MANAGING THE CHANGE IN THE VAT RATE 2018 Presenter’s … · Assume that goods of R100 was sold (including VAT). Pre 01 April 2018 Post 01 April 2018 VAT fraction = 14/114 VAT fraction

$Page 1: MANAGING THE CHANGE IN THE VAT RATE 2018 Presenter’s … · Assume that goods of R100 was sold (including VAT). Pre 01 April 2018 Post 01 April 2018 VAT fraction = 14/114 VAT fraction$
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MANAGING THE CHANGE IN THE VAT RATE – 2018Presenter’s copy

CHANGES IN THE VAT RATEPractical Consideration

Wednesday30th May 2018

SAIPA: Head/Office - Midrand

Presenter: Mahomed

Email: [email protected]

MANAGING THE CHANGE IN THE VAT RATE - 2018

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VAT – change in rate from 14% to 15%.The practical implementation

Agenda

1) Introduction

2) Current supply rules

3) The change in VAT rate: What is the `big deal’ when the VAT Rate

is changed?

4) Two VAT rate rules

5) Exception to rule 2 – 2 exceptions to rule 2

6) Contracts

7) Input tax – 5 years to claim

8) Credit / debtor notes

9) Completing VAT returns for a period with both 14% & 15%


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Introductory Comments

- Suggestion to remove zero-rate for fuel

- Initial reaction of accountants

- VAT Act never silent on increase / decrease

in VAT Rate

- Legislation is still required

- Budget Day limitation

- Tax periods affected by the change in VAT

Rate

- The new tax fraction= 15/115: its impact


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Notification of Changes in VAT Rate

Notification of the change in the

VAT Rate:

• Changing the price on the

individual items or update

electronic system

• Display notice visible to all

customers if the individual

prices have not been changed


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Cost of the Change in VAT Rate


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Impact of the change in the VAT rate

Assume that goods of R100 was sold (including VAT).

Pre 01 April 2018 Post 01 April 2018

VAT fraction = 14/114 VAT fraction = 15/115

VAT = R 100 x 14/114= R 12.28

VAT = R 100 x 15/115= R 13.04

Effect of change in VAT = R 12.28 – R 13.04 = R 0.76

% change in VAT = R 0.76/R 12.28 = 6.2%

Change in the VAT Rate


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14% 15%

1 April 2018

What rate must I apply

General Supply Rule

`General’ Supply Rule

Timing of the supply is deem to occur at the earlier of:


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Time of the invoice issued Payment/receipt

of cash

Application of General Supply Rule

Illustrative Example 1:

Assuming that the VAT rate did not change

A) A company sold goods worth R 342 000 (VAT Inc) to a

customer. The customer paid the amount in 28 March 2018

but the goods were invoiced and delivered on 05 April

2018.

B) A company sold goods ( no delivery occurred) worth

R171 000 ((VAT Inc) to a customer. The customer was

invoiced on 24 March 2018 but the cash was only received

on 11 April 2018.

Determine the rate at which the output tax should

calculated for the VAT 201 form for the period ended 30

April 2018.MANAGING THE CHANGE IN THE VAT RATE

- 20189


Question 1 – Solution

Assuming that the VAT rate did not change

A) The general supply will apply because the

amount of R342 000 was paid on 28 March

2018. Therefore, VAT triggered on this date

and if the vendor belongs to the B tax period

(ending 30 April 2018), then output tax levied

will be R42 000.

B) The customer was invoiced on 24 March 2018,

hence VAT is triggered according to the

general supply rule. Output tax = R21 000

10MANAGING THE CHANGE IN THE VAT RATE

- 2018

General Supply Rule

`General Supply Rule

The cancellation of transactions, such as bad debts or

returns by customers, concluded prior to 01 April 2018

must be at the same rate as the original transaction


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Sales transaction during March

2018Goods return April

2018

Changes to the VAT Rate


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General VAT rule

[timing criteria is unchanged]

VAT Rate Rule

[ VAT rate changes ]

VAT Rate Rule –increase/decrease in VAT rate VAT Rate Rule 1 - Change in Rate

Goods/services were delivered before 1

April 2018 but both cash received and

invoice issued occur after the

aforementioned date:

NB! Date of delivery of goods & date of

performance of service is relevant.

