Application of Value Added Tax (VAT) in a computerised accounting package
3. Dealer 1 claims back the VAT R1.40 from SARS, thus putting it back into the business (VAT input).
4. Dealer 1 adds a mark-up of 100% to the product and sells it to Dealer 2 for R20 + 14% VAT of R2.80.
5. Dealer 1 collects the VAT R2.80 from Dealer 2 and pays R1.40 over to SARS, thus taking the VAT out of the business (VAT output).
6. Dealer 2 claims back the VAT R1.40 from SARS, thus putting it back into the business (VAT input). 7. Dealer 2 adds a mark-up of 150% to the product and sells it to the consumer for R50 + 14% VAT of R7.00.
8.
The consumer cannot register for VAT and cannot claim back the VAT. Dealer 2 collects the VAT R7.00 from the consumer and pays R4.20 over to SARS, thus taking the VAT out of the business (VAT output).
9. SARS collected VAT to the amount of R7.00 instead of only R4.20, due to value being added to the product in the form of a mark-up percentage.
7.1 How does VAT work?
Only the consumption of goods and services in South Africa is taxed. VAT is therefore paid on the supply of goods or services in South Africa as well as importation of goods into South Africa. VAT is currently levied at standard rate of 14% on most supplies and importations, but there is a limited range of goods and services which are either exempt, or which are subject to tax at the zero rate (for example, exports are taxed at 0%).
Persons who make taxable supplies in excess of R1 million (applies to the total value of taxable turnover and not the net income (profit) that the business has made for the period) in any consecutive 12-month period are liable for compulsory VAT registration, but a person may also choose to register voluntarily, provided that the minimum threshold of R50 000 has been exceeded in the past 12-month period. If liable, they must complete a VAT 101 form (Application for Registration) and submit it to their nearest local SARS office not later than 21 days from the date of liability – this is referred to as compulsory registration. It is important that the person submits the correct documents with the application to register, otherwise there may be a delay in obtaining the VAT registration number. Persons who are liable to register, and those who have registered voluntarily, are referred to as vendors. Vendors have to perform certain duties and take on certain responsibilities if they are registered or liable to register for VAT: e.g. vendors are required to ensure that VAT is collected on taxable transactions, that they submit returns and payments on time, that they issue tax invoices where required, that they include VAT in all prices advertised or quoted.
Once the vendor has been registered, he will receive a VAT registration certificate (VAT 103). Vendors can also check on the SARS website.
Vendors collect VAT on behalf of the State. Vendors need a valid tax invoice with the VAT number indicated on it as proof of any input tax deductions which the vendor wants to make. Keep records of all the tax invoices and other records of transactions for at least five (5) years. Advise the South African Revenue Service (SARS) within 21 days of any changes in the registered particulars, including change in the vendor’s authorised representative, business address, banking details, trading name, or if the vendor ceases trading. Fraudulent activities must be reported to SARS.
7.2 VAT returns
Te purpose of a VAT return is to inform the Receiver of Revenue of how much VAT the supplier is required to pay/receive in respect of a fixed period. VAT can be paid by using various electronic methods, including eFiling, Internet banking, debit order and electronic funds transfer (EFT). Vendors can also pay at any of the four major banks.
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