Cast your mind back to 2020 when we were in the heavy throes of the pandemic. Many employees had little use for offices and placed heavy reliance on the use of technology for meetings. Many realised how fickle job security was, as employers began to rely more heavily on technology. Numerous people perceived the importance, and often the necessity, of having more than one source of income. This led to a significant increase in side hustles, where an individual creates an alternative or additional source of income.
Fast forward to 2022. Russia and Ukraine are at war, causing a ripple effect to the cost of living as it becomes harder for people to afford their current lifestyles. Once again, people look to side hustles to supplement their main stream of income. One of the consequences of the side hustles is income tax – the income from the alternative sources of income must be declared to SARS on the individual’s income tax returns. However, depending on the nature and quantum of the income, the side hustle may also render the individual liable to register for VAT and charge VAT on the supplies made.
Supplies such as those made by consulting businesses, transport businesses, logistics businesses and AirBnB’s all fall within the ambit of the supply of goods or services for VAT purposes. Where these supplies are not specifically exempt from VAT and are continuously or regularly provided in or partly in South Africa, the supplier may well be conducting an enterprise for VAT purposes and could face a VAT registration liability.
Where the side hustle results in a turnover of more than R1 million over a 12-month period, a compulsory VAT registration may be required. If a liability to register for VAT arose in the past, the supplier should have charged and accounted for VAT on the supplies made. If this was not done and VAT should have been paid to SARS, it implies an under declaration of VAT with the relevant penal implications of penalties and interest that SARS will levy.
One of the consequences is that the VAT Act provides that the amount the person charged is deemed to have been inclusive of VAT at 15%. This means that the supplier will generally have to ‘find’ and pay the VAT out of the consideration already received for the supply. In addition, late payment penalties of 10% and even understatement penalties (generally between 25% and 200%) may apply, as well as interest on the outstanding VAT.
But it is not all doom and gloom. The Tax Administration Act creates the opportunity for many non-compliant persons to apply for relief under the voluntary disclosure program (VDP), wherein SARS must waive all penalties and not pursue criminal prosecution if the person qualifies for the VDP relief, once a formal VDP agreement has been concluded.
It often makes sense for a person whose taxable supplies have not exceeded the compulsory registration threshold of R1 million per 12-month period but whose taxable supplies have exceeded R50 000 in a 12-month period, to voluntarily register for VAT in order to obtain the benefit of deducting the VAT incurred on qualifying expenses of the enterprise.
If you know or suspect that you should have registered for VAT, we encourage you to contact us to discuss your situation in more detail.
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