VAT Registration

[NibbleIT]

Morning all

I've got a question about VAT registration as a sole trader.
I started a small IT business a few months ago and tried to register with SARS for VAT.
When I applied I needed to supply them with customers invoices to prove I am a legal business, apparently they no longer accept cashflow projections, this was obviously impossible as I just started the business so my application was rejected.

My question is, now a few months down the line and I'm a few invoices richer, would it be better to try this application as a sole trader again or buy a cc/pty shelf company and submit my VAT application again through the cc/pty. I'm not sure if this would be a bit easier doing it as a registered company or would it be the money worth in maintaining the company as this is not my full time job but only something I've started on the side. Anyone with experience/tips on applying for VAT, please give your opinion as I've heard its a bit of a nightmare trying to apply for VAT these days

Thanks for your time

Andre

[Dave A]

I strongly recommend you use a CC or other incorporated entity to register for VAT.

[Pap_sak]

Well, I guess there are reason you would want to be registered - but eish, I would avoid if you can, you take quite a hit on your margins, but I guess if you mainly supply B2B, then it's probably a good thing. Just do your sums first. I'm a sole prop and they happily gave it to me (as much as I made it quite clear that if they found a reason not to give it to me then don't!), I still like being a sole prop, it does make life easy with the paperwork.

[Dave A]

The problem I see with being VAT registered as a sole proprietor is it starts invading other "non-core" business areas of your life. For example, if you invest in a property to rent it out, you have to charge VAT on that rental. Maybe no problem if it's an industrial property and the business renting the space can claim the VAT back, but if it's residential the only winner is the tax man.

[FritzG]

Remember that the VAT Act states that when you reach the threshold and you are not registered for VAT, you automatically will be regarded as a vendor and need to register within 28 days. Usually what happens then is that vendors need to include VAT on their invoices even before they are registered - this is only when regarded as a vendor! In most cases the client didn't know this and then need to register back-dated and then which mean issuing new invoices with VAT to customers who already paid and wouldn't like to pay a additional 14% afterwards, or the flipside is that the original invoice issued will otherwise be considered as inclusive and you will have to fork-out the 14% yourself. This cause huge cash flow problem not to mention the penalties and interests.

For something on the side, you must consider the cost involve to trade through a legal entity as they usually are more expensive to service than a sole prop (appointing an accountant/auditor), but there are reasons why these forms of entities exist and not all businesses are done in sole props!

I would suggest talking to your accountant who could help you with proper tax planning, choosing the correct business vehicle and very important, guide you on what you need to know about VAT when registered as a vendor.

[FritzG]

Yes, if you don't need to register for VAT, don't. Unless you lose business because of the fact that you're not a vendor. The regulations for registering have nothing to do with, if you're a sole prop, cc or pty. In either case they require supporting documents to substantiate that you meet the requirements for either compulsory or voluntary registration. Thus, if you start a cc or pty now, you still have to proof your turnover.

[NibbleIT]

Hi all

Thanks very much for everyones responses, this has given me quite a lot to think about.
I have two definite choices now, either keeping my sole tradership without the VAT or going all out and getting the CC and VAT registration.
Either way I'm definitely going to see my accountant before doing anything rash!
Thanks again for the adivce, its been super helpful

[BusFact]

Why is it that you want to register for VAT?

[NibbleIT]

I've just noticed that small businesses are more inclined to trade with you if you are VAT registered so that they can claim it back. If it wasnt for that I would never have had to register for VAT

[BusFact]

I've just noticed that small businesses are more inclined to trade with you if you are VAT registered so that they can claim it back. If it wasnt for that I would never have had to register for VAT

I find that surprising. It doesn't really make much difference to them. If you charge R100 with no VAT or R114 with VAT, its still the same ultimate price to them. I know thats a bit over simplified and that there might be a bit of a price benefit in the B2B chain, but the difference should hardly be affecting their decisions.

Perhaps they just like the idea that a VAT registration gives you some sort of credibility, which I suppose it does. SARS will check that you have actually conducted a certain amount of business before they give out the number. The only problem for the start up is that they actually have to do that turnover. SARS have become stricter in their processes, so they will only deal in historical confirmed figures, rather than mere promises.

[Perform Computers]

I'm in the same boat where I have my own sole prop IT Company. I am not VAT registered and I don't have a CC.

I would first get a CC, just looks more professional. Companies see that you did a bit of effort on your part & it makes it look that you take your business seriously.

I've had clients say, "Oh we see you do not charge VAT" in the past, and I just say, "Yes, I'm a sole prop". Some companies like to claim the VAT back, but if you're service is excellent and you there when they need you & you fix things first time round, then the VAT issue doesn't really phase them. I'm in Cape Town so obviously service is everything for companies.