VAT is an integral part of our economic society and is something that influences everyone, especially businesses in South Africa. In this article, we will discuss a few do’s and don’ts regarding VAT.
Valid tax invoices
In South Africa’s current tax system, vendors that are registered for VAT are allowed a deduction for the tax they pay on eligible goods or services (input tax) from the tax you collect on the sales made (output tax). Tax invoices are therefore very important to vendors as failure to provide valid documentation during VAT audits will cause the vendor to lose all the input tax being claimed on the invoice. The following requirements will overcome the challenges that may be encountered because of SARS scrutinising the validity of VAT invoices.
When the tax invoices exceed R5 000, a full tax invoice needs to be provided. For invoices of R5 000 or below they may issue an abridged tax invoice. There will be no tax invoice needed if the consideration is R50 or less. However, documents such as a sales docket or till slip will be necessary to verify the input tax deducted.
As from 8 January 2016, the following information must be reflected on a tax invoice for it to be considered valid:
- Contains the words “Tax Invoice”, “VAT Invoice” or “Invoice”
- Name, address and VAT registration number of the supplier
- Serial number and date of issue of invoice
- Accurate description of goods and/or services (indicating where applicable that the goods are second-hand goods)
- Value of the supply, the amount of tax charged and the consideration of the supply
- Name, address and where the recipient is a vendor, the recipient’s VAT registration number
- Quantity or volume of goods or services supplied
Note that an abridged tax invoice will only need to meet criteria 1 to 5, whereas the full tax invoice (tax invoices exceeding R5 000) must meet all criteria.
When to declare output VAT/claim input VAT
The date on which VAT becomes due on a transaction is the earliest of either the payment date or the invoice date. For example, if a payment is received in advance of the invoice issued for the supply, the VAT will be due on the date of receipt of payment. It is important to note that output VAT should be declared in the period in which the invoice has been issued or the payment has been received. With regards to input VAT, here the 5-year rule applies.
This rule provides that any amount of input tax which was deductible and has not yet been deducted can be claimed in a following period but is limited to a tax period 5 years after which the tax invoice should have been issued.
Overpayments by the customer
When a vendor receives an overpayment from a customer, that vendor will not declare VAT on the overpayment. If a vendor fails to refund the overpayment within 4 months of the date of the invoice, the excess amount is deemed to be a consideration and therefore output VAT should be declared on the last day of the VAT period during which the 4-month period ends at a tax fraction of 15/115.
This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE)