14. Deregistration
March 1994
The process of deregistering as a VAT vendor is simple but the consequences, if not anticipated, can be devastating.
The VAT Act provides that goods and services supplied and anything done in connection with the termination of an enterprise are deemed to have been done in the course or furtherance of that enterprise or activity. Accordingly, unless the business is sold as a going concern (in which case special rules apply and in which event, the sale/ supply of the business would be subject to VAT at the zero rate), VAT will be payable in respect of all goods sold and services supplied while the business is being terminated e.g. the disposal of stock, fixtures, vehicles (other than passenger vehicles the purchase of which were not or would not have been eligible for VAT input tax credits), patents, goodwill, etc.
Furthermore, if a person ceases to be a vendor and any business assets are not sold (excluding the abovementioned motor vehicles, etc.) but retained for the personal use of the owner, VAT would be payable on an amount representing the lower of the cost or open market value thereof. This would even include assets bought before the introduction of VAT.
The VAT payable would be the tax fraction (currently 14/114) of such amount.
A similar problem could arise if a property owning company is purchased which was not obliged to register as a vendor but had voluntarily registered (e.g. it owned a commercial property with an annual rentals of less than R150 000). The administrative requirements of VAT may then be too burdensome and it might therefore be decided to deregister the company for VAT purposes. VAT would immediately be payable on the lower of the cost or market value of the whole property.
Prospective purchasers of companies or close corporations are advised to carefully consider the VAT status of the entity in question and, if necessary, to insist on appropriate warranties from the seller.
Zeller Karro
