Amended Vat threshold 1 March 2009

[Sieg]

Section 23 of the Value Added Tax Act says that if I carry on an enterprise then I have to register that enterprise for Value Added Tax if the total value of taxable supplies in a 12 month period exceeds R1 million.

This will apply with effect from 1st March 2009.

So, if I am starting a new enterprise as of 1st March 2009 and I know that my turnover (in vat terms) will be less than one million Rand for the next year, then does it make sense to register for VAT?

Those of us who have been bothered with VAT in a business know that hassle: vat returns every two months, cash flow to pay in time, being the Receiver's little tax collector, invoices not paid but still having to account for VAT and so on. One wonders if the VAT paid on expenses that one can deduct, is worth all the headache. Then I also thought: If I do not have to charge VAT on my product or services, then I will be cheaper than my competitor.

So, is it going to be worth my while to start a new "enterprise", fresh and clean, as of next week Monday?

Sieg

[Dave A]

You could surely deregister the existing business instead of starting a new biz. (?)

[Debbiedle]

Sieg - why not look at your VAT returns as being the tool that ensures that you keep a tight control on your admin, sales, expenses, cash flow etc. Being in control of this gives you power. IMHO if you can save R2000 a month because of being VAT registered AND you take that R2000 and pay a freelance accountant to come in once a week AND you get all the stats and reports that you need to help your business grow at your fingertips and up to date...why NOT?

[Yvonne]

There is the perception of credibility if you are registered for Vat.

I too hate the hassle of the Vat returns etc. but I would definitely register for Vat, unless in your specific business the client is unable to claim back the Vat!

If you were far more successful than you expected, you will be liable for the Vat, without the ability to recover the Vat from past invoicing, if you should exceed the threshold for registering for Vat.

So you would have to "close" that business if you got near the threshold and start another business!

Depending on your costs involved, not registering for Vat increases your own costs as you cannot claim reimbursement of Vat incurred by your business.

For interest sake, some U.S. States acknowledge that business is entitled to retain a % of the Vat (at a fixed rate! accross the board) as they are acting as Government agents and have a right to be rewarded for their costs in carrying out the work of a Government Agency!
There is an argument there as very large corporations don't incur the same costs as does small business in relationship to the actual value of the "pay back" %

Yvonne

[Dave A]

For interest sake, some U.S. States acknowledge that business is entitled to retain a % of the Vat (at a fixed rate! accross the board) as they are acting as Government agents and have a right to be rewarded for their costs in carrying out the work of a Government Agency!

And in the USA it's GST, not VAT - far less admin involved.
I really like that idea!

[duncan drennan]

And in the USA it's GST, not VAT - far less admin involved.
I really like that idea!

Less admin in the USA? I'm not even sure if anyone there understands how their sales tax works. To me the VAT systems seems far less complicated and the admin is really easy with a decent accounting package.

[Dave A]

I'm not even sure if anyone there understands how their sales tax works.

That's just begging for a sarky comment

GST is a straight turnover tax on the final sale. It's not a federal tax and rates vary from state to state. Some states don't have it at all and the rate is pretty low in most states that do have it.

We used to have GST here, and believe me it was easier to administer than VAT.

The main advantage with VAT is it collects the tax at multiple points, in theory reducing the effect of "cheating," and probably the main motivation in our change to the VAT system.

I have to agree that accounting packages make either system fairly painless nowadays.

[Marq]

I agree with all the above.....

The admin is lousy but it keeps the integrity of your accounts intact.

I think though that Sieg hit one of my issues which would make me think twice about registering for vat.

You can be more competitive with your pricing.

The rates in our business are fairly market driven, price sensitive and similar across regional and local areas - similar to most business's I would imagine. So my rates, the same as my competitors, have to include vat. Although this is a selling point to corporations who are registered, the majority of buyers do not understand vat and are just looking for the best price, whether it is vat inclusive or not.
My competitors are able to offer discounts and specials and undercut my rates, in order to boost their business. I am already short in comparison to them on my bottom line..to give more away in specials just to rope in additional business is not necessarily the way to go.
Also there is always the potential of a tax audit and more aggravation.

Which is why one should be careful, when de-registering a cc or company from vat. I was told by a lady in the vat office that this is one of their triggers to come looking. Rather keep the existing business 'alive' and slowly get the numbers to zero - after a years worth of nil returns they may de-register you themselves and just hope you go away.

[Yvonne]

Glad to see that I am not alone in making "errors of assumption".

Quoted prices in the U.S. are always EXCLUDING the Gst.

As the rate is legislated by the county! not even the state!
A person in the U.S. is extremely aware of the sales tax, due to the fact that it varies so much.
If making a substantial purchase, they will drive the distance to another county in order to pay a lesser tax, there are sales tax "holidays", so I can vouch for the fact that they "know" more about sales tax than quite a few South Africans.

Personally I did not like the add on tax, as I frequently forgot to calculate the extra cost, I prefer "the price you see - is the price you pay" situation, but at least all advertised and quoted prices are judged as equal, and county's will do all they can to keep their GST as low as they possibly can, to ensure business and the public do not vote with their feet!

Yvonne

[duncan drennan]

GST is a straight turnover tax on the final sale. It's not a federal tax and rates vary from state to state. Some states don't have it at all and the rate is pretty low in most states that do have it.

We used to have GST here, and believe me it was easier to administer than VAT.

Even I remember that we used to have GST

I suppose my comment was more directed at the many levels of tax that the USA has, rather than the particular administration of a sales tax. I found their sales tax to be in the 8-10% range, but my understanding (based on a number of conversations) is that there are about 3 different taxes built into that (county, state, who knows what else).

When sales tax was administered was also a whole other story. If the company had offices in your state, then you had to pay sales tax, but if they were out of state then you didn't. In some cases certain stores wouldn't charge sales tax (not sure if that was based on location or item bought, e.g. buying a bagel in a train station versus out of the station).

It just seems to be such a multilayered tax system that I am sure the administration could present....challenges. I suppose because it is GST then you just pay 3% of turnover to this agency, 2% to that agency, and the other 3% to another agency. The only complication is figuring out and keeping track of what is taxed and what isn't (and who gets it).

[duncan drennan]

Those of us who have been bothered with VAT in a business know that hassle: vat returns every two months, cash flow to pay in time, being the Receiver's little tax collector, invoices not paid but still having to account for VAT and so on. One wonders if the VAT paid on expenses that one can deduct, is worth all the headache. Then I also thought: If I do not have to charge VAT on my product or services, then I will be cheaper than my competitor.

So, is it going to be worth my while to start a new "enterprise", fresh and clean, as of next week Monday?

Surely it all depends on the percentage of your business that is VAT registered. Any VAT registered customer continues to pay the same amount, while a non-registered customer would effectively get a cheaper rate.

In terms of the VAT on invoices versus payments (accrual versus cash basis). My wife is VAT registered in her personal capacity, but is registered on a cash basis. If the registered entity is a natural person with taxable sales under R2.5mil then you can register on a cash basis and only pay when the money actually hits your bank account (and likewise, only deduct when it leaves your bank account).

We're definitely going to deregister her, as there is one client who will only pay a certain fixed amount which resulted in a loss of profit for all of those cases. The benefit of claiming expenses is less than the loss of profit. All the other clients VAT is just added on to the actual cost.