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Thread: Charging 14% VAT

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    Charging 14% VAT

    Hello,

    I couldn't find an answer on this forum. Apologies if the question was answered before.

    I'm busy starting a small business on my own after withdrawing from the previous CC (transferring my interest in CC to the other members).

    I already have got some clients and I predict the annual turnover will likely be slightly less than R1-million at the end of the business year. I don't want to register VAT now until the turnover reaches the threshold.

    The question is:

    Should I add 14% VAT on every tax invoice issued by the company because the company will have to pay R 140 000 in VAT if the turnover reaches the R1-million mark?
    Last edited by anakin; 16-Jul-09 at 10:24 PM.

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    Site Caretaker Dave A's Avatar
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    My suggestion:

    If you take the R1 million per annum, that works out at R83 333.33 per month. Once you do a month over this (or maybe 3 months if you think it might have been a flash in the pan), that's the point where you should probably think about registering.

    Logically the more unstable your income, the more unpredictable the right point would be. What you really need to watch for and where you could be caught off guard is if you end up with a 12 month period showing turnover over R1 million and you haven't registered yet.

    I suppose if you want to be really precise, keep track of a rolling 12 month total of your turnover every month.
    The trouble with opportunity is it normally comes dressed up as work.

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    That would be illegal, an invoice can only state VAT INVOICE. If your company is Vat registered.

    You have a choice. Not registered for Vat. Risk the possibility of paying 14% out of the company.
    You could add 14% to your charges but not list it as Vat.
    However, not being registered for Vat increased your own costs as you may not then claim back any Vat paid by you for your own costs on purchases.
    You will be surprised how the input vat mounts up.

    If there is any possibility whatsoever that your business will reach the ceiling where Vat is liable during the financial year, you should register for Vat from the get-go.

    I always have had the belief that a business registered for Vat has some credibility, when I notice that a company is not registered for Vat, I generally consider another supplier.
    Sorry, but that is the truth.
    I use some very small constractors (Labor Lawyers, SAQA/SETA consultants etc.) who are not Vat registered, but would never purchase any substantial amount from a non-registered business.

    Yvonne

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    From my experience in the previous company, we registered for VAT as soon as an agreement with advertising agency was signed with specified amount. The invoice was sent 1 month later with VAT number on. The previous CC's profit margin could be about 65% if there were no unneccesary problems.

    I agree with Yvonne that the clients tend to prefer VAT-registered suppliers.

    Here is a little bit more information about my company to be established.

    Staff:
    Just one at the moment, but will likely have to expand in the future.

    Services:
    Visual Effects for Film and TV Commercials
    Animation for film, TV commercial and educational websites - online visual dictionary for example.
    Buy books (wrote and illustrated by myself) from Publisher and sell it to Provincial Government departments (Reseller)
    Multimedia & interactive Programming
    Design

    Type of Business Entity:
    I'm considering what business entity to use. The company-to-be doesn't qualify for PSP company as annual turnover from the same client will not be exceeding 80%.

    Does Sole Proprietorship qualify for SBC tax? (under R14-million) If yes, does the 10% STC apply to proprietorship as well?

    Here is my little TAX strategy to minimise TAX burden... please let me know if that's completely legal.

    Tax strategy:
    * Use Presumptive tax/Small Business Turnover Tax
    The effective tax rate will be 3.8% if the turnover is R 999,999 and then move on to SBC tax.

    Risk: Less credibility to local clients. No VAT to offshore clients anyway... 80% of my clients are offshore.

    * Take out tax free salary - the current maximum tax free salary is R 54,200 p.a.

    Risk: If as CC, no personal tax returns?

    * Distribute the rest as Dividend
    Is there any limit on Dividend per annum?

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    Site Caretaker Dave A's Avatar
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    By my understanding you have to have the trading entity in a corporation of one form or another to be able to claim SBC benefits.

    As a general principle it's always good to keep a business in its own legal entity anyway for a multitude of reasons.

    When you are a one person business, trading as a sole proprietor is OK (and the way I started out). But the moment you hire staff or you need/decide to register for VAT I strongly recommend you incorporate the business.
    The trouble with opportunity is it normally comes dressed up as work.

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