Has an upcoming VAT payment ever taken you by surprise?  If your answer is yes, don’t worry — you’re not alone!  One of the biggest challenges for small businesses is managing cash flow effectively. Business owners often make the mistake of not budgeting properly for VAT payments, which can lead to panic or shortfalls when the time comes to pay SARS. A surprise VAT liability can disrupt your operations and even impact your ability to meet other financial obligations.

While there’s no universal formula that works for every business, the following practical tips can go a long way in helping you stay compliant and in control of your VAT obligations:

1. Remember: The VAT you charge your clients is not yours to keep

It’s easy to forget, especially when cash is tight, that the VAT you invoice your clients doesn’t belong to your business — it belongs to SARS. Think of yourself as a collector of tax on behalf of the government. If you treat that VAT amount as business income and spend it, you’re setting yourself up for a cash flow crunch come VAT submission time.

2. Open a second bank account dedicated to VAT

A useful strategy is to open a separate, interest-bearing bank account specifically for VAT. When you receive payment for an invoice, immediately transfer the VAT portion into this account. This keeps the VAT funds ring-fenced and prevents accidental spending.

If your business purchases include VAT on costs (e.g. from suppliers), and you plan to claim input VAT, then you can adjust how much you transfer. For example, if your gross margin is 40%, you could transfer only 40% of the VAT charged on invoices to your VAT bank account. This takes into account that some VAT paid on inputs will offset what you owe. Just be sure your estimates are based on accurate and up-to-date financial data.

3. Monitor your VAT position regularly

Don’t wait until the end of the VAT period to figure out what you owe. Use your accounting software to track VAT on sales and purchases as you go. This helps you stay aware of what your likely payment will be, so there are no last-minute surprises. If you don’t have access to real-time accounting information, consider switching to an accounting software (like Xero) and service provider that can provide you with this.

Final thoughts:

VAT planning is about discipline, foresight, and a bit of admin. But the rewards are peace of mind, fewer financial shocks, and a better-run business. By putting a system in place — even a simple one — you’ll be doing your future self a big favour.

If you need help with VAT planning or bookkeeping, reach out to us and we can help you tailor a system that works for your business.