As tax practitioners, we often encounter clients who miss VAT registration deadlines due to oversight or misunderstanding. When a client who should have registered for VAT hasn't done so, it’s essential to not only address the compliance issues but also to help the client manage their concerns about penalties and unpaid taxes. This article offers practical steps to guide you through the process and explains the potential consequences of late VAT registration. Understanding the procedure and available relief options can help clients avoid unnecessary penalties and stay compliant.

VAT Registration Requirements

When it comes to VAT, businesses must know when they need to register and what steps to follow. Here’s a clear breakdown of the main VAT registration rules as required by the VAT Act, 89 of 1991(VAT Act).

1. When Must a Business Register for VAT?

   Under Section 23(1)(a) of the VAT Act a business must register for VAT once its taxable sales exceed R1 million over a 12-month period. Registration must occur from the month following the one in which the threshold is exceeded. Failure to do so will result in non-compliance.

2. How and When Will SARS Register a Business?

   If a business applies for VAT registration—whether compulsory or voluntary—South African Revenue Service (SARS) will verify the application. Once satisfied, SARS will set the official start date for VAT registration (Section 23(4)(a) of the VAT Act). In some cases, SARS may backdate the registration, meaning the business must account for VAT from that earlier date.

3. Who Is Considered a Vendor?

   A "vendor" is any person or business that should be registered for VAT, even if they haven't yet done so (Section 1(1) of the VAT Act). If SARS finds that a business should have registered earlier, it will still be treated as a vendor from the date it was first liable to register, and VAT will be owed from that date.

4. What Happens if a Business Doesn’t Register?

   If a business doesn’t register when required, SARS has the power to register it (Section 23(4)(b) of the VAT Act). This means the business will be treated as registered from the date it should have been, and VAT will be owed from that point, even if VAT was not charged on prior sales.

5. What Happens After Registration?

   Once registered, a business must start charging VAT on its sales. The current VAT rate is 15% (Section 7(1)(a) of the VAT Act). Some sales qualify for zero-rating or exemptions, but most taxable supplies are subject to the standard rate.

Consequences of Late VAT Registration

Missing the VAT registration deadline can have significant consequences. Here’s what to expect and how to advise your clients:

1. Will VAT Be Backdated?

   SARS may backdate the registration, requiring VAT to be paid on all taxable supplies made since the effective registration date. Even if the business didn’t charge VAT on those sales, it must still calculate the VAT due using the tax fraction (15/115) based on the total sales made since the liability date.

2. Penalties and Interest

   Interest will be charged on late VAT payments, and SARS generally doesn’t waive this interest. Additionally, outstanding VAT will incur a 10% late payment penalty. In some instances, a waiver of this penalty may be possible if reasonable grounds are presented, especially if the business applies through the Voluntary Disclosure Programme (VDP).

Actions to Take

1. Determine the Date of VAT Liability

   The first step is to identify when the business exceeded the R1 million threshold within a 12-month period. The business must register for VAT from the first day of the month after reaching this threshold. For example, if the business exceeds the limit over a 12-month period ending 31 March 2022, the VAT liability starts on 1 April 2022.

2. Complete the Registration Process

   VAT registration must be done through SARS e-filing. To avoid delays, ensure that all the necessary documentation is correctly submitted. A step-by-step guide for VAT registration is available on the SARS website.

3. Apply for Voluntary Disclosure Relief (VDP)

   If the business registers for VAT voluntarily, applying for VDP can help reduce penalties. To qualify for a 10% penalty waiver, the VDP process should be started within 21 days of receiving a VAT number.

   Note: VDP only applies when the business voluntarily discloses the issue, not when SARS discovers the registration requirement.

VAT Liability After Registration

When SARS backdates a business’s VAT registration, the business will need to pay VAT on all sales made from the backdated effective date. The VAT owed is calculated using the tax fraction (15/115) of the total sales amount, even if VAT was not initially charged. However, the business can claim back any VAT paid on goods and services used to make those sales (input tax) and deduct this from the VAT payable to SARS (output tax), which helps reduce the overall liability.

Summary

Businesses that have missed the VAT registration deadline must act quickly. Determining the date of VAT liability, registering promptly, and applying for VDP are all essential steps to minimise penalties and interest. As tax practitioners, guiding clients through this process can help them avoid costly consequences and maintain compliance with the VAT Act.

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