Types of VAT Registration
While the Value Added Tax Act, 1991 (VAT Act) distinguishes between Voluntary and Compulsory VAT registration, we have introduced a third category: Automatic VAT registration. This third category is an artificial distinction created as a practical tool to enhance clarity and simplify the complexity of the subject, making it easier to understand.
The concept of Automatic VAT registration became prominent when SARS began registering a ‘person’ as a vendor based on the information available to them, without the `person’ as defined by the VAT Act having submitted a VAT registration application.
Automatic VAT registration is based on the provisions applicable to Compulsory VAT registration. Each type of registration, including Automatic VAT registration, is addressed separately below.
It is important to understand how the commencement date for voluntary VAT registration is determined, as it must be compared with the registration dates for both Compulsory VAT registration and the `fictitious’ of Automatic VAT registration. The purpose of this brief is to provide clarity on the comparison of commencement dates across these different types of VAT registration.
In all types of VAT registration, a person can only register for VAT if that person is carrying on an `enterprise’ as defined by the VAT Act. `Enterprise’ is defined to include any activity carried on continuously or regularly by any person in South Africa or partly in South Africa, resulting in income being earned from the supply of goods or services (that is supplied for a “consideration”) to another person, whether for profit or not.
Voluntary VAT registration
A ‘person’ as defined by the VAT Act can apply for voluntary registration even though the total value of taxable supplies is less than R1 million. Such persons may wish to obtain the benefit of an input tax credit even though their turnover is below the R1m turnover.
A person may apply for voluntary registration if that person –
is a “municipality” or
A welfare organisation, as defined, is considered to be conducting an enterprise if it engages in one or more qualifying welfare activities for VAT purposes. As a result, the voluntary registration threshold of R50,000 does not apply to welfare organisations. This allows a welfare organisation to register for VAT and claim VAT deductions on goods or services acquired for its welfare activities, even if no consideration is charged. Additionally, a welfare organisation can claim input tax deductions on entertainment expenses related to its welfare activities, which are typically not permitted for other vendors.
supplies commercial accommodation, provided the minimum threshold of R120 000 is met, or
a “share block company; or
is carrying on an enterprise and the value of taxable supplies made has exceeded the minimum threshold of R50 000 in the past 12 months; or
intends to carry on an enterprise acquired as a going concern, provided that the value of taxable supplies made by the supplier of the going concern exceeded R50 000 in the past 12 months, or
is carrying on an enterprise and the value of taxable supplies has not exceeded the R50 000 minimum threshold but can reasonably be expected to exceed that threshold within 12 months from the date of registration, or
is continuously and regularly carrying on one of the activities , agriculture, farming, forestry, fisheries mining, ship and aircraft building, manufacturing or assembly, property development, infrastructure development as well as beneficiaries of mining process which it will only be possible to make taxable supplies after a period of time due to the nature of the business in respect of which it will only be possible to make taxable supplies after a period of time due to the nature of the business listed.
Requirements for Voluntary Registration
Taxable Supplies (1 Month): Must exceed R4,200 in the month before application.
Taxable Supplies (2+ Months): Average must exceed R4,200 per month over 2 to 11 months before application.
Written Contracts: Must ensure taxable supplies over R50,000 within 12 months post-registration.
Expenditure:
osts incurred for starting or running an enterprise. o Capital goods acquired for business commencement.
Payments exceeding R50,000:
Before registration,
In any 12-month period spanning registration, or
Within 12 months after registration.
Finance Agreements:
With a registered bank, credit provider, designated entity, or nonresident.
Total repayment must exceed R50,000 within 12 months postregistration.
Additional general requirements also apply for voluntary VAT registration.
Date of voluntary registration
Once the requirements for voluntary registration are met, the effective date of registration is typically the date on which the application was submitted. An application for voluntary registration is considered submitted only when all the necessary requirements have been fulfilled.
