VAT Summary
• Tax is divided into direct taxes (paid straight to SARS, like income tax) and
indirect taxes (included in the price of goods or services, like VAT).
• VAT is governed by the Value-Added Tax Act No. 89 of 1991.
• VAT is separate from income tax and has its own rules.
• The VAT rate in South Africa is 15 percent (since 1 April 2018).
How VAT is Calculated
• If the price is before VAT (exclusive), you add 15 percent to get the total
price.
o Example: R100 + R15 VAT = R115 total.
• If the price is with VAT (inclusive), you split it into the price before VAT and
the VAT portion.
o Example: R230 total → R200 before VAT + R30 VAT.
Key Points
• VAT is charged at every stage of production and sale.
• Vendors charge VAT on sales (output tax).
• Vendors can claim VAT back on purchases used for business (input tax).
• Consumers pay VAT as part of the price and cannot claim it back.
2.1 Introduction
• Every time a consumer buys goods or services in South Africa, the price
includes VAT.
• VAT is an indirect tax. This means the consumer pays it to the vendor, and
the vendor pays it over to SARS.
• For the consumer, VAT is a final cost because they cannot claim it back.
• Enterprises registered as vendors can sometimes claim back the VAT they
have paid.
• VAT affects the cash flow of a business, so it is important to understand how
it works.
2.2 VAT in Perspective
• VAT is charged in terms of the Value-Added Tax Act 89 of 1991.
• The VAT rate is 15% (increased from 14% on 1 April 2018).
• VAT is used in more than 140 countries worldwide.
• VAT is an indirect tax because it is collected through transactions, not
directly by SARS.
• The supplier charges VAT and pays it to SARS, while the consumer pays VAT
when buying goods or services.
• VAT is a consumption tax and is also called a destination-based tax (taxed
where goods or services are consumed).
, • VAT is an inclusive tax. This means that the price shown by a vendor
already includes VAT, unless the price is clearly split into value, VAT, and
total consideration.
2.3 Calculation of VAT
To calculate VAT payable or refundable:
1. Step 1: Calculate output tax (VAT charged on supplies made by the vendor).
2. Step 2: Calculate input tax (VAT paid by the vendor on goods or services
received).
3. Step 3: Check if there are any VAT adjustments that must be included.
4. Step 4: Compare output tax and input tax:
o If input tax > output tax, the vendor gets a refund from SARS.
o If output tax > input tax, the vendor must pay the difference to SARS.
Formula:
Output Tax - Input Tax +/- Adjustments =VAT payable/refundable
Key Reminders
• Output VAT = VAT a vendor must charge on supplies and pay to SARS.
• Input VAT = VAT a vendor can claim back on goods or services used to
make taxable supplies.
1.2 THE ACCOUNTING BASIS (Section
15)
Textbook section: 2.3.1
The accounting basis, that is, the invoice basis or payments basis, determines
when VAT will be payable or refundable. The accounting basis sets the time of
supply for VAT purposes.
Invoice Basis (Default Method)
• Vendors must account for the full amount of VAT included in the price of
goods or services supplied in the tax period in which the time of supply
occurs.
• Applies to both cash and credit sales (output tax) and cash and credit
purchases (input tax).
• According to the general time of supply rule, a supply occurs at the earlier of:
o the date an invoice is issued, or
o the date payment is received.
,Formula:
Time of Supply = min(Invoice Date, Payment Date
• The invoice basis is the default basis for VAT registration, unless the vendor
qualifies for the payments basis.
• Exception: For fixed property, VAT is accounted for on the payments basis
(when purchase price is received), except in certain connected-person
transactions.
Payments Basis (Special Cases)
• VAT is accounted for only when:
o payments are made (purchases), and
o payments are received (sales).
• The invoice date is irrelevant.
• Vendors using the payments basis must account on the invoice basis for
supplies of goods or services (other than fixed property) where the
consideration is R100 000 or more (including VAT).
