VAT Basics for Small Businesses in South Africa

You are compelled to register as a VAT vendor with SARS if your taxable turnover in any consecutive 12-month period exceeds R1 million, or if you have reasonable grounds to expect it will exceed R1 million in the next 12 months. Registration is not optional at that point — SARS can register you retrospectively and charge the VAT you should have collected, plus penalties and interest.

You may register voluntarily once your taxable turnover exceeds R50,000 in any 12-month period. Voluntary registration makes sense if most of your customers are themselves VAT-registered (they can claim your VAT back, so it doesn't cost them anything) and if you have significant input VAT to reclaim on business purchases. It does not make sense if your customers are consumers who can't reclaim VAT — you'll simply be 15% more expensive than an unregistered competitor.

Once registered, you charge 15% VAT (output VAT) on every taxable supply of goods or services. That money is not yours — you're collecting it on behalf of SARS. In return, you can reclaim the 15% VAT (input VAT) charged to you by your suppliers on qualifying business purchases. On your VAT201 return you subtract input VAT from output VAT and pay the difference to SARS. If input exceeds output, you get a refund.

Some supplies are zero-rated (0% VAT, but you can still claim input VAT) — brown bread, maize meal, rice and international transport are examples. Others are exempt (no VAT charged, no input VAT claim) — such as residential rentals and educational services. Standard-rated (15%) is by far the most common category.

For supplies of R5,000 or more, you must issue a full tax invoice showing the words 'tax invoice', your name and address, your VAT number, an invoice number, the date, a description of the goods or services, the exclusive amount, the VAT amount and the inclusive total separately. For supplies under R5,000 an abridged tax invoice is allowed with fewer fields, and for supplies under R50 no tax invoice is required.

Every rand of input VAT you claim must be supported by a valid tax invoice from a VAT-registered supplier — cash slips without a VAT number don't count. Keep your invoices for at least five years; SARS can audit any return in that window.

The most expensive mistake is not registering when you cross the R1 million threshold. SARS backdates the registration and calculates the VAT you owe as if it was embedded in the prices you charged (× 15/115), so you effectively lose 13% of that revenue on top of penalties and interest.

The second is claiming input VAT on expenses that aren't allowed — entertainment (client lunches), passenger vehicles, and staff perks are the most commonly flagged. When in doubt, treat it as a non-claimable expense. The third is late filing: SARS charges a fixed penalty plus interest for every day a VAT201 is late.