A detailed explanation on the different types of VAT and their impact. We delve into when and how to claim as well as details for a valid tax invoice.
Types of VAT:
– Standard rate
– Zero-rated supplies
– Exempt
Standard Rate
VAT is calculated at 15% of the service or goods total and then added onto the service/goods total.
• Output VAT:
– When a company or an individual generates a sale or fee, it is considered Excluding VAT, and VAT is calculated on this revenue and then added onto it.
– The VAT Inclusive amount is considered, taxable goods – for VAT purposes. For INCOME TAX, the nett / Exclusive amount is recognised as revenue/sales/fees.
– This is the amount shown on the VAT201.
– Output VAT is what is owed to SARS.
– When the debtor/customer/client pays their account, you allocate the entire receipt against their account, BUT the VAT portion, belongs to SARS and is due to SARS from the moment the invoice amount becomes receivable.
• Input VAT:
– Input VAT is VAT payable to service providers and suppliers as part of their invoice total.
– Input VAT is calculated and claimed on the following :
• General expenses (with limitations)
• Capital goods purchased (with limitations)
– Therefore, when payment is made on an invoice (or at the till a shop or supermarket), the total amount paid, includes the VAT portion
– Input VAT is deducted from the Output VAT declared, in order to determine the final VAT balance owing to SARS
When are goods exempt from VAT and when are they zero-rated? Why are they zero-rated or exempt?
Both exempt and zero-rated items may have a 0% rate on your accounting software, but the difference needs to be understood. It is also important to know that just because the items are zero-rated or exempt from VAT, it does not mean the items are not taken into account for income tax.
Input VAT cannot be claimed on fuel or interest paid, but should these be business expenses, the expense can be claimed for income tax. Should a service or sale, to a foreign business be invoiced, there is no VAT being charged, but the income is taxable for income tax.
Zero-rated
The most popular items are:
• Sales or services to foreign countries.
• Basic food items:
– Brown bread.
– Milk.
– Fresh paprika (dried paprika has VAT).
– Agricultural goods: maize, corn, dried mealies, etc.
– Fuel.
The idea behind basic food items not carrying VAT, is to make these items more affordable for households, with lower incomes. Farmers are also able to obtain/purchase seeds, etc at a zero rate.
Exempt
Also at a rate of 0%, but consists of the following items:
• Finance services (excluding bank fees):
– Interest.
– Long-term insurance.
• 3rd party companies or individuals who earn commission on the sale of policies can register for VAT and will have to register for VAT if their revenue exceeds R1million.
• See Section 2(1) of the VAT Act
• School fees.
• Public transport.
• Residential accommodation.
– The landlord cannot charge VAT or claim VAT on services (commission to agents, repairs, etc.).– Needs to pay the VAT, but cannot claim it from SARS.
– This excludes B&B’s, hotels and other relevant accommodations, where the accommodation is a service and not for a primary residence.
Expense and capital items purchased:
When can and when can we not claim input VAT?
1) When the service provider / supplier is NOT registered for VAT.
2) When the service or goods is either :
i. Zero-rated
ii. Exempt
3) When VAT is strictly not allowed :
– Petrol and diesel
i. There are exceptions, but rule-of-thumb is NO VAT may be claimed.
– Staff welfare and refreshments
i. Water for the water cooler
ii. Tea, coffee, milk, sugar, etc
iii. Fast foods when traveling
– Entertainment
i. Taking clients or staff out or for office consumption
ii. The exceptions here are when the company/individual earns commission or is strictly in specific industries
– Goods purchased from foreign countries :
i. The exception :
There may be customs VAT on the invoice which is at a higher rate than 15%
Input VAT on Capital Goods:
Capital goods are generally a single item with a value of over R7,500 (excl. VAT).
– Eg. Seven chairs at R1,500 each totals: R10,500. Individually, they are not considered.
They can still be shown on an asset register, but then fully written off.
Input VAT on capital goods is disclosed separately on the VAT201 and is added to the Input VAT as mentioned above.
When can Input VAT NOT be claimed on capital goods?
1) When the service provider / supplier is NOT registered for VAT.
2) Vehicles :
– Double cab bakkies
– 4-door passenger vehicles (with exceptions)
– Mini-busses (with exceptions)
These are the most common, general examples.
Information needed for valid invoice:
There is quite a bit of information needed, on an invoice, to make it a valid tax invoice. Without the below, your VAT claim will be dismissed and your VAT liability will increase:
1) Details for both supplier and purchases :
– Full company names (or an individual’s name and surname)
– Addresses
– VAT numbers
– Contact details are a bonus, but not a strict requirement.
2) Other details on the invoices :
– Date on which the invoice is issued
– Clearly be shown how the pricing is calculated
– Exclusive amount must be clearly stated
– VAT percentage and amount must be clearly shown
– Inclusive amount must be shown
3) Description of services / goods to be clearly shown as well as whether calculated price already Includes or excludes VAT. This relates to individual line-items and separate descriptions within the body of the invoice.
– Salim Khan
