TAX3701
NOTES
,1. INTRODUCTION TO VAT
VAT can be summarised in the statement below. Thus, if a student ever comes across something
that they cannot understand, they should apply the diagram below.
There needs to be a supply. Only vendors have to
charge VAT.
All sales will lead to a supply. An example of this is
when trading stock is sold, there is a supply of goods. Thus when a normal
person sells their car to
However VAT can still be charged in the absence of a a 2nd hand car dealer, no
sale. An example of this is when a company gives a VAT is charged as that
computer as a fringe benefit to an employee. There is person is not registered
no sale, but there is a supply. There will be VAT as a as a VAT vendor.
supply has taken place.
However when the car
dealer sells the car, VAT
VAT IS LEVIED ON THE SUPPLY OF GOODS AND SERVICES BY A VENDOR will be charged as the
dealer is a VAT vendor
If there is no good or a service, there cannot be VAT. and required to charge
Thus not all expenses will have VAT. VAT.
There will be VAT on trading stock as it is a good.
There will also be VAT on audit fees as it is a service.
But there will be no VAT on depreciation as there is no
provision of a good or a service.
3
© FOR USE BY EDGE STUDENTS ONLY
,Illustration A
Rose Loslyf is a prostitute who earns 2M a year. She is a registered vat vendor that trades from her
home.
She issues a tax invoice to Horny Ltd, for the entertainment services provided by her when 2 of their
executives were out of town on a business trip. The invoice includes R3,000 for sleeping with 2 staff
members of staff and R40 for the use of condoms.
Can a vat input be claimed?
Suggested solution
There is:
a supply
of goods (condom) or services (the act of prostitution)
by a vendor (she is registered as a vat vendor)
The vat input can be claimed (however note entertainment rules later in the notes)
Illustration B
A Ltd gives an employee the use of a company car. Are there any vat implications?
Suggested solution
There is
a supply (note that you do not need a sale - just a supply)
of a good (the car)
by a vendor
There will be vat accounted for.
4
© FOR USE BY EDGE STUDENTS ONLY
, 1.2 REGISTRATION AND CATEGORIES OF VAT
REGISTRATION
When a taxpayer has or is likely to have taxable supplies exceeding R1,000,000, they need to register
for VAT.
Exceptional transactions may take the turnover above R1,000,000. This will not facilitate the
registration for VAT. Exceptional transactions include:
sale of assets due to the cessation of business
sale of assets due to a permanent reduction in the scale of an enterprise
the replacement of any plant or capital asset used by an enterprise,
sale of assets due to circumstances of a temporary nature.
A vendor can voluntary register for VAT if the turnover exceeds R50,000 for a year.
Once registered, SARS will then allocate a VAT category.
A student cannot answer a VAT question without knowing what the VAT category is. VAT returns
may be submitted monthly, 2 monthly, 4 monthly, 6 monthly or 12 monthly.
CATEGORIES OF VAT
A = 2 monthly (Jan, Mar, May, Etc) for business turnover 1,5 million to 30 million
B = 2 monthly (Feb, Apr, Jun, Etc) for business turnover 1,5 million to 30 million
C = monthly for business with turnover exceeding 30 million.
D = 6 monthly (Feb, Aug) for farmers with turnover under 1,5 million
E = 12 monthly for group that do not trade outside their group of companies.
F = 4 monthly (Feb, Jun, Oct) for business with turnover under 1,5 million
Practical advice to a student
If a question gives information for the period November to February, and the question states that
the vendor is a category B vat vendor, and that a student should discuss the February vat return, the
student should note:
that only discuss transactions from January and February
as the vat return is a 2 month vat return (know a category B vendor is 2 monthly)
5
© FOR USE BY EDGE STUDENTS ONLY
NOTES
,1. INTRODUCTION TO VAT
VAT can be summarised in the statement below. Thus, if a student ever comes across something
that they cannot understand, they should apply the diagram below.
There needs to be a supply. Only vendors have to
charge VAT.
All sales will lead to a supply. An example of this is
when trading stock is sold, there is a supply of goods. Thus when a normal
person sells their car to
However VAT can still be charged in the absence of a a 2nd hand car dealer, no
sale. An example of this is when a company gives a VAT is charged as that
computer as a fringe benefit to an employee. There is person is not registered
no sale, but there is a supply. There will be VAT as a as a VAT vendor.
supply has taken place.
However when the car
dealer sells the car, VAT
VAT IS LEVIED ON THE SUPPLY OF GOODS AND SERVICES BY A VENDOR will be charged as the
dealer is a VAT vendor
If there is no good or a service, there cannot be VAT. and required to charge
Thus not all expenses will have VAT. VAT.
There will be VAT on trading stock as it is a good.
There will also be VAT on audit fees as it is a service.
But there will be no VAT on depreciation as there is no
provision of a good or a service.
3
© FOR USE BY EDGE STUDENTS ONLY
,Illustration A
Rose Loslyf is a prostitute who earns 2M a year. She is a registered vat vendor that trades from her
home.
She issues a tax invoice to Horny Ltd, for the entertainment services provided by her when 2 of their
executives were out of town on a business trip. The invoice includes R3,000 for sleeping with 2 staff
members of staff and R40 for the use of condoms.
Can a vat input be claimed?
Suggested solution
There is:
a supply
of goods (condom) or services (the act of prostitution)
by a vendor (she is registered as a vat vendor)
The vat input can be claimed (however note entertainment rules later in the notes)
Illustration B
A Ltd gives an employee the use of a company car. Are there any vat implications?
Suggested solution
There is
a supply (note that you do not need a sale - just a supply)
of a good (the car)
by a vendor
There will be vat accounted for.
4
© FOR USE BY EDGE STUDENTS ONLY
, 1.2 REGISTRATION AND CATEGORIES OF VAT
REGISTRATION
When a taxpayer has or is likely to have taxable supplies exceeding R1,000,000, they need to register
for VAT.
Exceptional transactions may take the turnover above R1,000,000. This will not facilitate the
registration for VAT. Exceptional transactions include:
sale of assets due to the cessation of business
sale of assets due to a permanent reduction in the scale of an enterprise
the replacement of any plant or capital asset used by an enterprise,
sale of assets due to circumstances of a temporary nature.
A vendor can voluntary register for VAT if the turnover exceeds R50,000 for a year.
Once registered, SARS will then allocate a VAT category.
A student cannot answer a VAT question without knowing what the VAT category is. VAT returns
may be submitted monthly, 2 monthly, 4 monthly, 6 monthly or 12 monthly.
CATEGORIES OF VAT
A = 2 monthly (Jan, Mar, May, Etc) for business turnover 1,5 million to 30 million
B = 2 monthly (Feb, Apr, Jun, Etc) for business turnover 1,5 million to 30 million
C = monthly for business with turnover exceeding 30 million.
D = 6 monthly (Feb, Aug) for farmers with turnover under 1,5 million
E = 12 monthly for group that do not trade outside their group of companies.
F = 4 monthly (Feb, Jun, Oct) for business with turnover under 1,5 million
Practical advice to a student
If a question gives information for the period November to February, and the question states that
the vendor is a category B vat vendor, and that a student should discuss the February vat return, the
student should note:
that only discuss transactions from January and February
as the vat return is a 2 month vat return (know a category B vendor is 2 monthly)
5
© FOR USE BY EDGE STUDENTS ONLY
