Introduction

Imagine running a small business that’s finally hitting its stride. Sales are steady, clients are happy, and you’re proud of the growth you’ve achieved. Then one morning, an unexpected letter from SARS lands on your desk. Instead of a pat on the back for your success, it’s a notice of penalties and interest because of a VAT error you didn’t even know you were making.

This scenario isn’t uncommon. Across South Africa, small and medium-sized businesses lose millions each year to VAT mistakes — not because owners aren’t hardworking or committed, but because VAT often feels like learning a new language overnight. The rules are detailed, the paperwork is rigid, and one wrong tick in a box can snowball into a costly problem.

As accountants who work closely with SMEs every day, we’ve seen it all — from retailers who registered too late and faced unexpected fines, to service businesses that accidentally claimed VAT on expenses they shouldn’t have, only to be caught during an audit. The good news? With the right knowledge, these mistakes are avoidable.

In this article, we’ll walk you through the five VAT mistakes that trip up South African business owners most often. Think of it as a roadmap that keeps you from wandering into financial potholes — the kind that can damage cash flow, reputation, and peace of mind. Let’s start with the first (and perhaps the easiest to overlook) pitfall: missing the VAT registration threshold.

Mistake 1: Missing VAT Registration Thresholds

One of the most common missteps SMEs make is waiting too long to register for VAT. In South Africa, the rule is straightforward: if your business turns over more than R1 million in any 12-month period, VAT registration is no longer optional — it’s compulsory.

Here’s the catch: many business owners don’t realise they’ve crossed that line until it’s too late. It’s a bit like driving on a highway and missing the sign for a toll gate. You might not notice it immediately, but eventually, there’s a cost to pay.

Take one of our past clients, a small retailer in Johannesburg. Their sales were growing rapidly — a fantastic problem to have — but because they weren’t consistently tracking their turnover month by month, they didn’t register for VAT when they crossed the R1 million mark. By the time SARS flagged it, they were already facing backdated VAT payments plus penalties. What should have been a celebration of growth turned into a stressful scramble to cover unexpected costs.

To avoid this, think of VAT thresholds like milestones on a marathon. You don’t want to reach kilometre 42 and only then realise you’ve been running without water. Tracking revenue consistently ensures you know exactly when to take the next step.

Questions to ask yourself:

• Do I have systems in place to monitor turnover on a rolling 12-month basis?

• Am I clear about the benefits of voluntary VAT registration once I pass R50,000 in sales?

For many SMEs, voluntary registration can actually work in your favour, especially if you have significant expenses where you can claim input VAT. The key is to be proactive rather than reactive — don’t wait for SARS to tap you on the shoulder.

Mistake 2: Incorrect VAT Invoices

If VAT registration is about knowing when to join the system, invoices are about proving you belong there. Think of your VAT invoice as your business’s passport. Just as you can’t board a flight with an incomplete or fake passport, you can’t claim or charge VAT with an invoice that isn’t SARS-compliant.

And yet, this is where so many SMEs stumble. On paper, issuing an invoice looks simple: put your logo on top, add a few numbers, and send it off. But VAT invoices have strict requirements. They need to include details like:

• Your registered business name and VAT number

• The client’s details

• The date and unique invoice number

• A clear breakdown showing the amount before VAT, the VAT charged, and the total including VAT

Miss one of these, and your invoice could be rejected — leaving you unable to claim input VAT or worse, facing questions during a SARS audit.

I’ll never forget a case from a construction client in Durban. They’d landed a sizeable contract with a corporate client, only to have their invoices sent back again and again because the VAT details were missing. Not only did this delay payments, but it also damaged the relationship with the client, who started questioning their professionalism. A small mistake on paper nearly cost them a big client.

The tricky part is that many SMEs use templates they’ve downloaded online, or rely on manual spreadsheets. While these might look fine, they often miss critical compliance details. It’s like baking a cake but forgetting the eggs — the whole thing falls flat even if the rest looks good.

Questions to ask yourself:

• Are my invoices SARS-compliant?

• Am I using accounting software that automatically generates compliant invoices?

• Do I regularly review invoices before sending them out to avoid errors?

The good news is that technology makes this much easier. Cloud-based accounting tools like Xero, Sage, or QuickBooks are designed to keep invoices compliant by default. By moving away from manual invoices, SMEs reduce the risk of error and gain peace of mind knowing their “passport” is valid at every checkpoint.

Mistake 3: Claiming VAT on Non-Deductible Expenses

One of the most common traps business owners fall into is assuming that every business-related cost comes with a VAT benefit. Unfortunately, that’s not the case. Think of VAT claims like a buffet: just because everything is on the table doesn’t mean you’re allowed to take it all. SARS sets firm rules on which expenses qualify for input VAT claims, and mixing in non-deductibles can land you in hot water.

Some of the biggest culprits include:

• Entertainment costs (like staff lunches or client dinners)

• Passenger vehicles that aren’t strictly used for business purposes

• Certain fringe benefits provided to employees

It’s easy to see how confusion arises. A business owner in Cape Town, for example, thought they were doing everything right by keeping receipts for every client meeting over lunch. When their accountant filed, they claimed VAT on all of them. Months later, during a SARS review, those claims were disallowed. Not only did the business have to repay the VAT, but SARS added penalties and interest on top. A “generous lunch habit” turned into an expensive lesson.

