LA 2: Value-added tax (VAT)
Specific outcomes:
Explain how the VAT system works.
Determine when VAT is levied.
Determine when person is required to be registered as VAT vendor, applicable VAT periods as
well as payment of tax.
Explain and be able to apply two accounting bases that may be applied by vendor to account for
VAT.
Determine the VAT implications arising from:
Goods or services supplied in furtherance of enterprise
Zero-rated supplies
Exempt supplies
No apportionment
Determine following inter alia in respect of determination of input tax:
Denial of input tax
Deemed input tax on second-hand goods
Determine general rules for time of supply and value of supply.
Determine requirements of valid tax invoice, debit and credit note and determine whether
documents provided meet these requirements.
Determine VAT implications on:
Irrecoverable debts
Explain requirements for submission of VAT return as well as penalties and interest that will be
payable should requirements not be met. Furthermore explain circumstances under which
refunds will be payable.
Complete and submit VAT return (VAT 201) for vendor for specific tax period.
Understand effects of VAT on income tax calculations
Make use of accounting entries to show VAT implications of transactions.
Overview:
In South Africa, consumers pay value-added tax (VAT) when purchasing goods or services from
businesses. VAT is indirect tax levied under Value-Added Tax Act 89 of 1991, and since 1 April
2018, it has been levied at rate of 15%.
Created in Effie (Trial)
, VAT vendor is business that levies VAT on selling price of its goods or services, and buyer is one
who paid VAT when goods were purchased. VAT is direct cost to buyer, and final consumer
cannot claim amount paid back from SARS.
However, if buyer also carries on business and is registered as VAT vendor, they may claim VAT
paid on certain goods or services back from SARS. VAT is inclusive tax, meaning any price
charged by vendor must include VAT.
COVID-19 pandemic caused sharp drop in VAT collected during first few months of 2020/2021.
Calculation of VAT:
VAT calculation simplifies output tax by reducing input tax, but not all calculations are simple
and some require adjustments.
Basics of output tax:
Output tax is tax imposed by vendor on supply of goods or services. It is levied on all
business transactions, including taxable supplies, services, and sale of capital assets and
trading stock.
VAT Act provides two types of supplies: taxable supplies (currently 15%), which are taxed
at standard rate, and exempt supplies (currently 0%). It is crucial to know which supplies
are taxed at 0% or exempt.
Created in Effie (Trial)
,Basics of input tax:
Input tax is VAT component of payment for goods and services supplied to vendor for
taxable supplies. Vendors can claim VAT part of expense as input tax, which can be
deducted from output tax collected by SARS.
However, some expenses, like entertainment and motor cars, have private and business
purposes, which are usually denied by VAT Act. To determine if VAT amount can be
claimed as input tax deduction, purpose of the goods or services used must be
considered.
Created in Effie (Trial)
, Calculation of VAT payable or VAT refundable:
Vendor collects VAT on behalf of SARS (output tax) and incurs VAT on expenses they can
claim back (input tax). If output tax payable exceeds input tax claimable, difference is
payable to SARS, or refundable.
To calculate VAT payable or refundable, calculate output tax, input tax, and consider VAT
adjustments.
VAT calculation is based on output tax minus input tax, but input tax may not be claimed
for certain goods or services, despite VAT charges and use for taxable supplies. This is
Created in Effie (Trial)
Specific outcomes:
Explain how the VAT system works.
Determine when VAT is levied.
Determine when person is required to be registered as VAT vendor, applicable VAT periods as
well as payment of tax.
Explain and be able to apply two accounting bases that may be applied by vendor to account for
VAT.
Determine the VAT implications arising from:
Goods or services supplied in furtherance of enterprise
Zero-rated supplies
Exempt supplies
No apportionment
Determine following inter alia in respect of determination of input tax:
Denial of input tax
Deemed input tax on second-hand goods
Determine general rules for time of supply and value of supply.
Determine requirements of valid tax invoice, debit and credit note and determine whether
documents provided meet these requirements.
Determine VAT implications on:
Irrecoverable debts
Explain requirements for submission of VAT return as well as penalties and interest that will be
payable should requirements not be met. Furthermore explain circumstances under which
refunds will be payable.
Complete and submit VAT return (VAT 201) for vendor for specific tax period.
Understand effects of VAT on income tax calculations
Make use of accounting entries to show VAT implications of transactions.
Overview:
In South Africa, consumers pay value-added tax (VAT) when purchasing goods or services from
businesses. VAT is indirect tax levied under Value-Added Tax Act 89 of 1991, and since 1 April
2018, it has been levied at rate of 15%.
Created in Effie (Trial)
, VAT vendor is business that levies VAT on selling price of its goods or services, and buyer is one
who paid VAT when goods were purchased. VAT is direct cost to buyer, and final consumer
cannot claim amount paid back from SARS.
However, if buyer also carries on business and is registered as VAT vendor, they may claim VAT
paid on certain goods or services back from SARS. VAT is inclusive tax, meaning any price
charged by vendor must include VAT.
COVID-19 pandemic caused sharp drop in VAT collected during first few months of 2020/2021.
Calculation of VAT:
VAT calculation simplifies output tax by reducing input tax, but not all calculations are simple
and some require adjustments.
Basics of output tax:
Output tax is tax imposed by vendor on supply of goods or services. It is levied on all
business transactions, including taxable supplies, services, and sale of capital assets and
trading stock.
VAT Act provides two types of supplies: taxable supplies (currently 15%), which are taxed
at standard rate, and exempt supplies (currently 0%). It is crucial to know which supplies
are taxed at 0% or exempt.
Created in Effie (Trial)
,Basics of input tax:
Input tax is VAT component of payment for goods and services supplied to vendor for
taxable supplies. Vendors can claim VAT part of expense as input tax, which can be
deducted from output tax collected by SARS.
However, some expenses, like entertainment and motor cars, have private and business
purposes, which are usually denied by VAT Act. To determine if VAT amount can be
claimed as input tax deduction, purpose of the goods or services used must be
considered.
Created in Effie (Trial)
, Calculation of VAT payable or VAT refundable:
Vendor collects VAT on behalf of SARS (output tax) and incurs VAT on expenses they can
claim back (input tax). If output tax payable exceeds input tax claimable, difference is
payable to SARS, or refundable.
To calculate VAT payable or refundable, calculate output tax, input tax, and consider VAT
adjustments.
VAT calculation is based on output tax minus input tax, but input tax may not be claimed
for certain goods or services, despite VAT charges and use for taxable supplies. This is
Created in Effie (Trial)