When was the good delivered? Before or

After 1 April 2018?

When were the services performed?

Before or after 1 April 2018?


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Illustrative Example 1: Reviewed


customer. The customer paid the amount in 28 March 2018

but the goods were invoiced and delivered on 05 April

2018.

B) A company sold goods ( no delivery occurred) worth

R171 000 ((VAT Inc) to a customer. The customer was

invoiced on 24 March 2018 but the cash was only received

on 11 April 2018.

Determine the rate at which the output tax should


April 2018.


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Question 1 – Solution (cont)

Assuming that the VAT rate change from 14% to

15% - Reviewed

A) The rule 1 of VAT rate is applicable – refers

strictly to date of delivery of goods. Although

the supply date is still 28 March 2018 but the

VAT rate is determined by the date of delivery

which is on 5 April 2018 then the VAT rate is

15% and output tax levied will be R44 609

(field 1 in VAT 201) – an additional amount of

R2 609.


- 2018


Question 1 – Solution (cont) - Reviewed

B) The rule 1 of VAT rate is applicable – refers

strictly to date of delivery of goods. Although the

supply date is still 24 March 2018 but no delivery

occurred before 1 April 2018. therefore, it is likely

that delivery will occur after 1 April 2018.The VAT

rate, in this situation, equals 15% & output tax

levied will be R22 304 – an additional amount of

R1 304 – use the field normally used to declare

output tax, that is, field 1 of VAT 201 form.


- 2018

Application of General VAT Rule



customer during March 2018. The customer returned

R34 200 worth of goods during April 2018.

B) A customer with a balance of R 45 600* at 31 March 2018

was written off as irrecoverable during April 2018.

Determine the rate at which the output/input tax should


April 2018.

* Think in terms of accounting


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A) Assuming that the VAT rate change from 14% to

15%

It is given that the VAT transaction occurred in March

2018 but the goods were returned a month later.

Therefore, the original VAT rate must be considered

when goods are returned.

Output Tax must be reduced by R34 200 x14/114

= R4 200 in field 18 – Òther’ of the VAT 201 form


- 2018



B) It is given that the VAT transaction occurred

long before 1 April 2018 and at 14%.

Therefore, the input tax claimed will be

R45 600 x 14/114 = R5600 in field 18 – Òther’ of

the VAT 201 form


- 2018

Changes to the General VAT Rule


Stationery sold to Company A. The amount R15 000 is VAT

inclusive.

All parties are vendors. Good delivered on 30 March 2018.

No invoice issued and no payment was made prior to the date the

goods were delivered!

Delivery note was received from the recipient and transfer of

ownership recorded.

What VAT rate must be applied to this transaction? What is

Company input tax, given that the stationary is used for

enterprising purposes?


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According to the general supply rule, no

transaction has occurred for VAT because

neither a tax invoice was issued nor was any

payment made. Therefore, no VAT implication in

terms of the general supply rule and none of the

supply rule for specific transaction apply.

However, the first VAT rate rule applies because

the actual delivery of the stationery occurred.


- 2018



It is likely that the invoice will be issued after 1April 2018 and the payment will be made after 1April as well. But this is irrelevant fordetermining VAT rate.

The rate to be applied is 14% because thedelivery has occurred before 1 April and the 1stVAT rate rule applies. The input tax is R1 826(R15 000 x 14/114) in field 18 of the VAT 201 form.


- 2018



The municipality X in Gauteng, issues a bill on the 2nd of

April 2018 for electricity (R 800 – VAT inc) and a separate

line item for property rates (R315 – VAT inc).

The municipality issues both electricity and property rates

in arrears, that is, for the period ending 31 March 2018.

What VAT rate must be applied to this transaction? What

input tax may a Vendor claim – given that all items in the

Bill are used for enterprising purposes?


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It is given that the municipal bill was issued in

arrears, implying that the services were rendered in

the previous month, that is, in March 2018.

Although no payment was made in March 2018, and

no invoice was issued in March 2018, the actual

consumption of the services occurred in March 2018,

and therefore, the VAT rate is at 14%. This is in terms

of the 1st rule for the change in VAT Rate.


