Value-Added Tax (VAT) is an integral part of doing business in South Africa. Whether you’re a start-up or an established enterprise, VAT compliance is a legal obligation that impacts your financial reporting, cash flow, and reputation with SARS. Yet, many businesses fall into common traps that can lead to penalties, interest, and even audits.
This guide aims to help South African business owners understand and avoid common VAT errors — so you stay compliant, efficient, and confident in your tax processes.
Why Getting VAT Right Matters
Filing VAT inaccurately or late doesn’t just result in admin headaches — it can:
Trigger interest and penalties from SARS.
Result in cash flow disruptions.
Lead to audits and investigations.
Damage your company’s financial reputation.
Whether you’re registered voluntarily or due to passing the R1 million turnover threshold, understanding these common VAT mistakes can protect your business.
1. Late VAT201 Submissions
The Problem: Many businesses forget or delay submitting their VAT201 return.
The Risk: SARS imposes penalties and interest on late submissions — even if your return is eventually accurate.
Avoid It: Mark your calendar! If submitting manually, the due date is the 25th of the tax period month. Via SARS eFiling, the deadline is month-end.
Add a recurring reminder in your calendar and work with a professional to stay compliant.
2. Incorrect VAT Claims on Non-VAT Invoices
The Problem: Claiming input VAT on invoices from non-VAT registered suppliers.
The Risk: SARS may disallow the deduction and raise penalties.
Avoid It: Always check if a supplier is VAT registered by ensuring their invoice includes:
A valid VAT number
Correct tax invoice wording
Breakdown of VAT amount charged
Partnering with an accountant ensures proper review of supplier documentation. Contact Optigrow for compliant bookkeeping.
3. Claiming VAT on Non-Deductible Expenses
The Problem: Many businesses claim VAT on:
Entertainment expenses
Fines and penalties
Passenger vehicles (under certain conditions)
The Risk: SARS can disallow these claims and impose penalties.
Avoid It: Understand SARS’ rules on what is VAT deductible. If you’re unsure, consult with a qualified accountant.
See SARS VAT Guide
4. Misunderstanding Zero-Rated vs Exempt Supplies
The Problem: Businesses confuse zero-rated items (e.g., basic foodstuffs) with exempt items (e.g., financial services).
The Risk: Incorrectly applying VAT may result in under- or over-reporting.
Avoid It: Understand the difference:
Zero-rated = Taxed at 0%, still claim input VAT.
Exempt = No VAT applied, no input VAT claim allowed.
Need help categorizing your goods or services? Optigrow can assist.
5. Not Keeping Supporting Documentation
6. VAT on Cash vs Accrual Basis Confusion
The Problem: Reporting VAT based on payments received (cash basis) vs invoices issued (accrual basis).
The Risk: Misreporting VAT liabilities based on the wrong accounting method.
Avoid It: Understand your business’s VAT basis and stick to it. If you’re on accrual, VAT is due when the invoice is issued, not when paid.
7. Missing VAT Deregistration Obligations
The Problem: Businesses that no longer meet VAT thresholds but fail to deregister.
The Risk: Continued obligations and potential non-compliance.
Avoid It: If your turnover falls below R1 million, consider voluntary deregistration. Let Optigrow handle it for you.
How Optigrow Helps You Avoid VAT Mistakes
At Optigrow, we provide end-to-end VAT services that ensure your business remains compliant while saving you time and money:
Monthly bookkeeping and VAT tracking
Preparation and submission of VAT201
Audit-ready documentation and compliance
Real-time financial insights via Xero Accounting Software
Whether you’re a start-up or growing company, our experts bring the accounting clarity you need to stay ahead.
Don't Let VAT Errors Hurt Your Business
Avoid stress, penalties, and cash flow disruptions. Let Optigrow take care of your VAT compliance while you focus on running your business.
Contact us today for a consultation — and let’s get your tax affairs in order the smart way.
