VAT TYPES
An overview of VAT Types in South Africa.
VAT TYPES
An overview of VAT Types in South Africa.
Introduction
According to The South African Revenue Services: VAT is an abbreviation for the term Value-Added Tax. It is an indirect tax on the consumption of goods and services in the economy. Revenue is raised for the government by requiring certain traders (vendors), that carry on an enterprise to register for VAT.
Subject to certain conditions, the vendor must then charge VAT on supplies of goods and services made by it (output tax). VAT is only charged on taxable supplies made. Taxable supplies are supplies for which VAT is charged at either the standard rate (currently 15% in South Africa) or zero rate (0%). There is a limited range of goods and services which are subject to VAT at the zero rate or exempt from VAT.
For more information: SARS' complete guide on VAT in South Africa.
What are VAT Types
VAT Types are the codes used to deal with VAT in accounting records. They help organisations generate a VAT Report to fill in their VAT Returns. In QuickEasy every transaction provides for you to fill in a VAT Type.
The main VAT Types are:
Standard - Currently 15% in South Africa.
Zero-rated - This is a supply that is subject to VAT but at the rate of 0%.
Exempt - This is a supply that is exempt from VAT.
VAT Only - Mostly applicable to VAT Payments and imports where you need to pay the VAT on the goods imported.
No VAT - Organisations that are not registered for VAT. (This entry does not need to be created as a VAT Type)
Who Must Register for VAT?
Any organisation that runs a business and has revenue exceeding a million rand a year (or likely to exceed a million rand) must register for VAT and charge VAT. An organisation that has taxable supplies exceeding R50 000 per year, may voluntarily apply to register for VAT.
There are other inclusions and exclusions which are beyond the scope of this guide. (Refer to the VAT Guide).
Key takeaway: Many of your customers and suppliers will not be registered for VAT, and do not need to be.
When to Charge VAT if you are Registered for VAT
It does not matter whether your customers are registered for VAT or not.
You must charge VAT to South African businesses or individuals at the Standard Rate unless you supply goods that are Zero-Rated (see page 17).
You must charge VAT to foreigners who are in South Africa (They may claim the VAT back on goods they take out of the country at the airport.)
You must charge VAT to foreigners if the goods you supply are going to be consumed in South Africa.
You might be able to charge VAT at 0% if the goods are being exported to a foreign client.
You might be able to charge VAT at 0% if you offer a service to a client who is not in South Africa when you offer the service.
Factors to consider:
You may not display a VAT Exclusive amount more prominently than a VAT Inclusive amount in your advertising material, or on your invoice.
Clients who are not registered for VAT are more interested in the VAT Inclusive amount as that is their cost (they cannot claim the VAT back).
Clients who are registered for VAT are more interested in the VAT Exclusive amounts as they can claim the VAT portion back.
What VAT Types to use?
You include 15% VAT on all your items: Standard.
Your charge VAT at 0%: Zero-rated.
You supply a mix of zero-rated and standard items: Select a VAT Type for each item (either Standard or Zero-rated)
Exempt Supplies
Certain businesses, like Financial Services, could be registered for VAT and make Exempt supplies. They will use the VAT Type: Exempt.
Goods and services sold to residents of other countries are not necessarily exempt, but mostly they are zero-rated.
Why must you not confuse Exempt and Zero-Rated?
An organisation may claim all their input VAT credits against zero-rated goods sold.
An organisation may NOT claim any input VAT against Exempt Supplies.
When to Claim VAT
You may only claim VAT if you have a valid Tax Invoice.
For goods over R5 000, a valid Tax Invoice:
Must say Tax Invoice
Must have the Name, Address and VAT Registration Number of both the Supplier and Customer (your organisation)
Must include a sequential Tax Invoice Number
Must have a full and proper Description of the goods, including Quantity and Unit Prices, if applicable.
Must show the Price and VAT Amount or VAT % with a clear indication of whether the price includes VAT or not.
For goods under R5 000:
All of the above apply, except your details, do not have to appear on the invoice.
What VAT Types to use?
If you are charged VAT: Standard
If you are not charged VAT: No VAT
If you must pay VAT to a shipping company for the release of imported goods: VAT Only
This is part of Standard VAT, but because the entire transaction consists of VAT, the VAT Only code is used.
When you can claim VAT, the expense or asset will reflect the VAT Exclusive amount.
When Not to Claim VAT
In some cases, you may have a valid Tax Invoice but are not allowed to claim VAT.
In South Africa, you may not claim VAT on:
Goods purchased for personal use.
Entertainment, Staff Meals and Refreshment Expenses (unless you have a business where you charge for these goods).
Membership fees or Subscriptions of Clubs, Associations or Societies of a Sporting, Social or Recreational Nature (you may claim for professional memberships).
Buying a Motor Vehicle (there are exceptions e.g. delivery vehicles, trucks or single-cab bakkies).
Goods or Services acquired by Medical Schemes or Benefit Funds.
What VAT Types to use?
No VAT
When you cannot claim VAT, the expense or asset will reflect the VAT Inclusive amount.
Other VAT Types
Certain VAT Transactions must be shown separately on the VAT 201 Form. It is best to create a new VAT Type for each of these items, to make it easier to fill in the form.
VAT on Capital Goods (Standard Rate)
VAT on Bad Debts (Standard Rate)
VAT on Second-hand Goods (Special calculations apply - please consult your accountant)
VAT on Accommodation (Special calculations apply - please consult your accountant)
Disclaimer: This document cannot be relied upon for legal advice. It simply provides examples of scenarios businesses encounter. Please always consult your accountant, or SARS for your specific situation.
