The Tax Consulting Podcast

The Essentials of VAT Compliance For Businesses: Micaela Paschini on HOT FM

• TAX CONSULTING SA

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Listen to Micaela Paschini, Tax Attorney at Tax Consulting South Africa, on Hot FM as she delves into the essentials of VAT compliance for businesses. 
  
Micaela covers key topics such as the threshold for mandatory VAT registration, the process of paying VAT, and the implications of failing to register. Do not miss this segment to keep your business compliant and informed on VAT essentials! 
  

For more information on VAT compliance, contact us: https://bit.ly/40EGkYC 
 

#HotFM #TaxConsulting #TaxCompliance #VAT 

Jerremy Maggs:

now every wednesday on the program, our weekly question. Give us a financial problem or a query on business at hot 1027. co. za and we'll find the very best person to answer it. And in this case, it's michaela paschini, who is a tax attorney at Tax Consulting South Africa, who is answering a question from Mario Berrario who writes Dear Jeremy, I run a small business which is now eligible to charge VAT value-added tax. However, I don't have the capacity to manage the administration of this. I don't charge VAT on my invoices and I haven't been successful in registering. In any case, am I breaking the law? Basically, what are the implications of me not charging VAT to my clients? So, michaela, good evening to you and a very warm welcome. Let's see if we can help. Mario, what are the legal requirements, first of all, for VAT registration in South Africa, and is it any different for small business?

Micaela Paschini:

Good evening, Jeremy, and thank you so much for having me. So a vendor is generally required to register for VAT and account for VAT once the value of their taxable supplies exceeds a million rand in a 12-month period. So the moment those requirements are met, it is required by law that the vendor registers for VAT.

Jerremy Maggs:

So that's all encompassing, because a million rand, while it might sound a lot to many people, for a business it's a fairly low threshold, isn't it?

Micaela Paschini:

No, you do make a very good point on that, but unfortunately that's the requirement set by law, and the obligation to levy VAT and charge VAT on your goods or services arises the moment that threshold is exceeded.

Jerremy Maggs:

Now I'm assuming that Mario is not doing the right thing by not charging VAT, so before we work out how he can get this right, I'm assuming that his business could be penalized for not doing this now that he is eligible.

Micaela Paschini:

Yes, unfortunately that is the case. So it's important to remember that it's not VAT registration that makes him liable, it's the moment he exceeds the threshold, as mentioned. So by not registering for VAT at this point, if SARS does catch a business like that, it can be an absolute disaster, because SARS does then end up saying that all prices are inclusive of VAT. Just to put that into an example say you made two million Rand in turnover last year. Sars will then say 15% of that belongs to them and must be paid over to them, even though you know you might have already spent that money or used it. Sars will also then likely conduct an audit and raise interest and penalties.

Jerremy Maggs:

Michaela, do you think that this is a common problem? Is it your sense that many people might be in the same position as Mario and are running foul of the law?

Micaela Paschini:

I don't think it's a rare issue to have. I do think there are certain individuals or companies who aren't registered, either because of as mentioned by the listener administrative hurdles, or perhaps they're just not unaware. But unfortunately these aren't excuses in terms of our tax legislation and can even constitute a criminal offence for failing to register and submit returns.

Jerremy Maggs:

All right, maria, I hope you're listening very closely to this, because I'm sensing after this conversation, you need to start moving fairly quickly. But he does raise an interesting point, michaela why might he be struggling to register for VAT and what steps can he take to overcome this?

Micaela Paschini:

Look. Registration can be done either via e-filing or it can be done by making an appointment with SARS. What we have seen is that there are a range of supporting documents that SARS requests, and sometimes an individual or company is not able to source all of those documents or comply with the requirements. In such a case, it is our recommendation to consult with a tax professional just to assist in bringing the vendor's situation up to compliance.

Jerremy Maggs:

In your experience, whether you make the appointment or do it via e-filing. Is it fairly easy, though? My understanding of this is that it's quite quick and painless.

Micaela Paschini:

It's generally quite quick and painless. There are instances where it might be difficult, perhaps due to the nature of the vendor's business, the nature of their supplies. So it does unfortunately depend on a case-by-case basis and again, best is to consult a tax professional.

Jerremy Maggs:

Maria doesn't tell us what type of business he's in, but where might those hiccups be? Would you be able to tell me what sort of businesses might find it more problematic than others?

Micaela Paschini:

So we generally see that where the supplier, might you know, border on making exempt supply supplies that are not subject to VAT, or where they don't have the correct contracts or documents in place in order to show that they do actually meet the requirements to register for VAT, so, michaela, let's assume now that Mario follows process, he is registered for value-added tax.

Jerremy Maggs:

If he has invoices without VAT, is there any way to retroactively account for the tax once he's registered?

Micaela Paschini:

Look, the difficult position he's in is that legislation deems the prices that he has charged historically as inclusive of that. Best would be, in such instance, to follow the voluntary disclosure program implemented by SARS, just to let them know. Look, you know, I made a mistake. I'd like to voluntarily disclose that I was supposed to register for VAT. I did not. I'm being full and frank here. And in such an instance it might be possible for SARS to then waive those penalties that they would have charged. But further than that, it's not really possible to go back and claim the VAT back from the customers etc.

Jerremy Maggs:

So I want to go back to the registration very quickly. Are there a lot of administrative burdens that come with the registration and are there tools, aside from handing it over to a tax professional, to ease or overcome the process?

Micaela Paschini:

Yes, certainly, yes, certainly. Sars has published on their website certain step-by-step indications of how a vendor can go about registering for value-added tax and generally. Again, if it's a simple situation, they can just follow those steps, but it's important to make sure it's done the right way and in compliance with the guidance issued by SARS on that.

Jerremy Maggs:

And Michaela. I think this might be the most important question and I think people have got to realize that once you become the VAT vendor, it's not your money when it comes in and often people don't plan financially in terms of cash flow once they have registered for VAT. Terms of cash flow once they have registered for VAT. I guess the best advice is to put that aside completely and not use it as part of your operating expenses or cash flow for business.

Micaela Paschini:

That is completely correct. As you mentioned, you know, VAT vendors are really just the collecting agents for SARS, Collecting the VAT, paying it over to SARS. It never really becomes the vendor's money and shouldn't be treated as such.

Jerremy Maggs:

So is there any advice, then, as we come to the end of this conversation, michaela, that you would give to small business owners struggling with VAT compliance, given that I'm suspecting that Maria is not the only person that might be in this position. So Maria is not the only person that might be in this position.

Micaela Paschini:

Certainly. I would definitely recommend that such businesses have a look and make sure whether they do in fact meet the threshold. If they do, it's important to first of filed. They can explore options, such as the VDP program that's implemented by SARS, to just try and mitigate those penalties, especially when it relates to historical noncompliance. You know, sars can go back a couple of years and raise interest in penalties, which could of course cripple a business, and SARS is all about compliance, compliance, compliance. So it's best to get those matters sorted out sooner rather than later.

Jerremy Maggs:

Mario Baradio. I am reminded of that old adage there are two things that are certain in life. What are they? I'm looking at my engineer, Ed Ed death and taxes. We're both nodding our head. So, first of all, Michaela Paschini, thank you very much indeed. Tax attorney at Tax Consulting South Africa. If you have a query, if you've got a financial problem, email us at business at hot1027.coza, and, as we did with Michaela, we will find the very best person to try and answer that query. Mario, you need to go and get registered and Michaela, thank you very much.