Understanding the Consequences of late VAT Registration
As tax professionals, we often see clients who miss VAT registration deadlines. This usually happens because of oversight or misunderstanding. When a client has not registered for VAT, it is important to address compliance issues. We also need to help the client manage their worries about penalties and unpaid taxes.
This article provides simple steps to help you with the process. It also explains what can happen if you register for VAT late. Knowing the procedure and the relief options can help clients avoid extra penalties and stay compliant.
What are the VAT Registration Requirements?
When it comes to VAT, businesses need to know when to register and what steps to take. Here’s a simple breakdown of the main VAT registration rules from the VAT Act, 89 of 1991.
When is it Mandatory for a Business to Register for VAT?
A business must register for VAT if its taxable sales exceed R1 million in a year. This requirement is stated in Section 23(1)(a) of the VAT Act. Registration must happen in the month after the threshold is exceeded. If a business does not register, it will be non-compliant.
When and How Does SARS Register a Business?
If a business applies for VAT registration, the South African Revenue Service (SARS) will review the application. This can be for compulsory or voluntary registration. Once they are satisfied, SARS will set the official start date for VAT registration. This is stated in Section 23(4)(a) of the VAT Act. In some cases, SARS may backdate the registration. This means the business must account for VAT from that earlier date.
Who Is Considered a VAT Vendor?
A "vendor" is any person or business that must register for VAT, even if they haven't yet (Section 1(1) of the VAT Act). If SARS discovers that a business should have registered earlier, it will still be seen as a vendor. VAT will be owed from the date it was first required to register.
What Happens if a Business Doesn’t Register for VAT?
If a business does not register when it should, SARS can register it (Section 23(4)(b) of the VAT Act). This means the business will be considered registered from the date it should have registered. VAT will be owed from that date, even if VAT was not charged on earlier sales.
What Happens After VAT Registration?
Once a business registers for VAT, it must charge VAT on its sales. The current VAT rate is 15% (Section 7(1)(a) of the VAT Act). Some sales can be zero-rated or exempt, but most taxable supplies have the standard rate.
What are the Consequences of Late VAT Registration?
Missing the VAT registration deadline can lead to serious problems. Here’s what to expect and how to help your clients:
Will VAT Be Backdated?
SARS may backdate the registration. This means VAT must be paid on all taxable supplies since the registration date. Even if the business did not charge VAT on those sales, it still needs to calculate the VAT owed. This calculation uses the tax fraction (15/115) based on the total sales made since the liability date.
Penalties and Interest
Interest will be charged on late VAT payments, and SARS usually does not waive this interest. Also, unpaid VAT will have a 10% late payment penalty. In some cases, this penalty may be waived if there are good reasons. This is especially true if the business applies through the Voluntary Disclosure Programme (VDP).
What Actions should you take
Determine the Date of VAT Liability
The first step is to find out when the business went over the R1 million limit in a year. The business must register for VAT starting on the first day of the month after reaching this limit. For example, if the business exceeds the limit by 31 March 2022, the VAT starts on 1 April 2022.
Complete the VAT Registration Process
You must register for VAT using SARS e-filing. To avoid delays, make sure you submit all the required documents correctly. You can find a step-by-step guide for VAT registration on the SARS website.
Apply for Voluntary Disclosure Relief (VDP)
If a business registers for VAT voluntarily, it can apply for VDP to lower penalties. To get a 10% penalty waiver, start the VDP process within 21 days of receiving the VAT number.
Note: VDP only applies if the business chooses to disclose the issue. It does not apply if SARS finds the registration requirement.
VAT Liability After Registration
When SARS backdates a business’s VAT registration, the business must pay VAT on all sales from that date. The VAT owed is calculated using the tax fraction (15/115) of the total sales amount, even if VAT was not charged at first. However, the business can claim back any VAT paid on goods and services used for those sales (input tax). This amount can be deducted from the VAT owed to SARS (output tax), which helps lower the total amount due.
Summary
Businesses that missed the VAT registration deadline need to act quickly. They must find their VAT liability date and register soon. It is also important to apply for VDP. As tax practitioners, we can help clients with this process. Our guidance can help them avoid costly penalties and stay compliant with the VAT Act.
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