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Value Added Tax Introduction Accounting Bases Registration as a Vendor VAT Categories and Accounting periods Payment & records Supplies 1 Introduction VAT is an INDIRECT TAX What is an indirect tax? • Charged on the value of all supplies made by a vendor. • Governed by VAT Act - Act No 89 of 1991 • What VAT means - for consumers – consumption tax of 14% on most goods & services - for ‘registered vendors’ – the amount payable to (or refundable from) SARS * determined as the difference between ‘output tax’ and ‘input tax’ 2 Introduction Output Tax - VAT the vendor charges (collects) * on the supply of goods or services * in the course or furtherance of an ‘enterprise’ carried on * current std rate is 14% Input Tax - VAT which the vendor has borne * on goods & services Non-vendors • No output tax charged, No input tax claimed 3 Accounting bases • Two accounting methods for VAT – s16, subject to s15 - Invoice basis - Payments basis • Invoice basis - most common method - output tax accounted for at earlier of : * issue of invoice; or * receipt of payment - input tax accounted for at earlier of : * receipt of invoice; or * making payment • Payments basis – s15 - output tax only accounted for when payment actually received - input tax only claimed when payment actually made. - only available to natural persons, 4 subject to several conditions Vendor registration – s23 • Compulsory registration - any person carrying on - one or more ‘enterprises’ - total value of taxable supplies exceeds (or likely to exceed) R1,000,000 * for any 12-month period • What is an Enterprise - activity carried on - continuously or regularly - in the course or furtherance of which - goods or services are supplied - to any other person - for consideration - detailed definition in s1 . - separate registrations possible for separate enterprises (e.g. divisions) - single registrations possible for separate persons carrying on one enterprise, e.g. partnerships 5 Vendor registration – s23 Specific exclusions from enterprise 1. A hobby 2. supply of services by an employee. 3.Supply of comm. accom. - value of supply < R 60k for a period of 12 mnths. 4. certain supplies made by branches or main businesses outside SA. 6 Vendor registration – s23 Specific inclusions in the definition of an enterprise 1. Anything done on connection with the commencement or termination of an enterprise. 2. Activities of welfare organisations and foreign donor funded projects. 7 Vendor Registration • Voluntary registration - taxable supplies less than R1,000,000 - total taxable supplies exceeded R20,000 in preceding 12 months - purchase of going concern for which total taxable supplies exceeded R20,000 in the preceding 12 months - activity carried on will only result in taxable supplies over a period of time * and taxable supplies likely to exceed R20,000 over a 12-month period - Qualifying welfare organisations may register without a minimum requirement • Registered vendors - must charge output tax (on taxable supplies made) - can claim input tax (on taxable 8 supplies received) Anti Avoidance - s50A • Registration attached to a person • if a person has more than one enterprise and is registered as a vendor for one. Then • Automatically vendor for the rest. • Section 50 A gives the Commissioner the right to deem an enterprise that has been split up into separate entities for the purpose of avoiding to register as a vendor and so doing avoid VAT to be one enterprise. When • the Commissioner is satisfied all the different parts is part of one larger activity 9 Anti Avoidance - s50A Example • Mrs X Carries on three different enterprises that only makes taxable supplies . All three enterprises operates on in her own name. • Value of the supplies: • Enterprise 1: R 360,000 • Enterprise 2: R420, 000 • Enterprise 3: R240, 000 » R 1020 000 • Determine whether MRS Z is obliged to register as a VAT vendor. 10 Anti Avoidance - s50A Example • Paul is a plumber and carries on a business as a sole trader. Value of his taxable supplies for the past 12 months amounted to R550 000. He is also the sole member of a CC called Paul’s Plumbing Services cc. with taxable supplies to the value of R480 000 for the past 12 months. • You are required to determine whether Paul is obliged to register for VAT Purposes. 