What the VAT?

What exactly is VAT?

Value added tax more commonly known as VAT is an indirect tax on the consumption of goods and services.  

Basics of VAT:

VAT can be subdivided into its basic form of either Input VAT or Output VAT. 
 

Input VAT is the tax component for the purchase of goods and services for the purpose of making taxable supplies. (for example cost of sales and material purchases) . 

Output VAT is the tax component for the supply of goods and services. (Sales). 

If an entity is a registered VAT Vendor they need to charge VAT on all their business transactions (Sales) unless the relates to exempt or zero-rated supplies. (there are other transactional types as well but only the basics are discussed in this article) 

Difference between exempt and zero-rated supplies 

Exempt: 

Exempt supplies are transactions that are not Vatable. Thus no Input or Output VAT is levied and claimable on these transactions. 
 

Examples of exempt supplies include but are not limited to : 
1. Currency exchange
2. Issue of debt Security
3. Issue or transfer of ownership of a share or members interest 

Zero-Rated:

Zero-rated supplies are items that are taxed but at a rate of 0%. (Input VAT can still be claimed on the supply) 

Examples of zero-rated supplies: 
1. Supply of goods and services for agricultural or other farming purposes
2. Gold coins ( such as Kruger Rand) 
3. Certain foodstuff such as Brown bread, samp, milk and so forth (Basic foodstuff) 

What is a Valid tax invoice?

In order for an entity to claim Input VAT they need to have a valid tax invoice. 

Requirements for a Valid tax invoice: 
 

1. Contains the words “Tax Invoice”, “VAT Invoice” or “Invoice”

2. Name, address and VAT registration number of the supplier

3. Name, address and where the recipient is a vendor, the recipient’s VAT registration number

4. Serial number and date of issue of invoice

5. Accurate description of goods and /or services (indicating where applicable that the goods are second hand   goods)

6. Quantity or volume of goods or services supplied

7. Value of the supply, the amount of tax charged and the consideration of the supply (value and the tax) 

(extracted from the SARS Website: https://www.sars.gov.za/businesses-and-employers/government/tax-invoices/)

When should I register as a VAT Vendor: 

If your taxable supplies exceed R1,000,000 or is likely to exceed R1,000,000 for any consecutive 12-month period then it is compulsory to register as a VAT vendor.

A company may also voluntarily register as a VAT vendor. 

The frequency of your returns (Yearly, Bi-monthly or monthly) will depend on the type of company as well as the value of your taxable supplies.

How to calculate the exclusive amount if you have the Inclusive VAT amount: 

Inclusive amount x 100 / 115 = exclusive amount 

How to calculate your VAT liability: 

Output Tax less Input tax add/less adjustments  = Tax amount due or refundable 

If the Input Tax exceeds the Output Tax = Refund due from SARS

If the Output Tax exceeds the Input Tax = Liability due to SARS