Question: A potential client and business owner, referred to me by a good friend, has been registered for VAT since 2008 and yet has never submitted his Company VAT schedules. Now he wants a Tax Clearance Certificate from SARS and he cannot get it as he just found out that he owes SARS 45K. Dee, can you help?
Answer: Of course I can but the client needs to understand that this is a case on its own. It cannot be solved as easily and swiftly as the client wishes.
Business Owners: Compliance is very important; unfortunately it is not a choice but a must. When you run a business, you need to adhere to the rules and regulations that have been put in place.
When you are a VAT registered vendor, you act as an agent on behalf of SARS. The 14% that you add on your goods sales is not yours, but SARS, we need to be clear of this from the beginning. Every two months you are expected to submit your VAT schedule to SARS, failure to do so it will mean that you are Non-Compliant. Your VAT submission to SARS is calculated against what you’ve charged your customers/clients and what your suppliers have charged you. You will, then not be paying out the total amount you’ve charged, but the difference of the VAT INPUT and VAT OUTPUT (in line with the 14% in SA).
By interacting with clients, or even during my Bookkeeping workshops, I’ve realised how few people actually understand the VAT effect or implications in business, or even Compliance for that matter. Some clients’ think that VAT increases their profit – they are completely incorrect, the 14% VAT amount you charge on your invoices IS NOT YOURS. See a brief how VAT works.
When we calculate VAT, we consider the two types of VAT which are VAT INPUT and OUTPUT. VAT INPUT means when a company buys goods or services from another supplier, VAT is charged on the purchase price.This account will usually show a debit until the output VAT comes into account.
VAT OUTPUT – means when the company sells its own goods or services to its customers and charges VAT. Therefore, in the VAT settlement, you deduct VAT input from output; the resulting amount must be reported to your regional tax office. As you can see, you only pay tax to the state on the value your enterprise has added to the goods. If your purchases exceed your sales in any one period, the difference naturally is refunded. There are instances where SARS may owe you or vice versa!
After what I have mentioned above you also cannot cheat SARS and claim that you have not traded, because your business transactions will be reflected on the suppliers that are compliant and they will show that they had been charged VAT by you on certain invoices, that’s how they will see that your information does not correspond to that of your business counterparts. SARS will then be able to calculate how much you owe them and can also raise an audit on you.
So with regard to the client here, it means that we must back date VAT schedules from 2008 to current and prove to SARS that the client actually owes a certain amount and not the 45K being claimed, if that is the case. SARS will still, however, open their own audit to see if you are not defrauding them, seeing that they already had expected that amount of money from you. They won’t let it go that easily.
It is very important to comply. In the midst of all this, jobs are passing by because you are unable to get a Tax Clearance Certificate; you have, in fact, disadvantaged yourself.
Compiled by Dikeledi Seoloane on behalf of Matsobanemetja Business Consulting (Pty) Ltd – Coaching Division
info@matsobanemetja.co.za
http://www.matsobanemetja.co.za
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Matsobanemetja Business Consulting Pty Ltd 