When A Freelancer Becomes A VAT Vendor

The trend of leveraging influencers, independent designers, content creators, and writers to improve and propel marketing campaigns through brand collaborations, is gaining momentum in South Africa. Yet, amidst this creative landscape, taxation, specifically Value-Added Tax (VAT), is often overlooked.

VAT registration

The Path To Becoming a VAT Vendor

To advertise their services, creative freelancers typically have a significant online presence and can earn substantial amounts on a single piece of content. Many have even bid goodbye to their traditional nine-to-five jobs to embrace full-time freelancing. Given the earning potential of these positions, successful freelancers can swiftly surpass the compulsory R1 million registration threshold for VAT. However, there’s a common misconception that VAT only applies to businesses, not individuals.

Under the VAT Act, an enterprise is defined as any activity or venture carried out regularly or continuously where goods and services are supplied to others in exchange for consideration. The definition explicitly excludes those providing services as employees. SARS permits voluntary registration under certain conditions, but VAT registration becomes obligatory when an enterprise – be it an individual, business, or trust – achieves a turnover exceeding R1 million in any 12-month period or a consistent monthly turnover of at least R83,333.

The Deregistration Process

If a freelancer registered for VAT no longer meets the required threshold, they can opt for deregistration. It’s essential to submit this application at the same branch where the initial registration was processed.

The applicant must specify the reason behind the cancellation request, and VAT accountability will still apply until SARS has processed the cancellation. Once the cancellation has been executed, should the freelancer meet the prior registration prerequisites in the future, they can reactivate their VAT number.

VAT Calculation Considerations

Unlike employees, freelancers’ remuneration can take diverse forms, extending beyond monetary compensation. If an influencer or freelancer isn’t paid in cash, the open market value of the goods or services received in return for the supply is considered remuneration. For example, if an influencer is offered a hamper of luxury products in exchange for creating content that promotes the brand, the remuneration would equate to the cost of the products provided. These are typically subject to the standard rate of 15%, although they can sometimes be zero-rated.

The Nitty Gritty

Managing VAT can be complex, requiring careful attention to avoid potential repercussions such as penalties, interest charges, or even criminal charges for non-compliance. If not managed correctly, you could find yourself on the SARS radar due to non-payment.

Luckily, there’s a safety net for these individuals who may have overlooked the VAT registration deadline or realised they haven’t been charging VAT as required. The Voluntary Disclosure Programme (VDP) allows taxpayers to correct their tax status without the threat of criminal prosecution.

Ensure Your Compliance
MMS Cloud Accounting offers services with features specifically tailored to meet the unique needs of budding entrepreneurs. If you are a freelancer who is quickly finding themselves a small business owner, we can assist with a range of accounting services, including VAT registration, to ensure your compliance. Please get in touch for more information.