Value Added Tax, or VAT, is a standard tax that is applied indirectly to goods and services within an economy. In South Africa, the rate is 15% as of March 2023. Non-compliance with the VAT act could result in administrative fines and spillover effects that not only impact existing partnerships but also future business opportunities and relationships. Having the correct knowledge helps you avoid such risks.
Do I have to register for VAT?
In South Africa, companies fall into two categories when it comes to VAT, one is compulsory and the other voluntary.
It is compulsory to register for and thus charge VAT if your business’s turnover exceeds or expects to exceed the local threshold of R1 million within twelve months. If that is the case, then your business may issue VAT invoices, unless of course your goods or services are zero-rated.
When your business’s turnover exceeds or expects to exceed R50k in a twelve-month period, then you have the option of charging VAT. Once you choose to charge, you are under an obligation to continually comply with the changes to VAT laws in the country.
If you do charge VAT while doing business, you also have the option to claim it back.
Full tax vs. Abridged tax invoice?
There are two main types of tax invoices; a full tax invoice and an abridged tax invoice. There are also your usual invoices (but that’s not discussed in the scope of this blog). So, what is the difference between the two?
Full tax invoice
A full tax invoice includes any amount charged over R5000 for goods and services. For the most part, companies with many purchases within the country and overseas issue these types of invoices. SARS has regulations set specifically for these instances.
Abridged tax invoice
Any invoices with amounts ranging from R50 to R5000 will fall under an abridged tax invoice. In other countries, they may be split into two categories with different price brackets such as the UK.
For an abridged invoice, there are a few exemptions, mainly the details of the vendor as well as the number of goods or services supplied, which will be discussed soon.
What to include on the invoice
For a full tax invoice, whether it be electronic or on paper, all of the below points are required by SARS regulation. When it comes to an abridged invoice, points 3 & 6 are not required, but can however be included.
Here are the seven requirements for VAT-related invoices:
- 1. Details of the supplier
- 2. ‘Invoice’
- 3. Details of the customer
- 4. Invoice serial number and date of issue
- 5. Description of goods and services supplied
- 6. Quantity of the goods and services supplied
- 7. Overall value of the supply
Details of the supplier
Your business details would be crucial, regardless of regulation. SARS requires you to include your VAT registration number as well as the name and address of your business.
The specific word choice of ‘tax invoice’, ‘VAT invoice’, or simply ‘invoice’ must be included on the invoice.
Details of customer
Whether it be a vendor or a private company, their details are also required. This includes, beyond their name and address, their VAT identification which allows one to reclaim VAT.
Invoice serial number and date of issue
This helps you keep track of the invoices; it is also advised to keep a copy in your books. All dates correspond to the date of issue of the invoice. What you should not forget to include are the invoices that have been cancelled, refunded, etc. There are record keeping guidelines that you should adhere to so as not to worry when you are audited later.
Description of goods and services supplied
You must write an accurate description of the supplies, and whether or not they are second-hand items. Having a good order and naming convention to go along with this helps you keep track of your stock, and prevents confusion down the line.
Quantity of the goods and services supplied
Usually found in the column alongside the description is the amount. This is used to then calculate the total amount owed to your business.
Overall value of the supply
This value must take the overall consideration of both the inclusive and exclusive tax amounts. The total cost can be displayed after the description and amount of goods, while the VAT amount is mentioned elsewhere on the form.
Trading companies are required to comply with the SARS compliance checklist for VAT-related invoices. Whether or not they must register for VAT depends on their taxable income threshold.
When issuing tax invoices, they must either comply with all regulations in a full tax invoice, or partially with an abridged invoice. Including these points in a professional invoice keeps you compliant. This allows everything to stay hassle-free during the auditing process. It also maintains the respect and trust of your customers.