The requirements are set out in the Voluntary Registration Regulation, General Notice R447.
Compulsory VAT registration
A person, as defined by the VAT Act, must register for VAT if they conduct an enterprise and their taxable supplies exceed R1 million within any consecutive 12-month period or are expected to exceed this amount under a written contract. The compulsory VAT registration threshold of R1 million applies to the total taxable supplies (turnover), not the net income or profit of the business.
The entity must register for VAT within 21 business days from the first day of the month in which its taxable supplies exceeded R1 million over a 12-month period.
The VAT Act outlines when a person must register for VAT, with Section 23 specifically addressing registration for those making supplies in the course of an enterprise.
To determine whether VAT registration is liable, the total value of taxable supplies (turnover) from all a person’s enterprises is considered.
A person operating multiple enterprises, branches, or divisions cannot avoid registration by assessing each separately, except in certain cases (e.g., specific branches or separate enterprises).
It is essential to maintain a running total of turnover across all enterprises for the past 12 months. If this total exceeds R1 million in any given month, VAT registration becomes mandatory from the first day of the following month. This requirement, known as compulsory VAT registration, leaves no option but to register as a VAT vendor (as per section 23 (1) (a)).
Automatic VAT Registration
Automatic VAT registration gained prominence when SARS started registering `persons’ as defined by the VAT Act as vendors based on available information.
In such cases, the person or their tax practitioner may have overlooked that the enterprise's total turnover exceeded R1 million, resulting in a failure to register for VAT. This oversight is a common occurrence within the tax community.
This is where the confusion starts. To resolve this issue, we look at the definition of a "vendor" in the VAT Act.
What is meant by ‘vendor’?
A "vendor" is defined as any person who is either registered or required to be registered for VAT. This means that even if a person has exceeded the R1 million taxable threshold and has not registered with SARS, they are still considered a vendor for VAT purposes and must account for output tax.
SARS will register a person as a vendor once the person exceeds the R1 million threshold, based on the information available. As a result, SARS backdates the VAT registration to the date the person exceeded the threshold.
And here’s where the confusion deepens!
Given that the `person’ was required to register for VAT within 21 business days after exceeding the R1 million taxable supply threshold, SARS would apply a ‘deemed’ output tax on the sales made by the person. For instance, if the person made a sale of R100.00, SARS would consider it as R87.00 in revenue, with the remaining R13.00 representing the output tax.
Therefore, even though the person did not formally register for VAT, SARS would still require the payment of the deemed output tax.
During this interim period, the person may have procured goods from VAT-registered suppliers but would not be able to claim input tax, as the person is not registered for VAT and did not possess a VAT number.
Consequently, under these circumstances, SARS would impose the output tax obligation while the person remains unable to claim input tax, potentially leading to a significant VAT liability.
Available Remedies for the ’vendor’
If a person is recognised as a vendor (have registered already) and possesses a VAT number, the person is entitled to claim input tax within a five-year period. As we are currently in February 2025, the person can claim input tax dating back to January 2021.
Administrative Requirements and Challenges
To facilitate the input tax claim, person must coordinate with their suppliers to amend existing invoices—rather than issuing new ones—by incorporating necessary details such as VAT numbers. These amended invoices can then be submitted to SARS during the current VAT period, enabling the person the input tax.
The success of this process will largely depend on:
The number of regular suppliers involved (fewer suppliers may simplify the amendment process), and
The suppliers' willingness to cooperate in making the required adjustments.
If either the supplier or the vendor is audited by SARS, both parties must retain copies of the amended invoices.
Potential Input Tax Claim and Outstanding Tax Liability
Based on the above considerations, the person may be eligible to claim a portion of the input tax.
This applies to both inventory and capital assets, provided they are still present within the ‘enterprise’—as defined in the VAT Act—at the time of claiming the input tax. However, if the inventory or capital assets have already been disposed of, the input tax cannot be recovered.
