VAT : Common Pitfalls
Let’s assume you did and you are now registered for VAT and are meeting the invoice requirements, what are the most common mistakes that you could be making?
Once you are registered for VAT you become a “vendor”; you must pay VAT on all sales made by your business. You also may claim VAT if you have a valid tax invoice.
Incorrectly claiming Input VAT
This is one of the most common errors that vendors make. There are certain expenses that are denied from claiming VAT, which means that the vendor cannot claim the input VAT on those expenses, and so what are these expenses?
- The rental or purchase of motor cars (passenger cars). There are some exceptions.
- Entertainment expenses
Entertainment is not as clear as you think, and could include the free meals provided to employees in a canteen.
Incorrectly claiming input VAT, means that you are effectively paying less VAT and SARS can impose penalties and interest for this error. It also opens your company up to further and unnecessary scrutiny by SARS.
Second-hand goods
Did you know if you purchase second-hand goods from a non-vendor you may claim VAT?
Yes, you can! Just make sure that what you buy is a second-hand good, purchased to use in your business and you have paid for it.
Income received in advance
Do you ask your customers to pay you in full before the work is carried out? Or do you offer property rentals where the rent is payable in advance?
The general rule in the VAT Act is that VAT must be paid for on the earlier of invoice or payment.
This means that if a vendor receives an advance payment before the issue of an invoice, the advance payment is immediately subject to VAT.
But, if for example, you are renting out property and ask for a deposit, you don’t pay VAT on the deposit paid to you.
Fringe benefits
Firstly, fringe benefits are what benefits that your employees get by virtue of being employed by you. The VAT Act, states that you must pay VAT on certain fringe benefits that your employees enjoy.
The VAT payable is calculated based on the cash equivalent of the benefit to your employee. There is specific place where this VAT must be declared on the VAT return.
Free use of a motor vehicle is the most complex fringe benefit . This is when you give your employee the right to use your business motor vehicle for private or domestic purposes.
Insurance receipts
Did you know that you need to pay VAT on an insurance receipt from an insurance company? Yes, that’s true. As always, there are exceptions.
For example, if your insurance company pays out for repairs on your company motor vehicle, you must pay VAT on the amount the insurance company pays out for the repairs.
Drawing assets from the business
Do you sometimes, take a business vehicle and use it for personal use only? Or do you sometimes, use the stock in your business for your own use?
For example, if you are a paint shop and you use the paint from the stock in your shop to paint your house, you need to pay VAT on the cash value of that paint!
This will happen when you have claimed VAT on the purchase of the paint and are now using it at home.
How can we help?
If you are unsure if you can claim input VAT or need to account for output VAT, please feel free to contact us for further guidance.
We are committed to making VAT easy, here are some links for you to refer to:
VAT Software | Submit VAT201 Returns | Xero ZA
When you work with us, you get to understand how your business is performing and ask questions.
We give you advice based on your business’s specific stage. We have tailor made packages to suit every stage and we’re excited to get to work with you on your business!
Get in touch with us by sending an email to hello@santosbiz.co.za or Book a Call with us now.
