New CC vat registration

[WikusHatt]

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

[duncan drennan]

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.

[Chatmaster]

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.

[duncan drennan]

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.

[Chatmaster]

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.

[duncan drennan]

I am paying that 14% with great pain.

Ouch.

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.

[Chatmaster]

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.

[Chatmaster]

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.

[Dave A]

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.

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.

[Chatmaster]

...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.

[Faan]

I am not in a position to comment on the pros and cons of paying VAT, but if I remember correctly the limit has been raised to R1m per year by Trevor Manual in his budget speach.
I have the situation that most of my expences, about 60 - 70% does not carry vat. For this reason I would like to stay out of it as long as I can

[Dave A]

Dave, I am not nearly as experienced as you are on the topic,

Somehow I don't believe you - it's like when someone starts "with all due respect" - you just know they mean "you deserve no respect"

It's a maths thing and bear in mind the comment is very dependent on whether the bulk of your clients are VAT registered or not.

... if I remember correctly the limit has been raised to R1m per year by Trevor Manual in his budget speech.

Absolutely correct. Now all we need is an implementation date. Apparently the change in threshold has not been implemented yet.

[Chatmaster]

Somehow I don't believe you - it's like when someone starts "with all due respect" - you just know they mean "you deserve no respect"

I assure you that I have tons of respect for you, I also had no other intentions with that wizenut sentence of mine.

[Dave A]

Let's just stick to whether/when it is better to be registered for VAT and when not, before we get all teary eyed
I suspect we've both been through the business mill long enough to have collected the scars

I think one way to understanding when to register for VAT voluntarily (obviously there is a point where the decision is out of your hands) is to look at the VAT collection chain.

Basically Revenue Services is starting to collect VAT from as early as possible in the Value Add chain. Every time you add value, you need to pay VAT to SARS on the price you sell your product or service, less the VAT that has been collected by SARS so far.

At the end of this chain, you ultimately end up with someone who can't claim the VAT that has been collected so far. This is not a problem if this person is at the end of the chain, but you lose efficiency when there is someone breaking the sequence somewhere in the middle. The sequence of deducting all the VAT that has been collected up to that point is broken, and effectively the VAT collection chain starts all over again at the level of the point where the chain was broken!

Ultimately, the winner is SARS - which was probably part of the whole idea behind changing from GST to VAT.

Of course the other big factor in that change was that by only collecting at the end point, the tax collection chain was leaking like a sieve

[duncan drennan]

Avoid registering for VAT until your turnover requires you to do so, imo you can not benefit financially from being VAT registered.

I think that it is important to look at a few different cases. Let's say that all the suppliers are VAT vendors, and then look at the case where the end customer is and isn't registered for VAT. Let's assume that we are selling seats at a training conference. Seats cost us R100/seat (ex VAT) and we want to make a profit of R50/seat.

Case 1: Suppliers and you are VAT registered
Case 2: Suppliers are VAT registered

Hopefully that makes it clear that the cost to the client depends on whether they are able to claim the input VAT.

If you are training business clients to implement SEO in their VAT registered companies, then it is better for them if you are VAT registered. You are able to earn the required profit and are not "penalised" because you can't claim the input VAT.

If you are training private clients then they are "penalised" if you are VAT registered as they have to pay the VAT which they cannot claim back.

To phrase that all differently: if your clients are VAT registered and can claim your supplies/service as input VAT then it is beneficial for them if you are VAT registered.