VAT made simple: when to register & how to file your VAT201

For busy entrepreneurs, Value-Added Tax (VAT) can feel like a "compliance nightmare". The moment your turnover crosses the R1 million threshold, you face a new world of administrative burdens, bi-monthly deadlines, and the constant fear of 10% late-payment penalties or a verification letter from the South African Revenue Service (SARS).

This definitive guide will walk you through the entire VAT lifecycle. We'll show you exactly when to register, how to prepare your documents, and provide a step-by-step walkthrough of filing your VAT201 return. More importantly, we’ll highlight the top mistakes that trigger penalties and audits—and show you how to avoid them.

Do I need to register? The R1 million threshold explained

This is the first and most critical question. Your registration status depends on your turnover and, in some cases, your business strategy.

A. Compulsory registration: the R1 million rule

It is compulsory for any person (including a sole proprietor, company, or trust) to register for VAT if the total value of their taxable supplies exceeded R1 million in any consecutive 12-month period.

The Common Trap: "Rolling 12-Month" vs. "Financial Year"

This is the single biggest mistake new businesses make. You do not check your turnover only at your financial year-end. SARS uses a "rolling" calculation. At the end of every month, you must look back and calculate your total turnover from the previous 12 months. If that total is over R1 million, you are legally liable to register. Once you cross this threshold, you have 21 business days to submit your registration application to SARS.

B. Voluntary registration: the R50,000 rule

You may choose to register voluntarily if the value of your taxable supplies has exceeded R50,000 in the past 12-month period.

Strategic Analysis: Why would you register if you don't have to?

• Pro (The "Input Tax" Advantage): Once registered, you can claim back the 15% VAT on your legitimate business expenses (e.g., rent, laptops, stock). If you have high start-up costs, this provides a major cash-flow benefit.
• Pro (Business Legitimacy): A VAT registration number adds a layer of professionalism and is often a non-negotiable requirement for tendering or becoming a supplier to large corporations.
• Con (The "Admin Burden"): You are now responsible for filing a VAT201 return every tax period, even if you owe nothing.
• Con (The Price Shock): You must now charge 15% VAT on your sales. For your customers who are not VAT registered (like the general public), you instantly become 15% more expensive.

The R1 million threshold creates an artificial "growth ceiling." Many SMEs intentionally stop marketing as they approach this turnover to avoid becoming 15% more expensive to their customers.

C. The "backdating" risk: what happens if I register late?

If you crossed the R1 million threshold months ago but only register today, SARS will backdate your registration to the date you should have registered. The consequence is that you will be held liable for the 15% Output VAT on all sales you made from that date—even if you didn't charge it to your clients. On top of this, SARS will add a 10% late payment penalty plus daily interest.

Before you register: documentation and key decisions

Once you've decided to register, you must have your documentation in order. SARS will not approve your application without validating your identity and business activity to prevent fraudulent registrations.

A. Your "registration pack": documents SARS will request

Gather these documents before you start the application:

• Business Documents: Your CIPC Registration Documents.
• Bank Verification: A stamped letter from your bank (less than 3 months old) confirming your business account.
• Proof of Address: A valid lease agreement or utility bill for the business premises.
• Representative's Details: A certified ID copy of the company representative.
• Proof of Trading: This is the most critical item. You must prove you are "carrying on an enterprise" with documents like invoices issued, signed contracts, or purchase orders.

B. Critical decisions: tax period and accounting basis

During registration, you will be asked to make two key decisions that affect your cash flow and filing schedule.

1. Choosing Your Tax Period: SARS will assign you a "tax period," which dictates your filing frequency. Most companies are assigned to Category B, which means bi-monthly returns ending in February, April, June, August, October, and December.

2. The Cash-Flow Decision: "Invoice Basis" vs. "Payments Basis": This is one of the most important strategic decisions an SME can make.

• Invoice Basis (Default): You account for VAT on the date an invoice is issued or received—regardless of when it gets paid.
• Payments Basis (By Application): You account for VAT only when payment is actually made or received. This is a critical cash-flow shield for sole traders and small partnerships.

Failing to choose the correct basis can be devastating. On the Invoice Basis, you might have to pay SARS R30,000 in VAT out of your own pocket, months before your client pays you.

VAT in 5 minutes: the core concepts

To file correctly, you only need to understand three core ideas.

A. The VAT equation: output vs. input

Think of your VAT-registered business as a temporary "tax collector" for SARS.

• Output VAT (What You Charge): This is the 15% VAT you must add to your sales invoices. You collect this money on behalf of SARS.
• Input VAT (What You Claim): This is the 15% VAT that your own suppliers charged you on your business expenses. You are allowed to deduct this from the money you owe SARS.

At the end of your tax period, the calculation is simple: (Total Output VAT) – (Total Allowable Input VAT) = VAT Payable to SARS. If the result is negative, you get a VAT Refund.

B. The three types of supplies

Getting this wrong is the root cause of most filing errors. The difference between "Zero-Rated" and "Exempt" is critical.

C. Apportionment basics

What happens if you have "mixed use"? For example, you use your business vehicle 70% for your taxable business and 30% to manage your exempt residential rental properties. You cannot claim 100% of the Input VAT on that vehicle's expenses. You must apportion it and can only claim the portion related to your taxable supplies (in this case, 70%). Getting this wrong is a major red flag for SARS.

How to file the VAT201 on eFiling: a step-by-step guide

Here is a practical, step-by-step guide for filing your bi-monthly VAT201 return.

