Learn if your business qualifies for VAT exemption and get all the details on how to apply with this clear and concise guide.

When it comes to VAT registration, certain products and services are exempt. If your company deals exclusively in these items, it will be classified as VAT exempt.

This means you won't be able to recover VAT on any expenses related to making VAT-exempt sales, such as VAT on your accountant's fees.

In this article, we'll help you understand VAT and cover the following topics:

• What is VAT? 
• VAT exempt items in South Africa 
• Partial exemption
• What is the zero-rated VAT
• What is the difference between VAT exempt and zero-rated VAT?
• Who should register for VAT?
• When to register for VAT
• Compulsory VAT registration
• Voluntary VAT registration
• Small business VAT registration
• How to file for VAT exemption
• Managing your VAT payments with QuickBooks VAT Tracking Software

Which areas are exempt from VAT?

Based on South African government guidelines (download), the following are exempt:

• Non-fee related financial services
• Educational services offered by an approved educational institution
• Residential rental accommodation
• Public road and rail transport

VAT on financial services is exempt when no fee is charged for the services provided.

Also Read: Tax Tips for Small Businesses: A Guide

Partial exemption

This is where it gets a bit more complicated. If you’re VAT registered, there’ll be cases where your sales may be subject to partial VAT exemption.

For example, if your business purchases or sells supplies classed as VAT exempt, but you also sell products which are subject to full VAT or reduced VAT payments, then you could be classed as partially VAT exempt.

As a company that is registered for fully and partially taxable supplies, it’s your responsibility to keep separate ongoing records of your transactions to ensure that you pay the correct amounts of VAT on each.

Any exempt supplies should be recorded as such in your quarterly VAT return alongside your VAT taxable supplies.

What is zero-rated VAT?

Zero-rated VAT items are taxable supplies that incur a 0% VAT rate. While they do not generate output tax for the South African Revenue Service (SARS), they are still considered part of a vendor's enterprise activities.

The government only grants zero ratings to specific transactions that serve higher priority objectives than collecting additional VAT. This is intended to promote exports and increase global competitiveness by giving zero-rated status to transactions involving exports of goods or services.

Here is a list of zero-rated VAT items in South Africa:

• Exports: Goods or services exported from South Africa to another country are zero-rated, with exceptions if delivery occurs within South Africa.
• Basic foodstuffs: Essential food items such as brown bread, maize meal, samp, dried beans, lentils, pilchards, milk powder, rice, vegetables, fruit, vegetable oil, milk, and eggs are zero-rated.
• Fuel: Certain fuels, primarily petrol and diesel subject to the fuel levy, are zero-rated.
• International transport services: Services related to international transport, such as air and sea freight, are zero-rated.
• Additional items: Illuminating paraffin, educational services, and public road and rail transport are also zero-rated.

Is there a difference between VAT exempt and zero-rated VAT?

Confused? You’re not the only one, but there is actually a difference here. There are a number of supplies that are subject to zero-rated VAT, but this is different from VAT exempt. Examples of zero-rated goods include:

• Good which are subject to the fuel levy
• International transport services
• Farming inputs
• Certain grants by government
• Exports

If you supply zero-rated goods, you should register for VAT. This is because you can still reclaim the VAT on any costs incurred by your business. However, if your business is registered as exempt because it trades in VAT exempt supplies, you can’t

How to file for VAT exemption

Before you go down this route, make sure it’s the right one for your business. If you’re VAT registered, you can reclaim VAT on your sales costs. However, adding VAT to your sales might impact on your customers, taking your prices out of their range. So, depending on what you trade in, you might find you’re better off VAT exempt.

If you decide to file for VAT exemption, you can do so using the SARS website.

Managing your VAT payments

When it comes to paying your business’s VAT bills, it’s best to establish a strategy for managing payments. If you’re organised, nothing will come back to haunt you. Of course, online accounting software such as QuickBooks will help you keep on top of your records and make sure you don’t miss any deadlines.

It also makes sense to plan ahead, so you’re making claims and allowances wherever you possibly can.

Whether you decide to go down the VAT exempt route or not, using online accounting software will be a huge help. You’ll find it vastly simplifies your accounting processes so it’s easier to stay on top of your VAT liabilities and payments.

We hope you’ve found this article outlining how to apply for VAT exemption useful. QuickBooks provide solutions for many common business tax requirements, including helping you stay on top of your VAT payments in line with SARS requirements.

Discover more free Small Business Resources at the Intuit QuickBooks Resource Centre to help grow your business in South Africa today.

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