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Vendors and Sars must be on same page

<p>ACTION BY THE South African Revenue Service (Sars) to deregister certain Value Added Tax vendors could cause significant inconvenience to those enterprises and - worse - a potentially substantial VAT liability without the funds to cover it. Businesses with turnovers that don't meet the new minimum threshold of R50 000/year may find themselves being summarily deregistered as VAT vendors by Sars. </p>
<p>"In its drive to clear its books of companies that are simply clogging the system and wasting resources, Sars is also deregistering legitimate businesses - such as some property developers and farmers - that only breach the minimum threshold over time," says Bernard Sacks, tax partner at audit, tax and advisory firm Mazars. </p>
<p>Take the example of a property developer who has spent significant capital developing a new residential estate. During the course of developing the property VAT inputs (tax paid) accrued. But because the property hasn't been completed and no units sold, no VAT outputs (tax received) have been declared. </p>
<p>Because the developer doesn't meet the minimum threshold per annum Sars deregisters him for VAT purposes. Not only can he not claim back VAT input costs but he's also deemed to supply the assets (property) he holds at that date. That means - in accordance with the VAT Act - the developer is liable for all the potential VAT on the land and any unfinished buildings or structures. </p>
<p>"The VAT owing to Sars could amount to a substantial sum at a time when the business has no cash flow from turnover," says Sacks. "And for most developers that's an impossible situation. The same would hold true for farmers." </p>
<p>Let's say a wine farmer develops a new vineyard and it takes several years before the vines are ready to produce the right quality of grapes. In the interim the farmer has ploughed significant financial resources into his vineyard and paid over a great deal of VAT which would have been claimed as input VAT, when output VAT becomes a reality at point of sale. But until he makes the first sale of his new wine, his turnover probably won't breach the R50 000 mark. </p>
<p>"If his enterprise is deregistered he'll be in the same situation as the property developer - having to find substantial funds to pay the deemed supply of his vineyard," says Sacks. </p>
<p>"Sars has already sent letters to some vendors notifying them of its intention to suspend their VAT registration. But on closer reading it becomes apparent that, in fact, they've already been suspended and been granted three months in which to challenge the suspension before their VAT registration is permanently cancelled," Sacks says. "Despite the fact the legislation caters for an extended period of time to breach the minimum turnover threshold, Sars has been issuing those letters on the basis that turnover for the previous 12 months was less than R50 000." </p>
<p>It seems imperative for vendors to get in contact with Sars as soon as possible to ensure both parties are within the scope of the law and before potential costs kill the emerging business. </p>
 
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