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Are farmers Vat vendors too?

by , 12 September 2013
Agriculture is one of South Africa's most important industries. Yet it seems to be the most neglected by tax guides. No longer! Farmers are Vat vendors too. If you're a farmer, continue reading to discover your Vat responsibilities so you can reap the rewards of the seeds you sow or the cows you milk.

If you think you're exempt from Vat as a farmer, you're wrong. Farmers are Vat vendors as well.

And this means you must adhere to your Vat duties.

Here are the Vat responsibilities of a farmer…

According to the Practical Vat Loose Leaf Service, if your enterprise is farming and your gross income in a 12-month period is more than R1 million, you're legally liable to register for Vat as a vendor.

The Loose Leaf adds that if standard-rated supplies (for example, wheat) and zero-rated sales (for example, vegetables) amount to more than R1 million, you must register as a vendor.

If you're starting or have started with a farming activity where you're continuously or are regularly carrying on the activity, but, because of a long development phase, will only receive income after a period of time, you can still apply for registration as a Vat vendor.

Here's an example: James begins cultivating peach orchards. He has tremendous start up and maintenance costs and he'll only receive income from the peach trees when they mature and bear fruit several years down the line.

James can still register for Vat from day one, as he'll eventually receive income. He'll also be entitled to claim all his input tax from the first day and will only show his output tax when he actually sells the peaches.

What happens after you've registered for Vat as a farmer?

Once you've registered for Vat, SARS normally allocates a six-monthly tax period to you. This period is reserved exclusively for vendors carrying on farming activities.

Be warned: If your annual farming income in a 12-month period goes above R1.5 million, you must notify SARS and request that your tax period be changed to a two-monthly one.

The onus is on you to do this. Don't wait for SARS to make this change.

If SARS makes the change, it'll do so back-dated to the point where you exceeded R1.5 million (they check this on your financial statements). And this means SARS will raise penalties and interest at 10%.

What about zero-rated supplies?

The sale of many farming supplies is zero-rated. These include:

  • Mealies;
  • Vegetables (including leguminous plants);
  • Herbs (including chillies);
  • Fruit;
  • Milk;
  • Eggs; and
  • Goods exported by direct export.

Remember, the normal input tax rules apply to you as well as a farmer. You can claim your input tax on all expenses used in the course of your farming activities.

Some of the inputs you can claim, but may not be aware of, include:

  • Medical costs for staff;
  • Electricity;
  • Telephone expenses;
  • Diesel rebate; and
  • Purchases of equipment
  • Cost of building and equipping a farm school (allowable because you're not the person who provides Vat exempt educational services).

Now that you know your Vat duties as a farmer, make sure you comply with the Vat Act.

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