This is done by splitting your current business into two legal entities. By doing this you ensure that the turnover of both businesses is below the R1mil mark. Another scenario is where the business owner has one business registered for VAT and the other one not, but both businesses in effect carries on with the same trade. They use the VAT registered business to invoice clients who can claim back the VAT. The business not registered for VAT is used where the end user can not claim the VAT back from SARS.
SARS view on VAT splitting
SARS takes a dim view on VAT splitting. This is classified as a tax avoidance scheme and is illegal. By splitting your trade into two businesses just to avoid or limit your VAT liability is not allowed. Remember that any scheme by a tax payer just to save on his tax liability can be attacked by SARS. Business arrangements should be for business reasons. Any tax benefit can form part of the consideration but shouldn’t be the main consideration.
It is possible that there are sound business reasons why a business is split into two or more separate tax payers. This may have an impact on their VAT status and there may be a benefit to the tax payer, but the tax benefit may not be the driving factor.
Mitigate your risk
If you are concerned that you may have set up a VAT splitting scheme or may be seen to have implemented a VAT splitting scheme when this was not your main consideration, please contact us for assistance in dealing with this matter. Remember that is always better to set your tax affairs straight than to wait for SARS to catch you out.
If you need any assistance with your VAT, please don’t hesitate to contact us: firstname.lastname@example.org
Remember, no VAT problem too big or small, we’ve got this!