- 2018


Question 4– Solution (Cont)

Input tax to be claimed by the vendor

Electricity Bill R800 x 14/114 =R98

Property rates R315 x 0/114 =R0

Total input tax =R98

In field 18 òther’ of the VAT 201 form.


- 2018


VAT Rate Rule 2 – 21 Day Rule

Cash received or invoice issued after 21

February 2018 and before 1 April 2018

but goods are delivered or services are

rendered 21 days after 01 April 2018:

Transactions are taxed at a rate of 15% -

VAT rate rule supersedes the general

VAT rule.

The issue of invoice / payment can be

done purposefully to avoid the increase

in VAT Rate. NB! Normal time rules won’t

apply


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Changes to the VAT Rate


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21 Feb 2018

01 Apr 2018

23 Apr 2018

Cash received or invoice issued

Goods delivered or services

rendered =15%

Goods delivered = 14%



Stationery sold to Company A for an amount of R15 000

(VAT exc).

All parties are vendors. Invoice issued and the payment

was made on 30 March 2018. No delivery of stationary

occurred on 30 March 2018. but only on

a) the 4 April 2018.

b) 28 April 2018


is Company A input tax, given that the stationery is used

for enterprising purposes?


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a) The following is given:

- the amount of R15 000 excludes VAT, and

- Stationery was delivered on 4 April 2018.

Hence the 2nd rule for the change of VAT rate

applies. The stationery was delivered long

before 23rd April 2018, and therefore, 14% is

the VAT rate.

Company A input tax = R15 000 x 14% = R2 100



- 2018



b) The following is given:

- the amount of R15 000 excludes VAT, and

- Stationery was delivered on 28 April 2018.

Hence the 2nd rule for the change of VAT rate

applies. The stationery was delivered long

after 23rd April 2018, and therefore, 15% is the

VAT rate.

Company A input tax = R15 000 x 15% = R2 250



- 2018


Exception to Rule 2 – 21 Day Rule

1) When it is normal practice for payments or invoices

to be issued before supplies are made.

Example 1:

SAIPA membership fees – SAIPA has a historical

Practice of issuing invoices to its members early in the

year but services are rendered throughout the year .

Questions for SAIPA members: what happens if person

joins SAIPA on 1 May 2018? What will be the VAT Rate on

this invoice?

Example 2:

Massage outlets: require payment in advance at the time

of Payment. Indemnity insurance policy & maintenance

contracts. TV – licence for SABC.


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Exception to Rule 2 – 21 Day Rule

2) Rule 2 will not apply to residential property, sale of

fixed property consisting of dwelling and together

with Land on which it is erected – also includes share

block Companies.

Whereby written contracts legally contracted on which

such agreements was concluded. VAT rate does not

depend on when the building of residential property

commenced or when completed.

- Concluded agreement before 1 April 2018 but payment

& registration at Deeds office occur after 1 April 2018.

- Vat inclusive purchase price – determined and stated

in contract.

- Conclusion - VAT rate 14%


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VAT Rules for Specific Transactions

Transaction 1- Progressive/successive/periodic supplies

Goods / services – rental agreement / periodic payment

e.g. monthly basis

Time of supply deemed: earlier of the date when payment

is due or is received.

Sector examples: office & car rentals contracts i.r.o.

maintenance / cleaning / hiring of office equipment

And Construction contracts - detailed example to be done

later!


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Transaction 2 - Connected persons

Goods – at the time it is removed /

at the time it is made available.

(transfer of ownership or control)

Services – at the time the services

are performed.

Same principles as for VAT Rate

Rule 1 – timing is not affected by

the change in the VAT rate.


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Illustrative Example 6

Office rented by Company A - monthly rental = R15 000

(VAT inclusive).

All parties are vendors. Invoices issued on the 1st of each

month beginning 1 March 2018. The rental agreement

expired December 2019. Tax period B.


is Company A input tax, given that the office is used for

enterprising purposes?


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The following is noted:

- The invoices are issued in advanced

- The services will be rendered for more than 21

days, that is, beyond, 23 April 2018, and

- The amount of R15 000 includes VAT.

Therefore, Company A can claim the following input

tax

March 2018 R15 000 x14/114 = R1 842

April 2018 R15 000 x 15/115 = ) R1 957

Field 14 = R1 957 & Field 18 = R1 842


- 2018



Company A will pay extra VAT of R115 from 1 April

2018 onwards given that the rental agreement ends in

December 2019.