The principle here is simple: not all business expenses are created equal in the eyes of SARS. A meal might help you win a client, but that doesn’t mean SARS sees it as VAT-deductible.

Questions to ask yourself:

• Am I confident I know which expenses qualify for VAT claims?

• Do I keep receipts and organise them clearly for review?

• Am I relying on an accountant or software that flags potential non-deductibles?

Practical Tip: Create two mental baskets for your expenses: “safe claims” and “don’t touch.” The safe basket includes obvious business costs like raw materials, office supplies, and VAT on subcontractors. The “don’t touch” basket includes entertainment, private car use, and other restricted categories. Keeping this mental checklist avoids the temptation to over-claim and risk penalties later.

At the end of the day, VAT shouldn’t feel like a gamble. By sticking to the rules and getting professional advice when unsure, you can avoid turning small missteps into financial pitfalls.

Mistake 4: Late VAT Submissions & Payments

If VAT registration and invoicing are about doing the right things, timely submission is about doing them at the right time. And with SARS, timing is everything. Miss a deadline, and you’re not just a little late — you’re already paying the price in penalties and interest.

Think of VAT deadlines like gym classes. It doesn’t matter if you planned to attend; if you show up 20 minutes late, the class has already moved on without you, and you’ve wasted your spot. In the business world, missing a VAT submission has a similar knock-on effect: wasted opportunities, extra stress, and unnecessary costs.

I once worked with a logistics company in Pretoria that kept missing their bi-monthly VAT deadlines. Each time, SARS added penalties and daily interest. Over 18 months, those “little” mistakes added up to tens of thousands of rand — money that could have gone into new trucks or hiring more staff. Instead, it became dead money, handed over to SARS.

The reality is that late submissions often come down to poor systems rather than bad intentions. Business owners are busy, deadlines sneak up, and VAT filing slips down the priority list. But SARS doesn’t care if you were in back-to-back meetings or focused on growth — to them, a deadline is a deadline.

Questions to ask yourself:

• Do I know my exact VAT submission dates for the year?

• Am I using a calendar reminder or automated software to alert me?

• Do I leave enough buffer time to fix mistakes before the deadline?

Practical Tip: Automate the reminders. Most accounting software can send alerts when VAT is due. Even a simple phone calendar reminder set a week before the due date can prevent unnecessary penalties. Another best practice is to treat VAT like rent or salaries — non-negotiable and always prioritised.

Submitting late once is frustrating. Submitting late repeatedly is like running on a treadmill: lots of effort, but you never move forward financially. SMEs that build strong systems for VAT submissions not only save money but also gain peace of mind, knowing SARS won’t be knocking on their door with penalty slips.

Mistake 5: Poor Record-Keeping

If VAT compliance were a house, record-keeping would be the foundation. Without it, everything else eventually cracks. SARS requires businesses to keep records for at least five years — invoices, receipts, bank statements, contracts — all neatly organised and accessible. Yet for many SMEs, record-keeping is the weak link.

It often starts innocently. A box of receipts in the office. A few invoices saved on a laptop. Some payments tracked in a notebook. Over time, that “system” becomes a ticking time bomb. When SARS calls for supporting documents during an audit, businesses scramble to piece together half-missing records. It’s like trying to bake a cake when you’ve lost half the ingredients — the result is always disappointing.

I worked with a small transport business in Mpumalanga that went through this exact nightmare. During a SARS review, they couldn’t provide invoices for several VAT claims. Not because they were dishonest, but because the paperwork was misplaced. As a result, SARS disallowed legitimate claims, and the business lost out on tens of thousands of rand. Money they should have kept simply vanished because of poor systems.

Questions to ask yourself:

• Are my VAT records stored digitally, in one central system?

• Do I back up records in case of data loss?

• Could I retrieve any document SARS requested within a day?

Practical Tip: Treat record-keeping like insurance. You hope you won’t need it, but when the day comes, you’ll be glad it’s there. Cloud-based accounting systems not only store invoices but also link receipts to transactions automatically, making retrieval effortless. Even a simple habit of scanning receipts with your phone can turn chaos into order.

In business, poor record-keeping doesn’t just risk SARS penalties — it also robs you of visibility. Without clear records, you don’t fully know your own numbers. And if you don’t know your numbers, you’re flying blind.

Conclusion

VAT doesn’t have to feel like a minefield. The truth is, most of the costly mistakes SMEs make aren’t about complicated loopholes — they’re about the basics. Missing the registration threshold, issuing incorrect invoices, claiming VAT where it’s not allowed, submitting late, and keeping poor records may seem small in isolation, but together they cost South African businesses millions every year.

The difference between paying unnecessary penalties and keeping more money in your pocket often comes down to one thing: preparation. By putting simple systems in place, asking the right questions, and leaning on professional support when needed, you can turn VAT from a constant headache into just another smooth part of running your business.

Think of it this way: VAT compliance is like maintaining a car. Skip the basics — like oil changes or tyre checks — and you’ll eventually face breakdowns that are far more expensive than the routine maintenance would have been. With VAT, the “routine maintenance” is keeping track of thresholds, ensuring compliant invoices, and staying organised. Do the basics right, and you keep your business running smoothly, without surprise breakdowns.

So, before you close this article, take a moment to ask yourself: Which of these five VAT mistakes am I most at risk of making? Spotting just one weak point today could save your business thousands tomorrow.