, so not registering for VAT after your business reaches the R1 million threshold is actually a criminal offence.
The most important thing to remember about VAT, is that it never belongs to you or your business. That extra 15% that you add to your invoices belongs solely to the government.
Because VAT is ultimately a tax on the end-user, you are allowed to deduct any VAT you have paid off any VAT you have charged before you make payment to SARS. But – and I cannot stress this enough – the value that is left as owing to SARS belongs to them and it is a criminal offence not to pay it over.
VAT is therefore one of the more important of your statutory submissions to know and to get right.
Your VAT return is due every two months. The due date depends on your date of registration. If you were registered for VAT in a March, then your first return will be for March and April and will be due by the end of May. May and June will then be due at the end of July – and so on and so forth.
VAT works on the accrual or invoice system – this means that the value of the VAT owed to SARS is worked out according to your invoice dates – not your payment dates. It is important to be aware of this and to plan your cashflow around it, because occasionally you will have a situation where you have to pay the VAT on an invoice for which you have not yet been paid.
SARS does not really care if you have not yet been paid and there is no leniency for you if your VAT return is late purely because your client’s didn’t pay you. I’m afraid it is up to you to manage your cashflow in such a way that you are able to pay your VAT regardless of who has or has not paid you.
If your VAT return is late, SARS will charge a 10% late penalty and will charge interest on the VAT for as many days as it is overdue. Because of the fact that VAT always belongs to SARS and never belongs to you, SARS is not very forgiving or kind when it comes to late or non-payment of VAT returns.
What does this mean for you as a business owner?
Read your VAT registration document very carefully so that you are sure you know which months you need to submit and when they are due. Traditionally, the return is due on the 25th of the month, but if you are submitting via efiling, SARS allows you to submit by the last working day of the month instead. Remember: the last working day. If the last day of the month falls on a Saturday or Sunday, then the return and it’s payment is due the Friday before.
I know that cashflow management is very difficult for a small business, but as far as it is possible we recommend this action: on the same day that you issue an invoice, take the 15% VAT out of your business cheque account and move it to a business savings account. This way, when your VAT is due, you will always be able to pay it.
You need to declare three different kinds of items on your VAT return: standard-rated items (VAT at 15%), Zero-rated items (VAT at 0%) and exempt items (no VAT). So it is important to learn about the different tax types and – more importantly – it is vital that you learn which expenses you can and cannot claim VAT on. The full SARS VAT guide can be found here.
Want help with your VAT? Give us a shout to discuss how we can assist you.