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Thread: New CC vat registration

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    New CC vat registration

    Hi.

    I am currently registering a New CC and starting my first business. I would like to know firstly, do I need to register for VAT immediately, or when will be the best time to register for VAT. Also is there any guides to VAT that i can peruse over to get a good idea on vat as well.

    Kind Regards

    Wikus

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    just me duncan drennan's Avatar
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    Hi Wikus - welcome to the Forum!

    The "best" time to register is very dependant on your business. You must register for VAT if your turnover exceeds R300k in any twelve month period.

    If you know that your turnover is going to exceed R300k in the first twelve months then you might as well register now. If you have a decent accounting system which tracks your input and output VAT properly then the admin side of VAT is quite easy - just make sure you keep that money aside and don't spend it. You are just holding it on SARS' behalf until you pay it over.

    The best place to start with VAT is SARS' VAT Vendor guide. There is a link to the guide on the brief VAT Wiki page.

    Here are all the SARS VAT publications.
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    Platinum Member Chatmaster's Avatar
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    If you have a new business you will probably have to look at the type of business you have. My businesses are service related and I hardly claim any VAT back, however in order to tender for certain projects I need to be VAT registered. Giving away 14% of your money is not that great if you cannot claim some of it back at least. So unless you do not have to register for VAT or your business is in the buy and sell game, avoid registering for VAT when you have a new business. Just my quick opinion as I am pressed for time.

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    just me duncan drennan's Avatar
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    Quote Originally Posted by Chatmaster View Post
    Giving away 14% of your money is not that great if you cannot claim some of it back at least.
    But you are not giving away 14%, you are charging an extra 14% on top of your sales price. The final purchaser is the person who pays VAT.
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    You are right, that is why I stated unless you are in the buy or sell game. If you purchase products and sell it at a profit, you have an edge if you can claim the VAT back on your purchase price. With my workshops, my price didn't increase after I registered for VAT it remained the same as the advertised price is supposed to include VAT, I am paying that 14% with great pain. Honestly there are no benefits in registering for VAT if you do not have to. I also doubt if there is any status in being VAT registered. But maybe that is just me.

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    just me duncan drennan's Avatar
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    Quote Originally Posted by Chatmaster View Post
    I am paying that 14% with great pain.
    Ouch.

    Quote Originally Posted by Chatmaster View Post
    Honestly there are no benefits in registering for VAT if you do not have to.
    The benefit is if you have to pay VAT to suppliers. If you are not VAT registered it effectively makes all your purchases 14% more expensive.
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    Affectively my "suppliers" is about 5% of the total. It is expenses to the venue, catering and printing. The rest of the costs are about 2 weeks of my time to recompile before each course and then obviously the time to facilitate. Sadly, in comparison my expenses do not remotely make it worthwhile to be VAT registered.

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    OK, I have a little bit more time now and would like to discuss this issue in a bit more depth.

    Registering for VAT is only good and healthy for your business if your business is legally required to register for VAT. As Duncan said if your turn over is more than 300k a year. A new business seldom earn that figure and no matter how you look at it, you loose if your business does less than 300k. You will always pay VAT to SARS and the amount you claim back will be less than the amount you pay.

    Here is the situation

    You have a Non-VAT registered general dealer and the products you purchase includes 14% VAT already. That means that your profit you add to the amount are added on-top of the amount already taxed. So if your purchase price is R114 it means your profit will be loaded on top of that price. Lets say you choose for your profit to be 30%. Your selling price (which does NOT include VAT) will be R34.20 more at R148.2. This means your profit is R34.20 as you do not pay any more VAT to SARS.

    You have a VAT registered general dealer and the products you purchase includes 14% VAT already. That means that your profit you add to the amount minus VAT. Therefore your selling price for the product will be R100(Purchase price minus VAT)+R30(profit)+R18.20(14%VAT) total R148.20. Your profit is R30. As you can see the selling price is the same BUT you made R4.20 less profit because you are VAT registered.

    Another factor that plays a small role depending on the business is other expenses and operating costs for which you can claim VAT back. Generally this is such a small amount that it doesn't impact positively on your VAT vs profit. Generally you always end up paying VAT to SARS regardless.

    The reason many larger business requires you to be VAT registered is the fact that they already have a turnover exceeding R300k a year and are VAT registered anyway. All it means is that they now can at least claim the 14% they pay to you back from SARS, which makes a big difference in their profit margin. That nonsense you hear from others that they take you seriously if you are VAT registered is not true. The reason is plain and simple maths that means if you are not 14% cheaper than your nearest competitor they loose money.

    Avoid registering for VAT until your turnover requires you to do so, imo you can not benefit financially from being VAT registered.
    Last edited by Chatmaster; 17-Jul-08 at 09:17 AM.

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    Quote Originally Posted by Chatmaster View Post
    Honestly there are no benefits in registering for VAT if you do not have to.
    ...If you are in the service industry with low claimable input costs.
    Quote Originally Posted by Chatmaster View Post
    Avoid registering for VAT until your turnover requires you to do so, imo you can not benefit financially from being VAT registered.
    Another factor is the nature of your clients. If they are nearly all private individuals or otherwise not registered as VAT vendors, VAT is a handicap.

    However, if your clients are all registered VAT vendors, it is worthwhile registering for VAT no matter how small your input VAT claimable figure is. Whatever VAT you can claim as an input is to your competitive advantage in this scenario.

    Thinking about it, the change in the threshold is going to cause a big shift here.

    One other comment on the original question - With a new business that hasn't started trading yet, you are going to have to satisfy SARS that you will be doing the kind of turnovers that qualify for registration as a VAT vendor. Just what that might entail really depends on the nature of the business.
    The trouble with opportunity is it normally comes dressed up as work.

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    Platinum Member Chatmaster's Avatar
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    Quote Originally Posted by Dave A View Post
    ...If you are in the service industry with low claimable input costs.
    Dave, I am not nearly as experienced as you are on the topic, but I have my share of experience in non-service industry businesses, imo this is also true for most other industries. The only reason you might consider registering for VAT is if, as in my case, you need to tender for bigger deals or deal with VAT registered companies where they require you to do so.

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