This VAT rate rule applies to:

• Rental agreement

• Construction activities

• Progressive or periodic taxable supplies


- 2018


Transaction 3 - Instalment credit agreements (ICA)

Instalment sale (ICA) – transfer of ownership is

immediate even though the account is settled by a

number of subsequent payments.

Goods – at the earlier of the time that the good is

delivered or any payment received by the supplier.

Hire purchase (HP) – transfer of ownership occurs when

the final settlement payments is made

ICA - is not regarded as being successively supplied

HP – is regarded as successive supply


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Illustrative Example 7

During March 2018 Company A sold and delivered office

equipment with an aggregate price of R570 000. The sale

was included in terms of the following agreements:

(a) Instalment credit agreement

(b) Hire purchase agreement


is Company A output tax?


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Illustrative Example 7 (solution)

With reference to:

(a) Instalment credit agreement: VAT rate rule 1 applies –

good delivered March 2018. 14% will apply and paid in

the tax period in which March falls. The output tax is

R70 000. Field 12 of the VAT 201 form.

(b) Hire purchase agreement: similar to a lease agreement.

However, in the month of March 2018, the output tax is 14%

but for the month of April 2018 and beyond the VAT rate is

15%, that is, R74 348. Field 1 of the VAT form.


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Specific rule - Fixed property

deemed supplied at the time

a) Registered at deeds office or

b) Any payment is made

Whichever occurs first!

NB! Traditional `deposit’ not

regarded as payment with

respect to fixed property!


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Transaction 5 - Fringe benefits

When included in the

remuneration of employees –

usually end of the month.

Services – at the time the

services are performed.


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Transaction 6 - Lay-by agreements

• Consideration for supply is R10 000

or less per invoice

• Accompanied by a payment of a

deposit

Time of supply: only when delivery

takes place.

But this happens only when

• full-payment is made, or

• Agreed portion is paid.

Therefore, no output tax on receipt of a

deposit!


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Transaction 7 - Notional Input Tax:

second- hand goods

Time of supply: to the extent

payment is made

Fixed property: registration with

the deeds office & the extent to

which payment is made.


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Transaction 8 - Betting transactions

• The person accepting a bet is the supplier – accounts

for output tax!

• The person placing the bet has received the service .

• The supplier of the service claims the input tax on

winnings paid to the successful person placing the bet.

• Does not apply to race-horse owners – generally zero-

rated.

• Racing operators could be conducting an ènterprise’.


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Progressive supplies (construction)

Agreement provides consideration to

become due & payable instalment or

periodically in relation to the progress

made.

Time of supply = earliest of the date

when payment is due or received, or

any invoice, relating to the payment is

issued.


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VAT Rules for Specific TransactionsIllustrative example 8

J’s Construction is registered for VAT under Category C tax

period (monthly) and enters into a contract to build 50

residential units for a total contract price of R6 500 000 (VAT

inclusive).

The agreement provides for monthly progress payments to be

made over a period of 12 months. At the end of January 2018 and

February 2018, the work certified as completed by the appointed

Project Manager was 10% and 23% respectively.

J’s issued two tax invoices as follows:

Invoice 1357 – 28 Feb 2018 R650 000 (10% of R6 500 000)

Invoice 1358 – 28 Mar 2018 R845 000 (23% of R6 500 000 less

R650 000 already invoiced)


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Illustrative example 8 (continued)

Invoice 1359 – 28 Apr 2018 R500 500 (10% of R6 500 000 less

R650 000+ R845 000)

Invoice 1360 – 28 May 2018 R4 504 500 (57% of R6 500 000 less

R650 000+ R845 000+R500 500)

What is the VAT rate for these invoices?

What is the Output tax to be levied?

What is the difference in the output tax levied between the

‘old’ and new VAT Rate?


