Value-added Tax

Question 1

What is a vendor?

Answer 1

Any person who is, or is required to be, registered under the VAT act.

Question 2

When is an entrepreneur required to register as a vendor?

Answer 2

If the total value of the taxable supplies exceeds R1 000 000 in a period of 12 months.

Question 3

When may a person register voluntary?

Answer 3

If:
1. The person is conducting an enterprise; and
2. The value of the taxable supplies was more than R50 000 in the past twelve months; or
3. The taxable supplies are not yet more than R50 000 but it is expected to be more than R50 000 within 12 months of registration.

Question 4

What happens once the vendor is registered?

Answer 4

VAT is payable when value is added to goods or services in the course of business.

Question 5

What are the categories of vendors?

Answer 5

Category A, B, C, D, and E.

Question 6

What does the categorisation of a vendor depend on?

Answer 6

Turnover and type of business.

Question 7

What do the categories entail?

Answer 7

A tax period, determining how often the VAT vendor has to report to SARS on VAT.

Question 8

What is category A?

Answer 8

Two-month periods, ending on uneven months.

Question 9

What is category B?

Answer 9

Two-month periods, ending on even months.

Question 10

What are the two types of supplies?

Answer 10

Taxable supplies and exempt supplies.

Question 11

What are the categories of taxable supplies?

Answer 11

1. Standard-rated supplies
2. Zero-rated supplies

Question 12

What are the criteria for standard-rated supplies?

Answer 12

1. There must be a vendor
2. Supplying goods or rendering services
3. In the normal course of business
4. Conducted by that enterprise.

Question 13

What is Category C?

Answer 13

Monthly periods, provided that:
-The value of the taxable supplies is more than R30 million for a twelve-month period
-The vendor applied for this category; or
- SARS classified the vendor into this category, as a result of default.

Question 14

What is category D?

Answer 14

Six-month periods, ending February and August (unless SARS indicates otherwise).

Question 15

To whom does category D apply?

Answer 15

Vendors conducting farming activities, who do not fall in category C, and where the value of the taxable supplies is less than R1 500 000 for a twelve-month period.

Question 16

What is category E?

Answer 16

Annual periods (ending on the last day of the year of assessment for income tax purposes) when the vendor’s enterprise consists solely of business with connected persons.

Question 17

What is input tax?

Answer 17

The tax paid by a vendor on goods or services purchased or received from the supplier.

Question 18

What is output tax?

Answer 18

The tax a vendor collects or levies when goods are sold and services rendered by the vendor.

Question 19

What are the two accounting bases used for calculating the VAT liability?

Answer 19

Invoice and cash basis.

Question 20

What does invoice basis mean?

Answer 20

That output tax is accounted for at the earliest of issuing the invoice or receipt of payment and that as soon as the invoice for purchase has been received, input tax can be accounted for, even if the payment for the purchase has not been made.

Question 21

What does cash basis mean?

Answer 21

VAT is accounted for when payment is made or payment received.

Question 22

Does cash basis recognise deposits?

Answer 22

No, unless the deposit was used to settle a debt.

Question 23

What is output tax?

Answer 23

The tax levied by a vendor on goods sold or services rendered.

Question 24

What are the types of tax invoices?

Answer 24

1. A full tax invoice when consideration is more than R5 000
2. An abridged tax invoice when the consideration is R5 000 or less.

Question 25

What are the requirements for a full tax invoice?

Answer 25

1. Tax invoice visible 2. name, address and VAT registration number of supplier 3. name, address, and VAT registration of the recipient if it's a vendor 4. Individual serialised number and date on which tax invoice is issue 5. Full and proper volume of the goods/service supplied 6. Value of the supply; or VAT amount

Question 26

What if the tax invoice does not adhere to the requirements listed above?

Answer 26

SARS will not allow the deduction of the input tax.

Question 27

What are zero-rated supplies?

Answer 27

-Taxable supplies where VAT is charged at the rate of 0%. -Input tax may be used as deductions when calculating the vendor's VAT liability.

Question 28

What are exempt supplies?

Answer 28

- Supplies on which no VAT is levied. - The value is not taken into account when determining whether a vendor is compelled to register or not. - Vendor cannot claim input tax

Question 29

How does the VAT system operate?

Answer 29

1. Registered venders must levy on goods or services unless the supply is not a good/service ito VAT Act or where the simply is exempt from VAT. 2. At end of each tax period vendor must prepare and submit a VAT return for all vatable transactions entered into to SARS 3. Form must be clear on the amount of supplies rendered at 15% and those at 0% (output tax) and amount claimed for input tax, as well as exempt supplies 4. Total input tax paid or due to other vendors must be shown on the VAT return 5. Where input tax was paid on supplies used to make exempt supplies, the input tax must be shown separately as the vendor may not claim the amount from SARS 6. Difference between output tax levied and input tax paid after adjusting for disallowed amounts, must be paid to SARS or is refundable by SARS

Question 30

What is the formula for Net VAT payable or refundable?

Answer 30

Net VAT payable or refundable = output tax - input tax.