The Value Added Tax is levied on the consumption of goods and services within an economic system through the pricing system. This indirect tax earns the government revenue through the business registration and supply of taxable products and services.
Who Registers for VAT?
Businesses with a turnover (or a forecasted turnover) of more than R1 million per year are obliged to register as VAT vendors. A business can also register voluntarily if turnover in a 12 month period has exceeded R50 000.
A vendor is any person who is required to register in terms of the VAT Act. A “person” includes any natural or juristic person and the estate of any deceased or insolvent person.
An enterprise is any regular activity carried on in or partly in the Republic of South Africa, whether or not for profit, in the course of which goods are sold or services are rendered. There are specific inclusions and exclusions relating to enterprises.
To register for VAT, you need to complete a VAT101 form. Once you’ve registered, SARS will let you know in writing what your registration details are, the date on which it took effect and the tax period allocated to you.
The registration for VAT can be a compulsory or voluntary decision. The pro’s and con’s however can vary for different industries and specific companies.
If you would like more information or would like to register for VAT, please contact us at Bookkeeping Services Overberg.
What can I claim for?
If registered, VAT to be charged for all services and/or products supplied by the vendor. These services and/or products must be wholly and/or partly used for consumption in the course of making supplies or supplying a service that is taxable. The expenses that are claimed have to be legitimate business expenses for the VAT to be claimed.
Examples:
- If you buy a potato (as a basic foodstuff this does not attract VAT which means you cannot offset it) to make chips or mash or even a roast potato dish for your restaurant, you used the potato (but changed it in the cooking process) in your product and your product does now attract VAT.
- Going out for a meal with clients is called ‘entertainment’ and can claim as a business expense, you cannot claim the VAT on it. There is always an exception and here it is: If you or one of your staff are going out for a meal with a client and you (they) are out of town for longer than one night, you can claim the VAT back on this. In fact, you can claim the VAT back for any meals enjoyed by you and your staff (including alcohol) while you are out of town on business for a period longer than one night.
- Normally, you cannot claim VAT for ‘office refreshments’ like tea, coffee and snacks. BUT if you purchase refreshments for the delegates that you are training, then you can claim VAT on those refreshments. You cannot claim the VAT back for any meals enjoyed by you and your staff (including alcohol) while you are out of town on business for a period longer than one night. The same applies for furniture or appliances to be used by staff in staff kitchen or staff areas.
- If you hire a car for business purposes, then you are entitled to claim the VAT on the insurance that you are required to take out on the vehicle. Be sure to get an invoice that lists the insurance, or itemizes it separately, this will make it much easier for record-keeping purposes.
- Should one of your staff fall ill at work or get hurt in an accident while they are at work and the medical expenses are paid by the company, the VAT on these medical bills can also be claimed back.
- Parking fees, particularly fees that are paid, while working, that have VAT charged on them (in other words Tax Invoice should appear, somewhere on the receipt, and yes you have to have a receipt to claim the VAT back), can be claimed back. This is provided that you are there for business!
- Monies that are paid out to the ‘car guards’ cannot have the VAT claimed for, but you can, of course, claim them as a business expense as long as they are “reasonable” and it is always better to be able to substantiate them.
- Toll fees that are incurred during the course of staff business travelling can have the VAT portion claimed for. Again the whole transaction has to go through the Company books, which would then have an impact on Company Tax.
- When you send wreaths or flowers to staff or customers who have had a death or bereavement in their families, you unfortunately can’t claim the VAT back.
- Postage stamps and postage, the VAT portion can be claimed back provided of course that the postage is being used for business purposes.
- Artwork, in the form of carpets or paintings and pictures or even plants, can have the VAT claimed for, provided of course that they were actually purchased for the office, they have to physically be in the office.
VAT on Improvements of vehicles
Many companies that are sales driven and who employ a large number of sales representatives. This is a situation where the staff either own their own vehicles, or the company has a large fleet of vehicles for the employees to use.
Improvements that are made to these vehicles (including the vehicles that are owned by the staff themselves), that are used for business purposes can claim the VAT back. Some examples of these improvements are (but not limited to):
- Tow Bar
- Air Conditioning
- Cruise control
- Radio/CD player
- GPS
- Gear Lock
- Hands-free phone kit
- Tracker (or similar tracking type device)
- Smash and grab window tinting etc.
Subscriptions and professional fees?
Subscriptions to magazines, trade journals and associations that relate to your business can claim VAT. Flower arrangements for the reception rooms and offices can have the VAT portion claimed for. They must be present on the premises.
Should you own a fixed property in your personal capacity, that you now start using for business purposes, the VAT portion of the transfer duties can be claimed for.
Travel?
VAT on airplane tickets that were purchased for local business travel and please note the “local” in the business travel, as well as the accommodation and other expenses (such as food and drink) can all be claimed. VAT on air travel is slightly different, ie: not a standard 15% on all of it.
Remember though, if you are travelling for pleasure and claim everything as a business expense and SARS finds out about this – you will be told to pay the VAT and in fact, you probably will be audited.
Fixed Assets Bought For Business Purposes
Throughout a company’s life, there will be a time that it buys an asset in order to carry out business. A fixed asset is defined as an item that will be used for a period of more than twelve months in the production of income. This could range from a small amount to a huge figure.
VAT can be claimed on fixed assets, provided all conditions are met.
- Computer equipment for staff – R 10 000
- 15 tonne dump truck for large construction company – R 700 000
- Delivery vehicle – R 500 000
- Property or House to be used as business premises – R 2 110 000
These are assets that the company, provided the transaction is between two VAT vendors, will buy and be able to claim the VAT on the purchase. With the property, there are other expenses that can be claimed too.
