VAT – value added tax

1. VAT – value added tax Chapter 6

4. VAT • Indirect tax • Charged on the supply of: • Goods or • Services • 2 types of VAT • Input VAT - purchases • Output VAT - sales

5. VAT • Input VAT ( into the business) • When we buy goods from a supplier • Output VAT (out of the business) • When we sell goods to customers

6. VAT

7. VAT – standard-rated • Standard-Rated Supplies • All goods and services are standard rated unless specifically • Exempt • Zero-rated • Standard-rated supplies are taxed at a rate of 14%

8. VAT - exempt supplies • Exempt Supplies • No VAT is paid or charged • No VAT is or can be claimed back • VAT is not charged on these goods or services • No VAT, not at • standard rate (14%) • zero-rate (0%)

9. VAT - exempt supplies • No VAT is charged on the following • Financial services – interest received & interest paid medical aids, provident, pension or retirement funds • Life assurance • Donated goods or services sold by non-profit bodies • Rent – for use as a private home (not holiday homes) • Passenger transport in South Africa – bus, taxi or train • Educational services – schools, universities

10. Vat - zero-rated supplies • Taxable supplies where • 0% can be claimed back • 0% charged to customers • Fuel – petrol, diesel and illuminating paraffin • Services provided to foreign residents (certified by customs) • Direct exports – supply to a customer in another country • Sale of a going concern • Any service rendered by a welfare society

11. VAT – zero rated supplies • Brown bread • Brown flour • Eggs • Dried beans • Maize meal • Pilchards in cans • Milk or milk powder • Mielie rice • Dried mielies • Samp • Fresh/frozen fruit & vegetables • Lentils • Rice • Oil – only vegetable

12. Non-allowable items Does the item paid for constitute an essential input to our business to create outputs on which VAT output will be charged?

13. Non-allowable items A business cannot run properly without water & electricity, telephone, advertising and equipment. SARS will therefore allow a business to claim VAT input on such items.

14. Non-allowable items A business can operate without gym membership, refreshments and entertainment. SARS will therefore not allow any VAT claims on these items.

15. Denied Input Tax • Entertainment – goods or services obtained for entertainment purposes • Any fees – sporting, social or recreational • Buying a motor car • Goods or services acquired by Medical schemes or

16. Denied Input Tax • Entertainment • Refreshments, Christmas parties, customer entertainment & equipment to provide staff refreshments • Allowable entertainment • While away on business • Seminars • Entertainment is what the business does • Welfare organisations events for fund-raising

17. Denied Input Tax • Motor cars • The Act specifies what a motor car is • Cannot claim VAT even if the vehicle is strictly being used by the business • Motor cars as per the Act includes: • Double cab bakkies • Sedan type passenger vehicles • Station wagons • Minibuses • Sport utility vehicles

18. Denied Input Tax(allowed vehicles – per the ACT) • Goods transportation trucks. • Single cab delivery vehicles. • Motor cycles. • Caravans. • Ambulances, game viewing vehicles and hearses. • Vehicles capable of accommodating more than 16 persons (for example, a bus). • Vehicles with an unladen mass of 3500 kg or more. • Special purpose vehicles constructed for purposes other than the carrying of passengers. • Equipment such as bulldozers, graders, hysters, harvesters and tractors.

19. VAT - deemed supplies Required to pay output tax • Goods or services taken for own use • Certain fringe benefits to staff • Assets retained when deregistering as a vendor • Insurance claims • Subsidies or grants received from state • Goods acquired under an instalment credit agreement that’s been repossessed from you

20. VAT - Notional VAT • A VAT vendor can claim input tax when purchasing second-hand goods • Even if no VAT was paid • E.g if you buy a second-hand car • If you paid R20 000 then you can claim the input tax. • Can claim R20 000/1.14 x 14% = R 2 456 • Calculate the VAT assuming the purchase price includes VAT

21. VAT vendors • Turnover = > R1000 000 compulsory to register for VAT • Pay VAT over to SARS every 2 months • Group A - Jan, Mar, May, July, Sep, Nov • Group B - Feb, Apr, June, Aug, Oct, Dec

22. VAT • VAT is not charged on: • Money received from or paid to the owner • Salaries and wages • Interest income

23. Payment vs Invoice Basis • Payment Basis • Only record VAT input once cash is paid • Only record VAT output once cash is received • Invoice Basis • Record VAT input once the sale is made, invoice is created. • Record VAT output once a purchase is made, invoice is received.

24. Payments Basis • Vendor only accounts for VAT on actual payments made and actual payments received • A vendor must apply in writing to SARS to apply the payments basis.

25. VAT – Tax Invoices Tax Invoices must contain the following information • The words “Tax Invoice” • Name, address and registration number of the supplier • Name and address of the customer • The VAT registration number of the customer • An individual unique number for each tax invoice

26. VAT – Tax Invoices • The date on which the invoice was issued • Total amount of the • tax charged and the rate of tax • Amount excluding the tax • Amount including the tax, OR • Total amount of the goods/ services and it must be stated ‘includes Tax and the rate that was charged’ • A description of the goods or services supplied

27. Approved methods for reflecting the consideration and VAT

29. Calculating VAT • Question 3.6

30. Calculating VAT

31. Calculating VAT

32. The Mark-up & Gross Margin Gross Profit Amt Cost Price Selling Price When dealing with mark-up percentages or gross margins, we always work with the VAT EXCLUSIVE prices.

33. The Mark-up & Gross Margin Gross Profit Amt Selling Price Cost Price R300 (Excl VAT) R200 (Excl VAT) R100 (Excl VAT)

34. The Mark-up & Gross Margin R200 (Excl VAT) R100 (Excl VAT) R300 (Excl VAT) Let’s calculate what the mark-up percentage is… The profit amount as a percentage as a percentage of the cost price 100 1 R100 R200 X = 50%

35. The Mark-up & Gross Margin R200 R100 R300 Let’s calculate what the mark-up percentage is… The profit amount as a percentage as a percentage of the cost price 100 1 R100 R200 X = 50%

36. Cost Price Calculations • STEP 1: • Calculate the price excluding VAT • STEP 2: • Determine what the mark-up percentage is? • STEP 3: • Very importantly you need to know what the mark-up percentage is based on.