11 Vat Accounting Period • s27 • VAT periods - accounting period for calculating Output and Input tax - 5 different categories (A, B, C, D, E, F) • Category A & B : 2-month periods - taxable supplies up to R30m per year; (farmers : taxable supplies over R1m) - Two separate categories (A & B) with alternate end-months * A = Dec-Jan, Feb-Mar, etc. * B = Jan-Feb, Mar-Apr, etc. • Category C : 1-month periods - taxable supplies over R30m per year - or if specifically requested • Category D : 6-month periods - farmers : taxable supplies less than R1,5m ove a 12 month period. - Last day Feb and Aug 12 Accounting Periods (2) • Category E : 12-month periods - companies & trusts only; and - enterprise consists solely of : * letting fixed property; or * renting movable property; or * administering of connected companies in relation to the vendor - recipients of such supplies (customers) are registered vendors entitled to input tax - Tax invoices & payments are effected annually - Written application to C:SARS - VAT-period same as income tax year • Category F : 4-month periods - 3 tax periods per annum - end on last day of June, October, February - annual turnover exc VAT less than R1,5 million 13 - application in writing to SARS Payment & Records • Payment of VAT to SARS (s 28) - VAT return (plus payment) submitted * on or before the 25th of the month * after the end of tax period e.g. Jan-Feb period : Return due 25 Mar • Penalties and Interest 10% of the tax; Interest at the prescribed rate. • Records -All vendors must retain records to support Output & Input calculations at least 5 yrs from entry into records Tax invoice must contain certain information, e.g. the words ‘tax invoice’; supplier’s VAT registration number as from March 2005 if tax invoice: > R1 000 must have address and name of recipient > R 3000 must also have VAT registration number of recipient different minimum requirements for invoice 14 under R20; between R20 & R500; and over R500 Supplies What is a supply? • Supply - performance in terms of sale, rental, agreement etc. - includes the supply of all goods and services in return for consideration • Two types of supplies - Taxable supplies (2 sub-categories) * Standard rate (14%) * Zero rate (0%) - Exempt supplies VAT charged upon taxable supply * if supplier is a registered vendor -Input tax can only be claimed * by registered vendor * in course of making taxable supplies • Special rules setting out - Deemed supplies (generally taxable) - Non-supplies 15 Zero-rated Supplies • Subject to Vat at 0% • Zero-rated supplies made - input tax can be claimed on expenses related to zero-rated ‘sales’ • Exported good & services - goods consigned or delivered to a recipient in an export country * Compliance requirements in PN2 (e.g. copy of export documentation) - services to a non-resident, who is outside SA at time of receiving service * subject to conditions and exceptions - services ancillary to exported goods * e.g. transport 16 Zero-rated Supplies (2) • Sale of enterprise as ‘going concern’ Deemed supply of goods ito s8(7) - entire enterprise or part thereof Requirements - must be separate and independent income-earning entity * not only business structure / assets - purchaser and seller must both be registered vendors - written contract must specify ‘going concern’ requirements set out in PN14/pg869 Calculation related to going concern sales 100% taxable usage - all or at least 95% - used taxable supplies – seller levies 0% on full transaction more than 50% taxable usage - all assets deemed to form part of going concern sale at 0% less than 50% taxable usage - must split 17 into taxable and non taxable usage Zero-rated Supplies (2) • Goods for agricultural use - per specified list, e.g. animal feed, fertiliser, seeds, etc. • Fuel levy products (petrol, diesel, etc) • Listed basic foodstuffs - e.g. brown bread, fruit, vegetables, maize meal, etc. • International transport - Between SA & export countries, or between export countries Refer pg 872-873 for more examples 18 Zero-rated Supplies (2) • Mark Model ( Vat Vendor) carries on business of a dairy . For the VAT period under review he received R300 000 (VAT incl) for the sale of milk. • During the same period he incurred the following expenses (VAT incl): » • Purchase of cow from vendor R114,000 • Fuel R 8,000 • Purchase of Pack Materials : R 57,000 You are required to calculate the VAT payable or refundable for the applicable VAT period. 19 Zero-rated Supplies (2) • Output VAT • Sale of milk – zero rated - • Input Vat • Purchase of cow (114000X14/114) 14,000 • Fuel - • Packing Materials 7,000 • Total Input VAT 21,000 • Amount to be refunded: (21,000) 20 Zero-rated Supplies (2) • A vendor sells tenanted fixed property for R1.7m. The building is partly let as residential flats (exempt supplies) and partly as commercial offices (taxable supplies) Assume that all the requirements are met and the sale qualifies as the sale of a going concern. • You are required to determine how much of the selling price will be subject to zero rating in the following instances. 21 Zero-rated Supplies (a) Residential Flats 60% vs commercial offices 40% (b) Residential Flats 40% vs commercial offices 60% 22 Zero-rated Supplies (a) Residential Flats 60% vs commercial offices 40% • Only R680,000 will be zero rated 1.7m X 40%) • (b) Residential Flats 40% vs commercial offices 60% • The full selling price will be subject to zero rating. 