timing of invoices and receipts in the small business (vat)
TRANSCRIPT
Timing of invoices and receipts in the small business
(VAT)
Preface
The VAT IT Workshop notes are designed to assist you in understanding the basic principles of Value-Added Tax (VAT) and can be used as a helpful tool to solve everyday VAT questions.
We have highlighted an interpreted various sections of the Value-Added Tax Act, no 89 of 1991 (“the VAT Act”) and will discuss these concepts briefly in the workshop.
Even though we have taken the greatest care to ensure that our VAT IT Workshop notes are accurate, it is only intended to serve as a guide to understanding the basic VAT principles and is by no means a comprehensive guide or a summary or an opinion of the Act and should not be used for legal reference.
The VAT IT Workshop notes are intended for training purposes only.
You are encouraged to contact any of our facilitators when dealing with more unusual and complicated concepts in your daily administration of VAT and/or to verify the VAT treatment of transactions.
Index1. Introduction
2. Documentation2.1 Invoice
2.2 Converting Foreign Currency Invoices
2.3 General
2.4 Debit and Credit Notes
2,5 Agreements
3. Output Tax3.1 Time of Supply
3,2 Specific Time of Supply Rules
3,3 Pre-payments and deposits
4. Value of Supply 4.1 Specific Value of Supply Rules
5. Input Tax 5.1 Bill of Entry
5.2 Prescription Period
5.3 Adjustment after 12 months
1. Introduction
Documentation forms an integral part of any VAT system and is used as an audit trail by tax authorities to validate and verify output tax and input tax deductions.
Invoices are used by both Suppliers and Purchasers to record and account for VAT and, in most instances dictate the time of supply and value of supply rules.
Each of the following documents may have different VAT implications when a vendor issues or receives the said documents:
Tax Invoice
Debit and Credit Notes
Agreements
2. Documentation 2.1 Invoice
In most instances, the time of a supply is determined by the date upon which the invoice is issued.
Difference between “invoice” and “tax invoice”
An “invoice” means a document notifying an obligation to make payment. This will also include the issuance of a statement (including contracts, agreements, cash slips, till slips etc.).
However, a “tax invoice” means a document provided as required in terms of section 20 of the VAT Act.
A vendor who makes taxable supplies in the course and furtherance of their enterprise must issue a tax invoice within 21 days from the date of the supply.
Its an offence to issue more than one tax invoice, debit note, or credit note for each supply. Supplier may provide the recipient with a copy of the tax invoice, credit note, or debit note which must be clearly marked “copy”.
Tax Invoice (continued)
Section 20(4) and 20(5) of the Act provides the requirements for a full tax invoice and an abridged tax invoice respectively (example of a valid tax invoice to follow).
“VAT invoice” or “invoice” added effective 8 January 2016.
Section 20 (4): Full tax invoice – Consideration › R5000 Section 20 (5): Abridged tax invoice – Consideration ‹ R5000
1. Must be in Rand unless a zero-rated supply 1. Must be in Rand
2. The words ‘tax invoice’ , ‘VAT invoice’ or ‘invoice’ 2. The words “tax invoice’, VAT invoice’ or ‘invoice’
3. The name, address and VAT registration number of the supplier 3. The name, address and VAT registration number of the supplier
4. The name, address and ,where the recipient is a registered vendor, the VAT registration number of the recipient
4. An individual serialized number and the date upon which the tax invoice is issued
5. An individual serialized number and the date upon which the tax invoice is issued
5. A description of the goods (indicating, where applicable, that the goods are second-hand goods) or services supplied
6. Full and proper description of the goods (indicating, where applicable, that the goods are second-hand goods) or services supplied
6. The value of the supply, the amount of tax charged and the consideration for the supply; or where the amount of tax charged is calculated by applying the tax fraction to the consideration, the consideration for the supply and either the amount of the tax charged, or a statement that it includes a charge in respect of the tax and the rate at which the tax was charged
7. The quantity or volume of the goods or services supplied 7. An abridged tax invoice may not be issued where the supply is a zero-rated supply
8. The value of the supply, the amount of tax charged and the consideration for the supply; or where the amount of tax charged is calculated by applying the tax fraction to the consideration, the consideration for the supply and either the amount of the tax charged, or a statement that it includes a charge in respect of the tax and the rate at which the tax was charged
2.2 Converting foreign currency invoices
No specific provision in the VAT Act to determine exchange rates when dealing with transactions concluded in a foreign currency, which is standard rated (i.e. 15%).
SARS issued a Binding General Ruling No 11, Issue 3, dated 9 March 2020 in which it accepts the following:
1. The daily exchange rate on the date the time of supply occurs;
2. The daily exchange rate on the last day of the month preceding the time of supply; or
3. The monthly average rate for the month preceding the month during which the time of supply occurs.
Options 2 and 3 may not be used in exceptional circumstances i.e. collapse of a foreign currency, or fluctuation of 10% or more when applying 2 and 3 above. The exchange rates issued by SA Reserve Bank, Bloomberg or the European Central Bank may be used.
2.3 General
Tax invoice is not required for a supply where the total consideration does not exceed R50, ensure a receipt or other document is retained to proof that the supplier is registered.
