Compulsory Vat registration threshold last increased in 2009

BUSINESS NEWS - The compulsory threshold for value-added tax (Vat) registration has been R1 million for the past 16 years.

If it had kept pace with inflation, the threshold would have been in line with global practices of closer to R2 million.

This means a very small business with a turnover of about R83 000 per month must keep meticulous records and ensure its accounting systems are current to avoid penalties for late payments or accounting errors.

Large businesses exceeding annual turnover of R30 million must file a Vat return monthly. This threshold would have been closer to R210 million if it kept pace with inflation.

Charles de Wet, tax executive at ENSafrica, says the threshold for compulsory registration started at R150 000, was increased to R300 000 and increased to R1 million in 2008 (effective in 2009) for the last time.

Cash flow implications

The minimum threshold for voluntary registration of R50 000 should have been more than R100 000 by now.

“The point is a company that exceeds the R1 million threshold is very small. Besides having the administrative burden of filing Vat returns bi-monthly the cash flow implications are quite harsh for such a small business.”

The cash accounting method is only available to a sole proprietor and not to a company, no matter how small. Companies account in terms of the accrual (invoice) system.

Small businesses conducting business with the government must pay Vat on an accrual basis, putting them under tremendous cash flow pressure. The problem, says De Wet, is that government is not known for the timeous payment of goods and services.

“Even though a small business is not paid for months on end they still have to account for the Vat to the South African Revenue Service (Sars).”

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