1. Briefly explain the difference between Income Tax and Value Added Tax?
– Income tax is a direct tax levied by the governments (SARS – South African Revenue Services ) on businesses and individuals that conduct their operations inside their jurisdiction’s borders. It is a direct tax as a result of earnings/ Income.
– VAT – known as Value Added Tax. It is an indirect tax that is paid by everyone as consumers. It is charged at the goods and services. The South African rate is at 15%. Revenue is raised for the government by requiring certain traders (vendors), that carry on an enterprise to register for VAT.
2. In business, who is eligible to register for VAT ? And what are the requirements?
– There are two types of VAT registration i.e. Voluntary registration and Compulsory registration. Voluntary registration – the company must have made at least over 50k turnover per annum to qualify for the Vat registration.
Compulsory registration – the business must have made over 1 million per annum to register for the VAT.
The VAT (15%) charged by vendors on the supply of goods and services do not belong to the vendors / businesses but to the government. Thus if you have registered for VAT you are acting as an agency collecting the funds on behalf of SARS.
3. Are there any benefits you carry as a Vat registered vendor?
– Definitely not. There are no benefits because you will be acting as the collecting agency of the 15% amounts from the consumers on behalf of SARS.
The bit of enjoyment is that being a VAT registered vendor may afford you the opportunity to trade with the state owned institutions and corporations out there. Some of the tenders would require working with the businesses that are VAT registered so that they would also like to reduce their tax liability.
N.B. Under no circumstances you should think that the Vat amounts you charge on your invoices will assist you with increasing the profit. When you work out your product or service pricing do not include the element of Vat. Vat should only be added after the invoice amount.
4. With regards to compliance, tax return submissions what are the few differences with regards to Income Tax and Vat?
– Income Tax is required to be filed every financial year end of the business. As the business is a provisional taxpayer you will be required to submit the returns twice a year. Mainly via the Provisional Tax (IRP6) and main Financial year end – Income Tax (ITR14). Every 6 months. However with regards to the individual tax submissions, the tax season only opens once a year. For the individuals that are not provisional tax payers. The period range runs for 12 months that is from March to February of the following year.
VAT taxes are submitted every two months. You are required to calculate the VAT input against the VAT output which then the difference is paid over to SARS. They are very few times that you will receive a refund from SARS. It is structured in a manner that you will always be liable to pay. Hence you are the collecting agent.
5. What basic information do you need to be knowledgeable of as the business that is VAT registered?
– Prioritise knowing the compliance elements of this type of tax. Understanding that the paperwork/ supporting documents must always be on par with the rules and regulations of the receiver of revenue. Tax invoices must be prepared in an acceptable manner and as valid as per SARS. Otherwise, should an audit arise the invoice maybe rejected by SARS and they may add penalties to that effect. Period is also important in accounting. Make sure that your documents and transactions are dated, prepared with the utmost accuracy and timeously.
The transaction only happens when there Invoice is raised and the payment has been paid.
Careful not to declare VAT on the invoices that are unpaid.
You are only allowed to charge VAT when you are VAT registered and the VAT number has been issued. It is a criminal offence to charge VAT when you are not VAT registered.
Matsobanemetja Business Consulting (Pty) Ltd – is an Accounting Firm that assists businesses and professionals with all their taxes needs. We provide a full function.
You may please inquire with us by sending an email to enquiries@matsobanemetja.co.za
Compiled by Ms. Dikeledi Seoloane on behalf of Matsobanemetja Business Consulting (Pty) Ltd – Registered Accountant and Certified Tax Practitioner.
If you need a consultation with us with regards to your business, any type of business – please reach out to us on email PA@matsobanemetja.co.za
“A person doesn’t know how much he has to be thankful for until he has to pay taxes on it.”
Anonymous
Matsobanemetja Business Consulting Pty Ltd 