VAT Compliance
For any sale of more than R50 000, you have to issue a tax invoice, with the word “tax invoice” printed on it. This is the most important document in the VAT system, so make sure you get it right. The invoice must contain:
- The value of the goods/services excluding VAT
- The VAT is calculated at 15% of the value of goods/services
- The value of the goods/services including VAT
- The name, address and VAT registration number of the person buying the goods/services
- Your business name, address and VAT registration number
All the sales during a VAT cycle must be totaled with the VAT amount.
By applying the VAT fraction (15/115) to the total sales amount, the amount of Output VAT is calculated.
For a vendor to be allowed to deduct input VAT from output VAT when calculating how much he must pay to SARS after the end of the VAT cycle, he must have a valid tax invoice from the vendor who supplied the goods or services to him. Input VAT must be split between amounts relating to capital goods/services bought and goods and services of a revenue nature.
The Vat Cycle
The frequency with which you have to pay VAT to SARS depends on what “taxable period” you qualify for.
The tax periods that are available are classified into six categories namely:
Category A: Under this category a vendor is required to submit one return for every two calendar months, ending on the last day of January, March, May, July, September and November.
Category B: Under this category a vendor is required to submit one return for every two calendar months, ending on the last day of February, April, June, August, October and December
Category C: A vendor is required to submit one return for each calendar month. This applies if the turnover exceeds or is likely to exceed R30 million in any consecutive period of 12 months, the vendor has applied in writing to be placed in this category or repeatedly failed to perform any obligations as a vendor.
Category D: Under this category, a vendor submits one return for every six calendar months, ending on the last day of February and August. This category applies mainly to a vendor who carries on farming activities with a total turnover of less than R1.5 million for a period of 12 months.
Category E: This is commonly referred to as the annual tax period because a vendor is required to submit one return for 12 calendar months. The vendor must, amongst other things, be a company or trust fund in order to fall within this category.
Category F: This is a four-monthly tax period that was introduced, to assist small businesses. The four-month period for each year is as follows:
- March to June to be submitted in July
- July to October to be submitted in November
- November to February to be submitted in March
A VAT return must be submitted within 25 days of the end of each VAT cycle or the business can face penalties and interest on late submission. Penalties are 10% of the amount payable and interest is levied at the standard charge for interest.
Also, it’s important to know that you have to keep your records for a period of five years from the date of the last entry in any book, as SARS can ask to see these records at any time within this timeframe.
VAT Payments
For businesses that file their VAT returns and make payments electronically, the VAT must be paid by no later than the last business day of the month after the end of the tax period.
For all manual submissions and payments, the VAT must be paid by no later than the 25th day after the end of the tax period.
VAT payments can be made through one of the following channels:
- Post
- SARS branches(Cheques only – no cash are accepted)
- Electronic Funds Transfer (EFT)
- Debit Order and eFiling
- Various banks
How to calculate VAT
Use our free online calculators to automatically add or remove South African VAT (@15%) to or from any Rand amount.
Calculating A Price Including VAT
If a price excludes VAT and you want to know what the total cost including VAT would be, you need to calculate the VAT amount and then add it to the original amount.
Total (including VAT) = Original Amount + VAT Amount
Multiplying the original amount by 15% (15/100).
As an example, for something that costs R50 excluding VAT, the amount of VAT payable is R7.50
The total amount including VAT would then be:
| Total (Including VAT) | = Original Amount + VAT Amount |
| VAT = 50 x 15/100 = 7.5 | = R50 + 7.5 |
| = R57.50 |
Top tip– To jump straight from an amount excluding VAT to an amount including VAT of 15%, multiply the original amount by 1.15
Total (Including VAT) = (Original Amount) x (1.15)
(Why 1.15? – Well VAT is 15% (15/100 = 0.15) and so to get to the total including VAT you need to add 0.15 to the original price (1.00) which gives 1.15)
Calculate A Price Excluding VAT
If a price includes VAT and you want to know what the price would be excluding VAT, you need to calculate the VAT amount that was added in order to get to the amount including VAT.
This calculation is a little more tricky than the calculation for including VAT.
To start, we know that the price including VAT has had VAT of 15% added to the original amount. Recall that 15% is (15/100 = 0.15) and we saw in the previous section that moving from an amount which excludes VAT to an amount that includes VAT we multiplied the amount which excludes VAT by 1.15.
That means if we want to go in the opposite direction (i.e. from an amount that includes VAT to an amount which excludes VAT) we need to divide by 1.15.
Total (excluding VAT) = Total (Including VAT)/1.15
For example, if we had a total of R57 which included VAT and we wanted to find out what the value without VAT would be:
| Total (Excluding VAT) | = Total (Including VAT) / 1.15 |
| = R57 / 1.15 | |
| = R50 |
The amount of VAT which was included in the price is then simply the Total including VAT less the Total excluding VAT.
VAT Amount = Total (Including VAT) – Total (excluding VAT)
From the example above
| Total (Excluding VAT) | = Total (Including VAT) – Total (Excluding VAT) |
| = R57 – R50 | |
| = R7 |
Of course, if you don’t want to do VAT calculations manually, just use our Online VAT Calculator which will quickly do all the number crunching for you.
Please note: These are just guidelines and the facts may change. Please contact us to keep up to date.
Top Tips: All the information in this post, is available on the SARS website: www.sars.gov.za