While claiming prior-year input tax may help reduce the overall tax liability, it is important to note that an outstanding tax debt to SARS may still remain.
Under these circumstances, exercising the VDP option may not be appropriate because SARS was aware that the person has not registered for VAT.
To address any remaining tax liability, the person may consider the following options:
Arranging a payment instalment plan, and/or
Applying for a compromise of the tax debt.
Frequently asked questions - Automatic Registrations
SARS would charge 10% late penalty and interest. Can the person request a remission of the penalties and interest?
Yes, the person can request a remission of penalties and interest. However, they must first ensure administrative compliance by submitting all outstanding VAT returns.
By declaring the VAT, the sales/turnover for the financial year would be reduced. Can the person issue amended financial statements and then submit a corrected income tax return?
Yes, from an accounting perspective, the `errors’ can be corrected. The correction of these errors in another accounting year, therefore, would lead to prior year adjustment. Prior year adjustment is therefore a means of correcting past financial statements that were misstated due to errors. Refer to International Accounting Standard 8 (IAS 8) on Accounting Policies, Changes in Accounting Estimates and Errors.
Before re-opening the tax assessment, it is crucial to ensure that all VAT returns have been submitted.
Can a person challenge SARS' chosen VAT registration date when the R1 million threshold has been exceeded, and the person has not registered, on the grounds of an abnormal transaction?
Yes! Section 23(1A) permits a person to challenge the selected VAT registration date on the grounds of temporary abnormal circumstances, but only if the person (or their intermediary) supplies electronic services from an export country.
If the person does not supply electronic services, SARS' selected registration date cannot be contested because of abnormal circumstances.
However, Section 24(4)(b) may offer some relief, as it allows SARS to determine a later VAT registration date if deemed fair after carefully reviewing the person’s circumstances. Both the person and SARS may also review whether the calculation of the total taxable supplies for registration purposes is accurate.
If a vendor was originally registered for VAT on a compulsory basis but later their taxable supplies fall below R1 million, should they deregister for VAT?
When deregistering for VAT, there may be ‘exit’ VAT implications on inventory and capital assets still held by the vendor. The vendor is ‘deemed’ to have supplied these assets in the course of business, requiring output tax to be charged even if the assets are not actually sold. The value of the assets is determined as the lower of cost or open market value.
From a tax planning perspective, it may be beneficial to sell assets before deregistration. This allows the output tax to be recovered from the purchaser rather than becoming an expense for the vendor.
Alternatively, if the vendor chooses not to deregister, they may continue operating as a voluntary VAT vendor.
When should a person voluntarily register for VAT, considering the administrative burden associated with voluntary registration?
In both this scenario and the one above, the decision to remain a VAT-registered vendor or to register voluntarily depends on the vendor's client base. If most customers are VAT-registered vendors who wish to claim input tax, maintaining VAT registration—either compulsorily or voluntarily—may be beneficial.
Information sources
You can get more information on the VAT registration requirements on the SARS website with links to various VAT guides.
Get your Tax Practitioner license for FREE with CIBA Channel 2 CPD package and keep up to date and ahead in business in 2025!
The CIBA 2025 CPD channels offer you options:
Channel 2: Growth Channel (Opt-in)
For those seeking advanced knowledge, this channel offers 80 additional hours of expert-led CPD on in-depth and emerging topics. Available to members for a subsidised annual fee.
Channel 3: Specialist Channel (Exclusive to BAP(SA))
Specialised short courses in regulated fields, such as Independent Review and Tax Practitioner, lead to licenses recognised by regulatory bodies.
Choose Your Path to Exclusive Insights
Stay ahead in the world of accounting with premium content designed for professionals like you. Access expert articles, industry trends, and essential resources. Become a CIBA member and claim your CPD hours from CIBA.
CIBA Member Access
R250.00 FREE!
100% Discount when you become a CIBA Member. Join now to claim your CPD Hours. Register here: www.myciba.org/register