• Registration on the payments basis is not automatic. A vendor must apply in
writing to the Commissioner and qualify as one of the following:
o Public authority
o Municipality
o Municipal entity supplying electricity, gas, water, drainage, or waste
services
o Association not for gain
o Water board or similar institution
o Regional electricity distributor (e.g., City Power Johannesburg)
o Foreign supplier/intermediary of electronic services
o South African Broadcasting Corporation
o Natural person or unincorporated body of persons (e.g., partnership of
natural persons) with taxable supplies not exceeding R2,5 million in a
12-month period
Formula:
Time of Supply = Payment Date
Threshold Rules
• Voluntary registration:
o Vendors with taxable supplies not exceeding R50 000 must register
on the payments basis.
o They remain on the payments basis until taxable supplies exceed R50
000.
o Once exceeded, they must convert to the invoice basis from the start
of the next tax period.
• Exceeding R2,5 million:
, o Vendors (individuals or unincorporated bodies) on the payments basis
must notify the Commissioner in writing once taxable supplies exceed
R2,5 million.
o They must then account for VAT on the invoice basis.
o The reverse (invoice → payments basis) can apply but is not
compulsory.
• When testing the R2,5 million threshold, disregard:
o Permanent reduction in size/scale of the enterprise
o Replacement of plant or capital assets (e.g., selling old machinery to
buy new)
o Abnormal temporary circumstances
Changing Between Bases
• If a vendor changes from the payments basis → invoice basis, they must
prepare a list of debtors and creditors showing balances at the end of the
tax period before the change.
• The adjustment is calculated as:
VAT Adjustment = Output Tax on Debtors- Input Tax on Creditors
• This ensures correct VAT payable or refundable at the transition.
REMEMBER
• The payments basis is not available to vendors that are not natural persons
(except for the listed qualifying entities).
• The invoice basis is the default method unless strict requirements for the
payments basis are met.
2.3.2 – 2.3.5 Tax Periods, Returns,
Penalties and Refunds
(Sections 27, 39, 44 of the VAT Act; Sections 25, 28, 213, 215, 220, 191 of the Tax
Administration Act
2.3.2 Tax Periods (Section 27)
• VAT is calculated and paid in respect of each tax period, which is different
from the year of assessment used for income tax.
• Every vendor is registered for a specific tax period or VAT assessment period.
• Large businesses → submit VAT201 returns monthly.
• Farmers → submit VAT201 returns every six months.
Categories of Tax Periods
• Tax is divided into direct taxes (paid straight to SARS, like income tax) and
indirect taxes (included in the price of goods or services, like VAT).
• VAT is governed by the Value-Added Tax Act No. 89 of 1991.
• VAT is separate from income tax and has its own rules.
• The VAT rate in South Africa is 15 percent (since 1 April 2018).
How VAT is Calculated
• If the price is before VAT (exclusive), you add 15 percent to get the total
price.
o Example: R100 + R15 VAT = R115 total.
• If the price is with VAT (inclusive), you split it into the price before VAT and
the VAT portion.
o Example: R230 total → R200 before VAT + R30 VAT.
Key Points
• VAT is charged at every stage of production and sale.
• Vendors charge VAT on sales (output tax).
• Vendors can claim VAT back on purchases used for business (input tax).
• Consumers pay VAT as part of the price and cannot claim it back.
2.1 Introduction
• Every time a consumer buys goods or services in South Africa, the price
includes VAT.
• VAT is an indirect tax. This means the consumer pays it to the vendor, and
the vendor pays it over to SARS.
• For the consumer, VAT is a final cost because they cannot claim it back.
• Enterprises registered as vendors can sometimes claim back the VAT they
have paid.
• VAT affects the cash flow of a business, so it is important to understand how
it works.
2.2 VAT in Perspective
• VAT is charged in terms of the Value-Added Tax Act 89 of 1991.
• The VAT rate is 15% (increased from 14% on 1 April 2018).
• VAT is used in more than 140 countries worldwide.
• VAT is an indirect tax because it is collected through transactions, not
directly by SARS.
• The supplier charges VAT and pays it to SARS, while the consumer pays VAT
when buying goods or services.
• VAT is a consumption tax and is also called a destination-based tax (taxed
where goods or services are consumed).
, • VAT is an inclusive tax. This means that the price shown by a vendor
already includes VAT, unless the price is clearly split into value, VAT, and
total consideration.
2.3 Calculation of VAT
To calculate VAT payable or refundable:
1. Step 1: Calculate output tax (VAT charged on supplies made by the vendor).
2. Step 2: Calculate input tax (VAT paid by the vendor on goods or services
received).
