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Thread: Registering for VAT when earning commission??

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    Registering for VAT when earning commission??

    Am I missing something: is someone who earns commission, and receives an IRP5 yearly, supposed to register for VAT?

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    Bronze Member Beancounter's Avatar
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    Did a client ask you about his "VAT" meaning his Income Tax? I get that all the time.

    A person may well be trading (individual or company) and may also receive IRP5's. Refer Personal Service Providers and Independent Contractors. If the trading income exceeds R1m per annum, they will be obliged to register for VAT. It becomes tricky when they receive IRP5 and trading income for which they prepare financial statements. They still have to charge VAT, the net amount excluding VAT will be reflected on the IRP5 and PAYE will be calculated on that amount.

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    Did a client ask you about his "VAT" meaning his Income Tax? I get that all the time.
    No, I have his VAT103 in front of me, he is definitely registered for VAT.

    If the trading income exceeds R1m per annum, they will be obliged to register for VAT.
    The only income that he earns is his commission. Is that seen as trading income? This is also not a case of an independent contractor.

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    Bronze Member Beancounter's Avatar
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    First of all, give SARS a call to establish whether the VAT registration is still active. He may have traded some time ago and never cancelled the registration when he took up a job and started working for commission. SARS could have cancelled the registration due to no trading income being declared. If the registration is still active, there may be returns outstanding.

    VAT registration is applicable to businesses including sole proprietors, partnerships, trusts, companies etc. If he is not carrying on a business anymore but is now an employee earning commission, then his income is no longer subject to VAT. In that case he may want to cancel the VAT registration using form VAT123. He will have to declare whether he stopped trading or sold the business and supply relevant required information. All outstanding returns will have to be filed and any outstanding assessments paid.

    If he chooses to retain the VAT registration number, the bi-monthly nil returns will have to be filed continuously. SARS may however opt to cancel his registration due to non-trading.

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    Thank you for your feedback Beancounter.

    The taxpayer was only registered last year, and is still active.

    So you agree with me that he cannot be registered based on the fact that he receives commission income only?

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    The commission is not earned in the "furtherance of an enterprise" and therefor falls outside the scope of the VAT act.

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    Beancounter (25-Jul-14), dellatjie (25-Jul-14)

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    Thank you Clive.

    I had it that way too, but met up with an old colleague recently, but she differed with me, saying that he should be registered, which made me doubt myself.

    Quite an adjustment not having a partner to run to and ask if you are unsure about something...

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