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VAT 101 – The Company, The Trading Name and the VAT

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Please note that this pertains to South African VAT (Value Added Tax) regulations and Best Practice requirements.

Sounds like the title of a bad movie, doesn’t it?

The reality is that it can be very confusing so let’s try and explain it in the most simplistic manner.

Let’s bring in the protagonists. Mike, who is a plumber, has been trading as a ‘Sole Prop’ now for a number of years. You see when he first started out he was concerned about whether he would be successful or not and he has now decided, due to the tax benefits and other Government concessions for small businesses, that he needs to be properly registered. Mike has been trading under the name “Mike’s Plumbing & Supplies” and would obviously not like to start from the very beginning again, in terms of marketing and branding.

Unfortunately the name “Mike’s Plumbing & Supplies” has already been reserved and Mike has had to register his Company in his full name, being Mike Jennings Company (Pty) Ltd T/A Mike’s Plumbing & Supplies

Mike has had to register the VAT under his new Company. The VAT that he collects is now under the name of Mike Jennings Company (Pty) Ltd T/A Mike’s Plumbing & Supplies.

Mike is having difficulty in finding properly qualified plumbers and clearly needs to employ some if he wants to grow his business.

Mike recognizes the opportunity and decides to open up a training school to train aspiring plumbers. Mike decides to use his existing Company to start the training school.

In view of the fact that Mike is using his existing company and it is already VAT registered, Mike has to charge VAT for his school right from the very beginning, although the training of plumbing students is very different to being a plumber, and in fact is a completely different entity to his plumbing business.

In time, Mike decides that he wants to operate his training division as a completely separate entity as it is doing really well. Mike doesn’t want to start or register a new business, but he does want to separate the bookkeeping functions of the two businesses.

Mike’s bookkeeper, who knows what he is doing, registers a ‘branch’ to Mike’s original Company and so Mike Jennings Company (Pty) Ltd T/A Mike’s Plumbing School is born. This entity is now also registered for VAT and has its own VAT number. He does this by means of a VAT 102 form. The second VAT number for the same “holding” company does not have a minimum threshold and Mike is able to continue charging VAT to the students.

As Mike’s business grows and he expands into more and different avenues, he is able to separate each entity, register them as ‘branches’ and register a VAT number for each one as he separates the bookkeeping functions so that each ‘branch’ is responsible for it’s own income and expenses and VAT requirements.

Well done to Mike for growing such a profitable business and running it in the correct manner.