You will be forgiven if you were under the misconception that VAT is a secondary tax. It’s not, and many intricacies can trip you up. Let’s get your VAT navigation pointing due north to a compliant direction.
If you are selling goods and/or services you are rendering taxable supplies. If you are making taxable supplies you may be a vendor. A vendor is a natural person, a company, a trust, a body of persons, a municipality, a public authority, who is registered or should be registered for VAT.
The bottom line is, if you sell anything, whether it’s your old shoes or home-cooked meals, or render services as a legal eagle or a bone breaker, and your total turnover is more than R1million, or it is likely to be R1million a year, then you should register for VAT.
No, I know what you are thinking. You are making your services (skills and time) available to your employer and you are getting paid for it. Well, I hate to break it to you but employment does not make you a vendor and you are not carrying on an enterprise (independent contractors excluded from this argument for now).
If you’re starting out then you should be keeping a close eye on the invoices you are issuing. If you’re approaching R83333.33 a month you will have to register for VAT in that month, just stopping short of a DNA sample and selling your wife you are now a registered VAT vendor.
Congratulations (commiserations), now you have to pay over the VAT you charge your clients to the SA Revenue Service (Sars) - charged and not received (debtors are included, doctors).
In the last article, I used the analogy of your mom giving you money (PAYE is the mom) VAT is your dad. You collect the money on his behalf, and you are instructed to bring it all home.
When you receive R115, then R100 is yours, and the R15 is your dad’s money, not yours. VAT is equivalent to trust money - you are not allowed to spend it.
Your dad has been around the block and knows you have to procure a collection tool (baseball bat) to collect the rent. Much the same, Sars allows registered VAT vendors to claim input VAT if they have a valid tax invoice.
You declare the income from goods and services and the amount of VAT collected on a VAT 201 form, and Sars will allow you to reduce the amount payable with the VAT that you paid to other vendors’ input (VAT self-assessment).
Remember your dad in all this? I am sure that he is going to want to see the invoices for the “collection tool”?
Well, Sars is no different. If you were naughty, your invoices would be checked more frequently, right?
There are practice notes, regulations, the VAT Act etc, and you should consult your tax practitioner, accountant or auditor to ensure that you are charging everyone VAT that you should and that you are only claiming VAT on qualifying expenses if you have a valid tax invoice. No, salaries and wages are not qualifying expenses.
Out of all the taxes, this is the scariest one of them all. VAT is a gremlin! When it gets wet, there is horror and mayhem. Please don’t get the gremlin wet.
Willem Oberholzer is a director and tax adviser of Probity Advisory.
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