VAT – value
added tax
Chapter 6
Cost Price
Mark-up
Selling
Price
Profit
Farmer
R5
R5
R10
R5
Manufacturer
R10
R5
R15
R5
Wholesaler
R15
R5
R20
R5
Retailer
R20
R5
R25
R5
Consumer
R25
Cost
Price
VAT
Input
Mark Selling
VAT
Pay to
-up
Price Out put SARS
Profit
Farmer
R5.70
R0.70
R5
R11.40
R1.40
R0.70
R5
Manufacturer
R11.40
R1.40
R5
R17.10
R2.10
R0.70
R5
Wholesaler
R17.10
R2.10
R5
R22.80
R2.80
R0.70
R5
Retailer
R22.80
R2.80
R5
R28.50
R3.50
R0.70
R5
Consumer
R28.50
VAT
 Indirect
tax
 Charged on the supply of:


2


Goods or
Services
types of VAT
Input VAT - purchases
Output VAT - sales
VAT
Input
VAT ( into the business)
 When
we buy goods from a
supplier
Output
VAT (out of the
business)
 When
we sell goods to customers
VAT
Standard
Rated
Supplies
VAT
ZeroRated
Supplies
Exempt
Supplies
VAT – standard-rated
 Standard-Rated

Supplies
All goods and services are standard rated
unless specifically
 Exempt
 Zero-rated
 Standard-rated
rate of 14%
supplies are taxed at a
VAT - exempt supplies
 Exempt

No VAT is paid or charged
 No


Supplies
VAT is or can be claimed back
VAT is not charged on these goods or
services
No VAT, not at
 standard
rate (14%)
 zero-rate (0%)
VAT - exempt supplies
 No






VAT is charged on the following
Financial services – interest received & interest paid
medical aids, provident, pension or retirement funds
Life assurance
Donated goods or services sold by non-profit bodies
Rent – for use as a private home (not holiday homes)
Passenger transport in South Africa – bus, taxi or train
Educational services – schools, universities
Vat - zero-rated supplies
 Taxable


supplies where
0% can be claimed back
0% charged to customers
 Fuel
– petrol, diesel and illuminating paraffin
 Services provided to foreign residents (certified
by customs)
 Direct exports – supply to a customer in
another country
 Sale of a going concern
 Any service rendered by a welfare society
VAT – zero rated supplies
 Brown
bread
 Brown flour
 Eggs
 Dried beans
 Maize meal
 Pilchards in cans
 Milk or milk powder
 Mielie rice
 Dried
mielies
 Samp
 Fresh/frozen
fruit &
vegetables
 Lentils
 Rice
 Oil – only vegetable
Non-allowable items
Does the item
paid for constitute
an essential input
to our business to
create outputs on
which VAT output
will be charged?
Non-allowable items
A business cannot
run properly without
water & electricity,
telephone,
advertising and
equipment.
SARS will therefore
allow a business to
claim VAT input on
such items.
Non-allowable items
A business can operate without gym membership,
refreshments and entertainment. SARS will
therefore not allow any VAT claims on these items.
Denied Input Tax
 Entertainment
– goods or services
obtained for entertainment purposes
 Any
fees – sporting, social or recreational
 Buying
 Goods
a motor car
or services acquired by Medical
schemes or
Denied Input Tax
 Entertainment

Refreshments, Christmas parties, customer
entertainment & equipment to provide staff
refreshments
 Allowable




entertainment
While away on business
Seminars
Entertainment is what the business does
Welfare organisations events for fund-raising
Denied Input Tax
 Motor



cars
The Act specifies what a motor car is
Cannot claim VAT even if the vehicle is
strictly being used by the business
Motor cars as per the Act includes:
 Double
cab bakkies
 Sedan type passenger vehicles
 Station wagons
 Minibuses
 Sport utility vehicles
Denied Input Tax
(allowed vehicles – per the ACT)









Goods transportation trucks.
Single cab delivery vehicles.
Motor cycles.
Caravans.
Ambulances, game viewing vehicles and hearses.
Vehicles capable of accommodating more than
16 persons (for example, a bus).
Vehicles with an unladen mass of 3500 kg or more.
Special purpose vehicles constructed for purposes
other than the carrying of passengers.
Equipment such as bulldozers, graders, hysters,
harvesters and tractors.
VAT - deemed supplies
Required to pay output tax






Goods or services taken for own use
Certain fringe benefits to staff
Assets retained when deregistering as a
vendor
Insurance claims
Subsidies or grants received from state
Goods acquired under an instalment credit
agreement that’s been repossessed from you
VAT - Notional VAT
A
VAT vendor can claim input tax when
purchasing second-hand goods
 Even if no VAT was paid
 E.g if you buy a second-hand car
 If you paid R20 000 then you can claim
the input tax.
 Can claim R20 000/1.14 x 14% = R 2 456
 Calculate the VAT assuming the purchase
price includes VAT
VAT vendors
 Turnover
= > R1000 000
compulsory to register for VAT
 Pay
VAT over to SARS every 2
months
Group A - Jan, Mar, May, July, Sep,
Nov
 Group B - Feb, Apr, June, Aug, Oct,
Dec

VAT
VAT
is not charged on:
Money
received from or paid
to the owner
Salaries
and wages
Interest
income
Payment vs Invoice Basis
 Payment


Only record VAT input once cash is paid
Only record VAT output once cash is
received
 Invoice


Basis
Basis
Record VAT input once the sale is made,
invoice is created.
Record VAT output once a purchase is
made, invoice is received.
Payments Basis
 Vendor
only accounts for VAT on actual
payments made and actual payments received
 A vendor
must apply in writing to SARS to apply
the payments basis.
VAT – Tax Invoices
Tax Invoices must contain the following
information
 The words “Tax Invoice”
 Name, address and registration number
of the supplier
 Name and address of the customer
 The VAT registration number of the
customer
 An individual unique number for each tax
invoice
VAT – Tax Invoices
 The
date on which the invoice was issued
 Total amount of the



tax charged and the rate of tax
Amount excluding the tax
Amount including the tax, OR
Total amount of the goods/ services and
it must be stated ‘includes Tax and the
rate that was charged’
 A description of the goods or services
supplied

Approved methods for
reflecting the consideration
and VAT