A. The bi-monthly filing process

1. Get Your Totals: Before you log in, prepare your totals from your accounting software: Total Standard-Rated Sales, Zero-Rated Sales, Exempt Supplies, and Input Tax on Capital and Other Expenses.
2. Request the Return: On eFiling, navigate to "Returns" and request the VAT201 for the correct period.
3. Capture Output Tax: Enter your total sales for Standard-Rated, Zero-Rated, and Exempt supplies in the appropriate fields.
4. Capture Input Tax: Enter the VAT amounts for Capital Goods and Other Goods/Services you purchased.
5. Review and Submit: Scroll down to the "Calculation" to see the final amount payable or refundable. Once correct, click "Submit VAT 201".

B. Payment, deadlines, and penalties

The deadline for eFiling submission and payment is the last business day of the month following the tax period. SARS charges a 10% late payment penalty, but currently no penalty for late submission (though interest will still apply).

It is better to submit a 100% accurate return one day late (and pay the small interest) than to submit a wrong or "guesstimated" return on time. An inaccurate return is a massive trigger for a SARS verification or audit.

Top 10 VAT mistakes (and how to fix them)

Avoiding these common traps is the key to avoiding penalties and audits.

1. Invalid Tax Invoices: You cannot claim input VAT without a valid tax invoice. A pro-forma, a quote, or a delivery note is not a valid tax invoice.
2. Claiming VAT on "Entertainment": The VAT Act explicitly disallows any input tax deduction for entertainment, which includes client lunches, staff functions, and coffee-shop meetings.
3. Claiming VAT on "Motor Cars": Input VAT on the purchase of passenger vehicles, including double-cab bakkies, is not claimable. (A single-cab bakkie is generally claimable).
4. Claiming from Non-Registered Suppliers: You can only claim VAT if it was legally charged by a registered VAT vendor. Always check invoices for a valid VAT number.
5. Apportionment Errors: If you have mixed-use assets (partly for taxable, partly for exempt supplies), you must apportion the input tax and can only claim the taxable portion.
6. "Reverse VAT" on Foreign Services: You are liable for 15% VAT on "imported services" like Google Ads, Facebook Ads, or Microsoft 365. You must declare this on your VAT201 as a "reverse charge".
7. Late Registration & Backdating: If you miss the R1m threshold, you are liable for months of output VAT you never collected, plus penalties and interest.
8. Not Disclosing Zero-Rated Sales: You must declare all zero-rated sales (like exports) on your VAT201. Failing to do so creates a discrepancy with your financial statements that will trigger an audit.
9. Mixing Business & Personal Expenses: Use a dedicated business bank account. SARS will disallow all personal claims and add penalties.
10. Poor Record-Keeping: Implement a cloud accounting system today. For every VAT201 you file, you must have a "VAT Pack" of supporting documents ready for a potential SARS verification.

Refunds, verifications, and audits: surviving SARS scrutiny

This is the part of VAT that causes the most fear. But if you're prepared, it's just a process.

A. What triggers a review?

Large refund claims, a sudden spike in input tax, consistent refund claims, and discrepancies between your VAT201 and income tax returns are all common triggers for a SARS review.

B. The process: verification vs. audit

A **Verification** is a review where SARS asks for your supporting documents. You typically have 21 business days to upload them. An **Audit** is a deep-dive investigation, triggered if the verification reveals serious discrepancies. Audits can take months, and any VAT refunds are frozen until complete.

C. The "estimated assessment" threat

If you fail to respond to a verification request, SARS will not wait. They will issue an "estimated assessment," typically disallowing all of your input tax for the period. Your refund claim instantly becomes a large debt to SARS, and the burden of proof shifts to you to dispute it.

D. How to prep a "VAT pack" for verification

This is your ultimate solution. A "VAT Pack" is a set of documents you must prepare for every VAT submission. Don't wait for SARS to ask. It should include: a copy of the VAT201, detailed schedules for output and input tax, copies of your highest-value invoices, and bank statements for the period. This proactive approach turns a 21-day panic into a 10-minute upload process.

Frequently Asked Questions (FAQs)

How do I actually calculate the "rolling 12-month" threshold?

At the end of each month, you must sum your total taxable sales from the last 12 consecutive months. For example, at the end of July 2025, you must sum all your taxable turnover from 1 August 2024 to 31 July 2025. If that number exceeds R1 million, you must register.

What are the exact VAT201 due dates?

If you file manually at a SARS branch, your submission and payment are due on or before the 25th of the month. If you file and pay via eFiling, you have until the last business day of the month following the end of your tax period.

What are the pros and cons of voluntary registration?

The main "pro" is that you can claim input VAT, which is a significant cash-flow benefit for high-expense start-ups. The "con" is that you now have a bi-monthly filing obligation, and you become 15% more expensive to your non-VAT-registered customers.

What are the main expenses I can claim VAT on?

If you have a valid tax invoice, you can claim VAT on most legitimate business expenses, including: business premises rent, telephone and internet, stationery, raw materials, "cost of sales," business-related professional fees (legal, accounting), and work-specific vehicles like single-cab bakkies.

What are the main expenses I cannot claim VAT on?

The main "blocked" items are: Entertainment (e.g., client lunches, staff parties), Motor Cars (which includes sedans and double-cab bakkies, even if used for business), and employee salaries/wages (as they are not a VAT-able supply).