What is VAT?
VAT is short for Value Added Tax. Basically, it is a tax that is applied to the sale of goods and services by the tax authority. There are also certain goods and services to which VAT is not applied to.
Put simply, a business charges VAT to its customers on the sale of goods. It can also claim back the VAT it was charged on the raw materials it had to buy to make the goods. Therefore, the amount of VAT a business must pay is the total amount of VAT charged on goods less the total amount of VAT paid on goods it used to make the final product. Usually, VAT charged is higher than VAT paid, which means the business must pay SARS the difference.
VAT is applied at a rate of 15% on the selling price to arrive at a final selling price including VAT. The final price is what the customer pays and unfortunately, the customer (usually an individual) cannot claim it back from SARS. When the business records income, it is recorded excluding VAT because the tax is payable to SARS.
Registration for VAT
It is compulsory for a business to register for VAT if the total value of taxable supplies made in any consecutive twelve-month period is exceeded or is likely to exceed R1 million.
Your accountant is well-informed to guide you on when your business becomes liable to register for VAT, however, as a business owner, the responsibility rests with you. Always liaise with your accountant on these matters, especially when your income is increasing or when you’re about to enter into a lucrative contract.
There is also an avenue for voluntary registration. However, our advice would be to first consult with your accountant or book a call with us (link below) and we can discuss your reasons for voluntary registration.
You’re registered, now what?
VAT periods and due dates
Usually, SARS approves a two-month period (if jargon word = “taxable supplies” is less than R30 million) to determine how much VAT is payable. i.e. SARS can approve a Dec-Jan period, which means that the VAT return submission and payment will be due on the 25th of February. The Feb-Mar period will become due on the 25th of April, so on and so forth.
Calculation of VAT payable
SARS also usually approves the calculation of VAT on an “accrual basis”. This means that regardless of whether you have received the money from your customers or not, your accountant/bookkeeper will add up all the VAT you have charged on your Tax invoices to customers (aka Output VAT) for the VAT period in question. Consequently, this also means that regardless of whether you have paid your suppliers or not, your accountant/bookkeeper will add up all the VAT you have been charged to make your product(s) (aka Input VAT). He/she will then deduct the Input VAT from the Output VAT to arrive at the VAT payable to SARS.
What happens if you don’t make products?
This is a very difficult issue for service providers as we have experienced in our dealings with our clients. Because you do not have “raw materials” that you purchased to provide your services, (there is no VAT on salaries), there is little to nothing you can claim against the VAT you are billing to your customers.
This means that businesses that provide services may pay more VAT to SARS than those that make products and sell them.
Tax invoices – what you need to know
We’ve prepared a freebie download for you to keep on hand to make sure that if your business is registered for VAT, you are providing your customers with and also receiving tax invoices in the correct format that is required by SARS. Failure to produce invoices in the right format can result in SARS not accepting your VAT return submission and levying penalties for non-compliance with the VAT Act. In short, please make sure your tax invoices are compliant! ?
How Santos Business Services makes VAT easy for our clients
Because Xero is our accounting software, we make VAT very easy to administer for our clients. Xero gives our clients the ability to look at how much the VAT payable figure is sitting in real-time.
Our clients have peace of mind because their daily bookkeeping is being managed by us. This means they can check daily if they wish, or ideally monthly how much VAT is payable. This allows them to plan their cash flow in advance so that they can meet this critical payment. Nothing is more stressful for a business owner when they are told by their accountant a couple of days before the VAT payment is due, exactly how much VAT they must pay!
What’s more, they can submit their VAT return directly from Xero to SARS!
Using Xero cuts out that stress and brings clarity and informed planning to the business owner.
You can read up more about Xero and VAT on their website VAT Software | Submit VAT201 Returns | Xero ZA
We are certified partners of Xero and can help you make light work of your VAT obligations. Enquire with us at hello@santosbiz.co.za or Book a Call with us.