Electronically generated invoices must comply with the requirements of a valid tax invoice and must be sent in encrypted format (at least 128 bytes), over a secure line or contain an electronic signature.
The recipient of the supply must confirm in writing that he or she will accept electronic invoices for the purpose of claiming input tax.
No other tax invoice may be issued and all copies extracted by the recipient must bear the words “copy tax invoice”. Debit and credit notes may accordingly also be issued electronically, subject to the requirements set out in the Act.
It is important to note that when an invoice does not indicate the amount of VAT levied, then it will be deemed to be inclusive of VAT.
2.4 Debit and Credit Notes
A supplier is required to make an adjustment in calculating his tax liability when output tax has incorrectly been accounted for in terms of section 21 of the Act as a result of one of the following:
The cancellation of the supply;
Any fundamental variation or alteration in the nature of the supply;
Any alteration by agreement to the previously agreed consideration for the supply such as a discount granted;
The return of the goods or services, or a part of them, to the supplier;
An error occurred on the tax invoice in respect of the amount of consideration for the supply.
The vendor will adjust his liability by either reducing his output liability or by claiming an input tax deduction.
Debit and Credit Notes (continued)
Section 20(1B) of the VAT Act allow for a tax invoice to be corrected when containing an error in the requirements listed in section 20(4) and 20(5) of the Act, subject to such error not requiring the issuing of a credit or debit note.
The proposed amendment requires that the supplier or the recipient, as the case may be, to obtain and retain sufficient information to identify the transaction to which the original tax invoice and the subsequent corrected tax invoice refers, and that the time of supply shall be determined in accordance with the date reflected on the original tax invoice.
Example: Supplier A issues a tax invoice to Recipient B without reflecting Recipient B’s VAT registration number. The value of the supply is more than R5000. Supplier A may now correct the original invoice by adding the VAT registration number.
2.5 Agreements
Businesses often enter into legal contracts or agreements for the sale and purchase of various goods and services.
Examples of such agreements may include:
Instalment Credit Agreements
Progressive, Successive and Periodical Agreements
Fixed Property
It is important to ensure that agreements contain the necessary information to meet the requirements of a "Tax Invoice" where applicable.
Additional supporting documentation and/or clauses may also be required for specific agreements to qualify for VAT at the zero-rate (e.g. sale of a going concern).
3. Output Tax
Generally, where sales are concluded, and VAT needs to be collected by the supplier from the recipient.
Specific additional documentary requirements for zero-rated supplies in SARSInterpretation Notes 30 and 31, for the export of goods and services.
3.1 Time of Supply
The general rule for the time of supply in section 9(1) of the Act is the earliest of:
• The date on which the invoice is issued; or
• The date on which any payment of consideration is received.
3.1 Time of Supply (continued)
An “invoice” means a document notifying an obligation to make payment. It may include a statement etc.; and
“consideration” includes any payment made or to be made whether in money or otherwise, or any act or forbearance, whether or not voluntary, in respect of, in response to, or for the inducement of, the supply of any goods or services. Consideration specifically excludes deposits, other than a deposit on a returnable container.
3.2 Specific time of supply rules
Connected persons
A “connected person” is a defined term in section 1(1) of the Act and includes inter alia:
• Relatives of a natural person or the estate of any such relative if the relative is deceased or insolvent; or
• Trust funds in respect of which any such relative or such estate of such relative is a beneficiary; or
• Any trust fund and any person who is or may be a beneficiary in respect of that fund; or
• Any partnership or close corporation and its members and any other person connected to such a member; or
• Any company (other than a close corporation) and;
any person, his spouse or minor child or any trust fund in respect of which they may be a beneficiary, is separately interested or two or more of them are in the aggregate interested in 10 per cent or more of the company’s paid-up capital or equity share capital or voting rights of the shareholders, whether directly or indirectly; or
• Any other company the shareholders in which are substantially the same persons as the shareholders in the first-mentioned company, or which is controlled by the same persons who control the first-mentioned company; or
• Any separate enterprise, branch or division of a vendor which is separately registered; or
• Branch, division or separate enterprise of an association not for gain; or
Time of supply for connected persons in terms of section 9(2)(a) of the Act:
Where the supplier and the recipient are “connected persons”, a supply of goods or services shall be deemed to take place:
• Where the goods can be removed, at the time the goods are physically removed;
• Where the goods cannot be removed, at the time when the goods are made available to the recipient;
• Where the supply constitutes services, when the services are performed.
Relief from 1 April 2016 where the consideration can not be determined at the time of supply and the recipient is entitled to a full input tax deduction then default to general rule
Example: Time of supply for connected persons
Company ABC is a vendor registered under Category B. ABC rents a deliverytruck to its executive director (50% shareholder) to assist in deliveries for hispersonal business during January to March 2012. The Executive Directorcollects the truck on 10 January 2012. Company ABC submits their return forFebruary on 25 March 2012.
If no payment was received, and no invoice was issued by 25 March 2012, thetime of supply will be at the time that the truck was removed, as Company ABCand the Executive Director are connected persons. ABC will have to account forthe supply in its February return.