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VAT – change in rate from 14% to 15%:The practical considerations

Ilustrative Example 8 (continued)

Solutions

Output Tax:

Invoice 1357 & 1358 = R650 000 + R845 000

= R1 495 000 X14/114 =R183 596

Invoice 1359 & 1360 = R500 500 + R4 504 500

= R5 005 000 x 15/115 = R652 826

Total output tax R836 422

VAT @ 14% = R6 500 000 x14/114 R798 246

Difference R38 176 – additional

Output tax paid to SARS because of the increase in VAT rate


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Discussion:

Contracts: Does not apply to residential property

Supplier may increase the contract price & recover additional

VAT if concluded before 1 April 2018, that is when supplies

continue after 1 April 2018.

But may not be able to increase the price or additional VAT if

contract specifically state that it may not be increased.

Whether the additional amount is recoverable or not, the

supplier must account for VAT at 15% for supplies made after

1April 2018.


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Discussion:

Input Tax : 5 years to claim

Rate used as per original invoice - not used previously to

claim input tax

Credit / Debit Note:

Rate used as per original transaction - used to claim input

tax


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Transaction 9: Importing of goods from BLNS countries

Time of supply rule

- When goods enter RSA – when goods physically enter

RSA via a designated commercial port.

The date entered RSA will determine VAT rate –if entered

after 1 April 2018, then VAT Rate = 15%.

Tax payable on imported goods from BLNS countries –

excludes 10% uplifting charge.


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Transaction 10: Importing of goods from rest of the world!

Time of supply rule (TOS)

- goods have to be cleared for home consumption – by

customs & Excise – who also collects the tax.

- It is possible for the goods to be cleared on the same

date of actual importation

- In practice difference between the date of actual

importation & date goods are cleared.

- TOS = when cleared for home consumption – this date

determines VAT Rate %.

Tax payable on imported goods - includes 10% uplifting

charge.MANAGING THE CHANGE IN THE VAT RATE

- 201853


Transaction 11: Importing of electronic services


Meaning of `services’ as defined by VAT Act.

- By a supplier that is not a resident of South Africa or

does not conduct business in South Africa,

- The recipient of the service must be a resident of South

Africa, and

- The services must be used in South Africa for the

purposes of making non-taxable supply (for example,

private use).

In other words, VAT is payable when the vendor ( or non-

vendor) imported services is used for the purposes other

than (non) the making of taxable supplies.MANAGING THE CHANGE IN THE VAT RATE

- 201854


Transaction 11: Importing of electronic services


Imported service occurs on the earlier of the dates of

The issue of an invoice, or

Making of any payment by the recipient.

So, if the ìmported service’ was purchased after 21

February 2018 but before 1 April 2018, SARS will apply the

21-day rule. The applicable VAT Rate is determined by what

date the service was physically (electronically) delivered to

the South African resident who used the service for non-

supply purposes.


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Transaction 12: Export of services / goods

Generally, the export of goods and services to a resident of

a foreign country is zero-rated.

The only exception to the rule is when second-hand goods

are exported, and notional input tax have been claimed as

per the VAT Act by the exporter of the second-hand goods.

In other words, the exporter of the second-hand good will

have to levy output tax and the VAT rate will be equal to the

rate used on original purchase price.


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VAT 201 Form

Completion of VAT 201 form – with both 14% & 15%

VAT rate in a single form

Output tax

Standard rated supplies at 15% - field 1 – as normally use

Standard rated supplies at 14% - field 12 ‘other’ and

imported Services.

Input tax

Field 14 (capital goods) / Field 15 (other goods/services) @

15%

Field 18 òther’ @14%.

Imports: Field 14A (capital goods) and 15A (not capital)

for either 14% or 15%.


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VAT 201 Form

If field one supplies the òld rate’ at 14%, then, please click

on the refresh button to update the form.

If the problem persists, close the browser and re-open it,

access eFiling by entering the eFiling web

address: http://www.sarsefiling.co.za/.

Do not access eFiling from a saved favourite.

Should the problem still prevail, then refer the query to

[email protected]. They are aware of the

technical challenge and are working on a solution.


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http://www.sarsefiling.co.za/

@SAIPAcomms

South African Institute ofProfessional Accountants

SAIPA-South African Institute of Professional Accountants

JOIN THE CONVERSATION

AND BE #SAIPAproud


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Documents

MANAGING THE CHANGE IN THE VAT RATE 2018 Presenter’s … · Assume that goods of R100 was sold (including VAT). Pre 01 April 2018 Post 01 April 2018 VAT fraction = 14/114 VAT fraction