Businesses Face New Mandatory Requirement Issued by SARS

Businesses across South Africa that are registered as VAT vendors have recently been reminded of significant new obligations relating to their tax compliance, which now include the mandatory reporting of VAT apportionment to the South African Revenue Service (SARS). These obligations form part of the latest regulatory changes designed to improve oversight and accuracy in the calculation of VAT liabilities, and vendors are being urged to take note of the adjustments without delay.

Key Takeaways

• True-up adjustments are compulsory: Vendors must reconcile provisional and final VAT apportionment ratios within nine months of year-end, with errors risking penalties.
• Mandatory reporting to SARS: Detailed VAT apportionment data, including prior three years’ ratios and formulas, must be submitted by email alongside the true-up adjustment.
• Compliance burden is increasing: Smaller businesses face significant challenges, making early preparation, accurate record-keeping, and professional tax advice essential to avoid disputes.

New Compliance Rules Introduced for VAT Vendors

According to ENS, the country’s largest law firm with more than 600 qualified practitioners and a history stretching back over 200 years, the latest regulatory development is particularly important for companies engaged in mixed supply activities. With its extensive track record in guiding businesses through complex tax legislation, the firm has explained that the updated measures will demand careful attention and early preparation from all affected entities.

SARS officially introduced this new compliance requirement for VAT vendors through the publication of Binding General Ruling 16 (BGR16) Issue 3, which was released on 27 November 2023. This updated ruling replaces the earlier Issue 2 and establishes the framework that must now be applied to financial years beginning on or after 1 January 2024.

The new version of BGR16 continues to outline the standard turnover-based approach used to determine a vendor’s annual apportionment ratio but also builds on this with new exclusions, adjustments, and, most notably, a mandatory reporting requirement that businesses can no longer afford to overlook.

Introduction of Compulsory True-Up Adjustments

One of the most notable additions in Issue 3 is the introduction of a compulsory “true-up” adjustment to the apportionment calculation. This change has been described as critical for ensuring that VAT vendors’ provisional calculations align with the final figures at the close of each financial year.

The update requires vendors that rely on the previous year’s turnover figures to calculate the current year’s apportionment ratio to perform an adjustment after the end of the financial year. Specifically, any differences between the provisional ratio and the final outcome must be reconciled within a nine-month period following the year-end.

This mandatory reconciliation must be incorporated into the vendor’s VAT return for month eight, which in practice means that the adjustment is due at the close of month nine. As an example, a vendor with a financial year ending on 31 December 2024 will be expected to include the relevant true-up adjustment in its August 2025 VAT return. That return must then be submitted to SARS no later than the final working day of September 2025 if the vendor files electronically through e-filing.

Any business that fails to make this required adjustment is potentially at risk of breaching compliance obligations and facing penalties or other corrective actions. The ruling makes it clear that overlooking or delaying this reconciliation process will carry consequences.

Mandatory reporting obligations alongside adjustments

In addition to requiring true-up adjustments, vendors must now comply with an entirely new reporting obligation introduced in Issue 3. Note 8 of the ruling specifically obliges VAT vendors to provide SARS with a detailed submission containing information on their apportionment calculations. This reporting must be carried out at the same time that the true-up adjustment is reflected in the vendor’s VAT return.

The submission is required to be made by email to the address specified in the official ruling. It must contain precise details including the vendor’s registered business name, the VAT registration number, the particular apportionment method used, the formula that has been applied, and the final annual apportionment ratio calculated for the financial year under review.

Furthermore, vendors that are applying the new formula for the first time are also compelled to provide SARS with historical data. ENS explained that the requirement includes supplying the apportionment methods and ratios used for the preceding three financial years.

For example, a business with a financial year ending in December 2024 will, by September 2025, need to provide SARS with its 2024 apportionment information as well as the details of its ratios and formulas for the years 2021, 2022, and 2023. This retrospective requirement introduces an additional burden of record-keeping that many companies may not have anticipated.

Increased Compliance Burden for Vendors

The changes laid out in Issue 3 carry particular weight for businesses involved in mixed supplies, which encompass both taxable and exempt activities. The updated ruling includes a number of new exclusions and adjustments to the apportionment calculation, which may cause significant alterations to the ratios that businesses have previously relied on. Accuracy in performing these calculations has therefore become even more critical under the revised framework.

Vendors must not only ensure that the true-up adjustment is calculated correctly but must also verify that all supporting information submitted to SARS is complete and accurate. Tax professionals have cautioned that these additional obligations are likely to increase the compliance workload for vendors, especially for small and medium-sized enterprises with fewer resources to devote to complex reporting requirements.

Because VAT apportionment involves technical calculations and the application of detailed rules, businesses are being strongly encouraged to seek the advice of experienced tax practitioners. Professional guidance will help vendors to navigate the intricacies of the new regime, avoid inadvertent errors, and remain fully compliant with SARS requirements.

Tip: Smaller businesses that may lack in-house tax departments should consider outsourcing VAT calculations to reputable firms or subscribing to automated tax software designed to manage apportionment and true-up requirements.

Conclusion

The introduction of BGR16 Issue 3 has been framed as an effort to strengthen compliance and tighten reporting standards among VAT vendors. From January 2024 onwards, all vendors are required to adapt to the revised rules, and the first set of true-up adjustments and mandatory reporting submissions will fall due in September 2025.

ENS has emphasised that businesses which take proactive steps to prepare in advance, maintain comprehensive records of their apportionment methods, and consult with expert advisors will be in the strongest position to comply successfully. By acting early, companies can mitigate the risk of disputes with SARS and ensure that they remain aligned with the heightened expectations set out in the updated ruling.