If ABC issues an invoice for the rental on or before 25 March 2012, the normaltime of supply rules apply. ABC will accordingly declare the VAT on the supply inits March return.
Progressive, successive and periodic supplies – section 9(3)(a) and (b) of the Act
Where goods or services are supplied under a rental agreement which provides for periodic payments, they are deemed to be supplied successively. The time of supply takes place on the earlier of the date when payment is due or when payment is received. Some examples are office machine rentals, maintenance or management contracts and cleaning services.
Where goods are supplied periodically or progressively and the agreement provides for the consideration to be paid in instalments, or according to the progress made in relation to the supply, the time of supply is the earliest of the date when payment is due or is received, or any invoice relating to the payment is issued. This is typically applicable to turnkey projects, construction etc. where progress is measured as a percentage to the contractual value of the supply and payments are made as and when certain milestones are achieved.
Instalment Credit Agreements ("ICA") – section 9(3)(c) of the VAT Act
Generally, an ICA is concluded for the sale of movable assets and would typically entail the credit provider acquiring the goods from the supplier, and immediately on-supplying such goods to the recipient, subject to the terms contained in the ICA (i.e. monthly instalments). The initial supplier of the goods receives the total consideration from the credit provider and the credit provider makes a supply to the vendor for the full consideration, although it receives payments in instalments.
Where goods are supplied under an ICA, they are deemed to be supplied at the earliest of:
The time the goods are delivered; or
Any payment of the consideration is received.
Fixed Property Transactions – section 9(3)(d) of the VAT Act
Where goods consisting of fixed property or any real right therein, the time of supply is deemed to be the earliest of:
Date of registration in the deeds registry; or
Date on which any payment is made (excluding deposit).
3.3 Pre-payments and Deposits
Generally, pre-payments and deposits refer to transactions where the vendor receives a predetermined amount to secure the sale of goods or services.
Pre-payments will generally be regarded as part payment for a supply and therefore trigger the time of supply rule (earliest of invoice or payment) whereas a deposit will not be subject to output tax until:
It is applied as part of the final consideration for a supply of goods and services; or
The deposit is forfeited.
4. Value of Supply – section 10 of the Act
The general rule is that the value to be placed on any supply should be:
The consideration in money (includes consideration expressed as an amount of money); or
If the consideration in money cannot be determined then the open market value (OMV) for the supply less any VAT.
OMV means the consideration which would be received for such goods or services if supplied in the open market.
4.1 Specific Value of Supply rules
Connected persons
Anti-avoidance rules for supplies made between connected persons. The consideration in money will be deemed to be the open market value if:
The supply is for no consideration or for a consideration which is below the open market value or consideration cannot be determined; and
The recipient does not acquire the goods or services wholly in the course of conducting an enterprise; and
The recipient would not have been entitled to a full input tax deduction on the goods or services acquired, had the open market value been charged on the supply.
5. Input Tax
Generally, where the recipient of a supply seeks to recover the VAT charged by the supplier.
Input tax deductions may be made in compliance with section 16 of the VAT Act, read with SARS Interpretation Note 92, which provides additional documentary proof in certain instances.
The following important factors must be considered before input tax deductions are claimed a vendor:
Goods or services must be acquired wholly or partly in the course of making taxable supplies.
VAT was charged by a registered supplier at the standard rate (i.e. 15%), unless such goods are second hand;
The vendor must have the appropriate documentation in its possession, which includes, inter alia:
Valid tax invoice;
Debit note or credit note;
Declaration of second-hand goods; or
A bill of entry in respect of imported goods.
Specific rules
ICA – section 9(3)(c),16(3)(a)(i) and 16(2)(a) of the VAT Act
Where goods are acquired in terms of an ICA, the vendor is entitled to make an input tax deduction when the agreement is effected and a valid tax invoice is received or where such agreement contains all the requirements of a valid tax invoice.
The VAT on the total consideration for the acquisition is claimable and is not limited to the VAT on the monthly payments made by the vendor.
Fixed Property Transactions
Where goods consisting of fixed property or any real right therein, the time of supply is deemed to be the earliest of:
Date of registration in the deeds registry; and
To the extent payment reducing or discharging any obligation relation to the purchase price has been made during such tax period.
5.1 Bill of Entry
A vendor is only entitled to claim VAT on importation if it or its clearing agent is in possession of:
A bill of entry; and
Customs receipt for the payment of tax; or
Other document prescribed in terms of the Customs and Excise Act 91 of 1964 in relation to the importation .
If the clearing agent is in possession of the bill of entry it must keep sufficient records of the principal’s name, address and registration number for at least five years.
5.2 Prescription Period
The proviso to section 16 of the VAT Act allows a vendor to deduct input tax within a period of 5 years from the tax period in which the input tax first became deductible.
5.3 Adjustment after 12 Months
If a vendor –
Incurred an expense and claimed an input tax deduction; and
Not pay the full consideration within 12 months after the tax period in which such input tax deduction was claimed,
the vendor must account for an output tax adjustment equal to the tax fraction of the unpaid balance of the original consideration.