23 Exempt Supplies s12 Persons making exempt supplies • deemed not carrying on enterprise • Cannot register as Vat vendor • cannot claim input tax • apportionment where a vendor makes exempt as well as taxable supplies • Financial services - Only certain specified financial services e.g. * interest charged on debt; * sale/transfer of shares, members interest in cc * long-term insurance premiums; * pension fund contributions, RAF contributions, medical subscriptions - excludes supplies which charge fees, etc. (i.e. not exempt, therefore subject to std rate), e.g. * bank’s service charges; 24 * fees for amending loan contract; etc. Exempt Supplies s12 • Transport business Passenger Transport : Road & Rail e.g. taxis, buses, trains, etc. • Supplies by associations not for gain - supply of goods received by donation - goods made/manufactured if < 80% of materials were donations received • Educational services - State, or any public institution, e.g. schools & universities - Crèches, after-school care, etc. 25 Residential Accommodation • Exempt Supply - Supply of a ‘dwelling’ - under a rental agreement - But not ‘commercial accommodation’ - ‘Dwelling’ = place of residence or abode of natural persons (e.g. houses and flats, but not offices, factories, etc.) • Commercial accommodation - Hotels, guest houses, holiday accommodation, etc. - Total annual receipts exceed R60 000 - No rental agreement - Can include house or flat if no rental agreement - Also includes homes for the aged, handicapped, etc. and hospice 26 Commercial Accommodation • NB : Commercial accommodation = Std-rated supply • Domestic goods & services supplied to guests/tenants - e.g. meals, cleaning, electricity - Can be charged for * separately; or * as part of all-inclusive charge • Separate charge for domestic goods & services - All charges (i.e. accommodation as well as other charges) fully subject to std-rate VAT • All-inclusive charge - Supplying accommodation for 28 days or less : Full charge subject to VAT - Accommodation for >29 days : Only 60% of charge subject to VAT 27 Exempt Supplies • The following items appeared on Ragdoll boutique’s bank statement for September. ‘R • Internet Banking fee 73.92 • Service Fee ( Bank Charges) 162.35 • Transaction costs. 83.9 • Administration costs. 14.00 • Interest charged on overdraft. 116.42 • Interest received on positive bal 83.2 • Cheque book cost. 18.20 Indicate which of the above amounts include VAT and if so how much VAT is included. 28 Exempt Supplies • The Needy Association , an Association not for Gain, received second hand clothes and glasses as donations from members of the public. The association sells the clothes to the public for R10 a piece and engraved the association’s name on the glasses prior to selling them at R5 per glass. • Determine the VAT consequences: 29 Deemed Supplies • S8,18,22 – deem certain events or transactions to be supplies. Vendor must account for Vat on these • Ceasing to be a VAT vendor – s8(2) - cessation of trading; and/or - VAT deregistration - deemed supply of all goods held for which input was / could be claimed - Paid at the VAT fraction on the lesser of cost or MV ( cease to be vendor) - special rules for deregistration due to supplies being reduced to below voluntary registration limit (R1,000,000) - 6 equal installments - Deregistration to register as a micro- business – 6 months to pay 30 Deemed Supplies • Indemnity payments –s8(8) - e.g. payout from short-term insurance. - if related to loss incurred in carrying on of the enterprise. - not applicable to goods/services where input denied s 17(2) * stolen, destroyed, beyond repair; and * prohibited from input tax claims - not related to taxable supplies made by the vendor. • Overpayments Period of 4 months – no refund then Deemed consideration for supply by vendor. 31 Deemed Supplies (2) • Goods sold to settle debts of owner - where goods belonging to 3rd party are sold to settle debt of such 3rd party (e.g. repairer of uncollected goods) • VAT clawback - debt outstanding for more than twelve months after becomes payable then input tax claimed treated as output tax. • Certain Fringe benefits – s18(3) - Deemed to be supply by employer to employee. - The net effect is to reverse the VAT previously claimed by that employer. - Vat calculated on the cash equivelant of the asset. For Motor vehicles prescribed rates Eg. page 856 & 857 - To be covered later 32 VAT Clawback & Imports • VAT clawback - debt outstanding for more than twelve months after becomes payable then input tax claimed treated as output tax. Vat paid on import of goods s13 Calculated at the rate of 14% on : Customs duty value xxxxxx Plus Customs duty xxxxxx Plus 10% of said value (not BLNs) xxxxxx VAT on imported services s 14 When SA resident – NOT VAT Vendor OR will not be using the service in Vatable enterprise. 33
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