Chapter 13 - Small Business Law
VAT is paid by each producer or distributor who handles the goods before they reach the final consumer, who is usually a member of the public. It is called value-added tax, because tax is paid at every stage where value is added to the product.
When a business is registered as a vendor, it means two things:
If the valuable turnover (the total of all the sales, without subtracting the costs) of a business is more than R1 000 000 (R1 million) per year, then the business must be registered as a vendor by completing VAT 101 and VAT127. When you start a business, if you think the turnover will be more than R1000 000, then you have to register as a vendor.
The Small Retailers VAT Package is a simpler VAT option for small retailers and has been created by SARS to assist small businesses. If you qualify for the Package it means that you can satisfy the VAT Act without keeping detailed records or having to buy expensive cash registers to keep track of sales on the various types of products you sell.
The Package also includes a free set of pre-printed books in which you keep track of the stock you buy and your daily sales.
Why was the Small Retailers Package introduced?
1. To make it simpler for small retailers who are registered for VAT.
Many small retailers find it difficult and time consuming to keep the detailed sales records required by the VAT Act. The Small Retailers VAT Package will make accounting for VAT much simpler for small retailers.
2. To make it simpler for small retailers who are not registered for VAT to satisfy the law.
All retailers who have a turnover of R1000 000 or more per year must register for VAT. There are many small retailers who should register for VAT but do not because small retailers feel the process is too complicated and takes too much time. The Small Retailers VAT Package aims to encourage unregistered retailers to register for VAT.
3. To reduce VAT fraud.
If you are not registered for VAT - You will first have to register for VAT before you can apply for the Small Retailers VAT Package.
If you are already registered for VAT - You qualify for the Small Retailers VAT Package only if you satisfy the requirements to become an approved vendor.
You can register for VAT by visiting a SARS branch or by calling the SARS Call Centre on 0860 121218 or visit the website at www.sars.gov.za (click on Value-added tax) for more details.
You must get the form VAT101 from SARS and complete it. You can download this from the SARS website. After you have completed it, deliver it to SARS. SARS will issue you a registration number. It is advisable to get professional help to register for VAT.
SARS will issue the business with a registration number, which is called a VAT invoice number. This number requires the person or business to charge 14% VAT on goods or services the business sells.
Example: Nomawethu types letters for other people. She is registered as a vendor. She charges R50 to type one page. She must charge 14% VAT on top of that. In other words, 14% of R50 is R7. So she charges R50 + R7 = R57 altogether.
Vendors must give their customers a VAT invoice, to charge them for the goods or services. The invoice must have the following written on it:
Remember to check that the VAT invoices you receive from other businesses have all these details on them if you are going to claim the VAT back from SARS. If an invoice does not have all these things on it, you cannot claim the VAT back.
Businesses registered for VAT must keep records, which show how much VAT they have collected. Even after the business has closed, the business must keep the records for 5 years. These are examples of records that must be kept:
If you are registered as a VAT vendor you will have to submit a return and pay the VAT over to the SARS every few months depending on the category that the business falls into..
The owner of the business must calculate how much VAT is owed to the Receiver. A standard VAT return must be submitted on e-Filing by the end of the month following the VAT period. The return form is VAT 201. SARS will impose penalties and interest for people who submit their returns late. Penalties are 10% of the amount that is owing and interest is charged at the standard interest rates.
Businesses have to pay VAT on goods or services if they have invoiced customers. This is called paying VAT on an invoice basis. It means that if the owner of the business invoices customers, the owner has to pay over the VAT to the Receiver even if the customer has not yet paid. This could cause cash flow problems for the business.
The owner of the business can do three things:
Charge customers interest if they do not pay your invoices within 30 days.
The vendor can claim back any VAT that is paid on anything bought for the business which relates to providing a valuable service or supply. The VAT which the vendor can claim back is called an input credit.
You can only claim input credits for the amount of VAT shown on VAT invoices that you paid. Remember to file invoices to prove what you have spent money on. For example, you must keep salary slips, invoices from suppliers, slips to show how much petrol you have used if you use a car for business reasons, and so on.
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