Vat Matters - Kick off a fantastic year with this hot Vat tip!

Dear readers

Welcome to the first Vat Matters of 2012!

2012 is going to be a big year for Vat with the following changes already in the pipeline:

·         The possibility of a rate increase, which I think we’ll get the low down on in the Budget Speech this year;

·         Let’s not forget about the Draft Customs Control Bill and Draft Customs Duty Bill and their influence on Vat and exporters and importers. We have something special coming up for Practical Vat Loose Leaf subscribers - the first update for 2012 is dedicated to exports and imports only! It’s getting mailed at the end of the end of the month, so keep your eyes open for this in the post. Not a subscriber yet? Why not?

·         Plus, the new Vat supporting data submission platform SARS is implemented from 18 May 2012. Keep reading Vat Matters for the low down on this new process.

To help you stay abreast of these changes and one step ahead of SARS we’re - in the process of updating the content for our Vat Seminar Series taking place in 2012. Also, we’re planning on hosting a special “Advanced Masterclass”, for those of you who attend the seminar in the past and would like to brush up on your Vat skills. We’re finalising the dates and venues for 2012, so we’ll let you know when bookings open.

“Should I charge Vat on the recovery of costs?”

One of the most frequently asked questions at the Vat Seminars is: “Should I charge Vat on the recovery of costs?”  I think it’s a good idea to share my thoughts with you on this subject.

Question

Companies A, B and C all have separate Vat numbers. Company A is a holding company and pays the salaries of the staff in their subsidiary companies, B and C. At the end of the period, company A recovers the salary amounts from companies B and C respectively. How does company A deal with the Vat (if at all)?

Answer

For Vat purposes, Company A has to issue tax invoices to company B and company C for the amount of the salaries plus Vat at 14%! Companies B and C, in their turn, can claim the Vat as input tax and A must pay the Vat over as output tax.

This is, even though salaries are not subject to Vat and even though it is just “an-in-and-an-out”.

It levies Vat because the supply for Vat has changed.
 
Vat in South Africa, is firstly, levied, or charged, on a supply. And then, a supply of goods and/or services. So, with the recovery of costs,the vendor recovering the costs (in this case Company A) is supplying a service to companies B and C. Its supply has thus changed from salaries to a service. 

Now, I know this is a controversial subject and a minefield. In fact, many vendors have argued this with me, and said they ‘ve phoned SARS and SARS has said they don’t have to levy Vat because the recovery of costs is not in the course of their enterprise.

To this, I don’t agree

In fact, SARS has issued two written rulings which illustrate this principle. Please read these rulings below.

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VAT RULINGS DEALING WITH RECOVERY OF COSTS:

44 – Verhaling van koste – motorvoertuie

Vraag

ʼn Ondernemer huur ʼn motor en ʼn insetbelastingkrediet word ingelvolge artikel 17 (2)(c) hom ontsê.  Die koste word van sy kliënt verhaal as deel van die vergoeding vir die diens wat hy aan sy kliënt lewer.  Moet BTW op die verhaling van die koste gevorder word?

Antwoord

Die verhaling van koste as deel van ʼn diens wat gelewer word vorm deel van vergoeding en BTW is daarop hefbaar.  Die kliënt kan dit dan weer op sy beurt as ʼn insetbelastingkrediet eis.

Waar die motor aan die kliënt gelewer word en ʼn insetbelastingkrediet die leweraar ingevolge artikel 17(2)(c) ontsê is, word die goed geag anders as in die loop of ter bevordering van die leweraar se onderneming gelewer te wees en sal BTW dus ingevolge artikel 8(14) nie hefbaar wees op die transaksie nie.  Daar is dus nie ʼn insetbelastingkrediet wat die kliënt kan eis nie.

Waar die ondernemer (leweraar) wel op ʼn insetbelastingkrediet geregtig is, sal die transaksie aan BTW onderhewig wees en die ontvanger sal ʼn insetbelastingkrediet artikel 17(2) ontsê word.

28/3/1/ - 10 March 1992

328 – Recovery of costs – salaries paid to employees

Question

A vendor recovers from other vendors a portion of the salaries which he pays to his employees for services rendered by his employees to those vendors.  Must the vendor levy Vat on the recovery of the salaries from the other vendors?

Answer

The vendor will not pay Vat on the salaries paid to employees (see the third proviso to paragraph (c) of the definition of an “enterprise” in section 1), but when a part of the salaries paid to employees are recovered from other vendors, the recovery thereof is subject to Vat in terms of Section 7(1)(a) as the vendor is regarded as having supplied a “service” as defined in section 1 to the other vendors.

28/3/1 – 10 May 1993

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Tell SARS to brush up on these rulings, if it argues with you

Remember, where you on-charge or recover costs, and you are a Vat vendor, you must charge the Vat!  If SARS queries this from you, you refer them to the above rulings. The law hasn’t changed! 

To help you stay one step ahead of the taxman, take a look at what kept the finance team busy this week:

Monday 9 January - Do you know that international bribery and corruption legislation will impact SA business in 2012?

One of my first tasks of 2012, as I sat down at my computer this morning, was to catch up on what’s been happening during the last couple of weeks in the world of accounting and the Companies Act.

I stumbled across a very interesting article by Dave Loxton, director at Werksmans Attorneys, entitled “Forensics – a study of cases”. In it, he chats about two pieces of legislation:

·         The UK Bribery Act (the UKBA); and

·         The US Foreign Corrupt Practices Act (FCPA);

Read more here...

Tuesday 10 January - Reduce your business tax risks Now, for just R99!

Did you know that the following common business activities could expose your business to tax risks?

·         Whenever you enter into a transaction that is outside your day-to-day repetitive transactions

·         When you replace your bookkeeper, accountant or anyone that deals with your accounts

Learn more here...

Wednesday 11 January - Tax Matters: Newsflash! SARS wants to know what your turnover is...

Late last year, SARS announced it has added a new field to the IRP6 Provisional Tax return, asking you for your turnover. It won’t penalise you if your figure turns out to be an incorrect reflection of actual turnover.

Know more here – especially because the provisional tax deadline is 28 February 2012.

Until next month

Dee Bezuidenhout
Independent Vat Consultant and Practical Vat Loose Leaf contributor