3. Step 3: Check if there are any VAT adjustments that must be included.
4. Step 4: Compare output tax and input tax:
o If input tax > output tax, the vendor gets a refund from SARS.
o If output tax > input tax, the vendor must pay the difference to SARS.
Formula:
Output Tax - Input Tax +/- Adjustments =VAT payable/refundable
Key Reminders
• Output VAT = VAT a vendor must charge on supplies and pay to SARS.
• Input VAT = VAT a vendor can claim back on goods or services used to
make taxable supplies.
1.2 THE ACCOUNTING BASIS (Section
15)
Textbook section: 2.3.1
The accounting basis, that is, the invoice basis or payments basis, determines
when VAT will be payable or refundable. The accounting basis sets the time of
supply for VAT purposes.
Invoice Basis (Default Method)
• Vendors must account for the full amount of VAT included in the price of
goods or services supplied in the tax period in which the time of supply
occurs.
• Applies to both cash and credit sales (output tax) and cash and credit
purchases (input tax).
• According to the general time of supply rule, a supply occurs at the earlier of:
o the date an invoice is issued, or
o the date payment is received.
,Formula:
Time of Supply = min(Invoice Date, Payment Date
• The invoice basis is the default basis for VAT registration, unless the vendor
qualifies for the payments basis.
• Exception: For fixed property, VAT is accounted for on the payments basis
(when purchase price is received), except in certain connected-person
transactions.
Payments Basis (Special Cases)
• VAT is accounted for only when:
o payments are made (purchases), and
o payments are received (sales).
• The invoice date is irrelevant.
• Vendors using the payments basis must account on the invoice basis for
supplies of goods or services (other than fixed property) where the
consideration is R100 000 or more (including VAT).
• Registration on the payments basis is not automatic. A vendor must apply in
writing to the Commissioner and qualify as one of the following:
o Public authority
o Municipality
o Municipal entity supplying electricity, gas, water, drainage, or waste
services
o Association not for gain
o Water board or similar institution
o Regional electricity distributor (e.g., City Power Johannesburg)
o Foreign supplier/intermediary of electronic services
o South African Broadcasting Corporation
o Natural person or unincorporated body of persons (e.g., partnership of
natural persons) with taxable supplies not exceeding R2,5 million in a
12-month period
Formula:
Time of Supply = Payment Date
Threshold Rules
• Voluntary registration:
o Vendors with taxable supplies not exceeding R50 000 must register
on the payments basis.
o They remain on the payments basis until taxable supplies exceed R50
000.
o Once exceeded, they must convert to the invoice basis from the start
of the next tax period.
• Exceeding R2,5 million:
, o Vendors (individuals or unincorporated bodies) on the payments basis
must notify the Commissioner in writing once taxable supplies exceed
R2,5 million.
o They must then account for VAT on the invoice basis.
o The reverse (invoice → payments basis) can apply but is not
compulsory.
• When testing the R2,5 million threshold, disregard:
o Permanent reduction in size/scale of the enterprise
o Replacement of plant or capital assets (e.g., selling old machinery to
buy new)
o Abnormal temporary circumstances
Changing Between Bases
• If a vendor changes from the payments basis → invoice basis, they must
prepare a list of debtors and creditors showing balances at the end of the
tax period before the change.
• The adjustment is calculated as:
VAT Adjustment = Output Tax on Debtors- Input Tax on Creditors
• This ensures correct VAT payable or refundable at the transition.
REMEMBER
• The payments basis is not available to vendors that are not natural persons
(except for the listed qualifying entities).
• The invoice basis is the default method unless strict requirements for the
payments basis are met.
2.3.2 – 2.3.5 Tax Periods, Returns,
Penalties and Refunds
(Sections 27, 39, 44 of the VAT Act; Sections 25, 28, 213, 215, 220, 191 of the Tax
Administration Act
2.3.2 Tax Periods (Section 27)
• VAT is calculated and paid in respect of each tax period, which is different
from the year of assessment used for income tax.
• Every vendor is registered for a specific tax period or VAT assessment period.
• Large businesses → submit VAT201 returns monthly.
• Farmers → submit VAT201 returns every six months.
Categories of Tax Periods
