2023/02/13

Lecture 1

VAT
Topic:
 VAT (SAICA level 3 : with certain exclusions)

Prescribed reading:
 SILKE
 Value Added Tax Act No.89 of 1991

Questions:
 Graded Questions on Income tax in South Africa

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Can you find the VAT Act in your legislation??

Outcomes from VAT lecture 1 and 2

After studying the two weeks of lectures, you should be able to:
• Explain how the VAT system works
• Identify when and at what rate VAT is levied
• State when a person needs to register as a vendor
• List the requirements for the documents that are the driving force in the
VAT system
• Explain how zero-rating of supplies work
• Identify in which other special circumstances output tax must be raised
• Say when input tax will be denied
• List and explain the timing rules for supplies
• Determine the value of supply

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How is VAT tested?

Definitions

Consideration = value plus VAT

Value of supply = amount excludes VAT
Open market value = includes VAT (section 3 in Act)

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The VAT Fraction Fundamentals

COST excl VAT – 100%

VAT – 15%
Cost incl VAT – 115%

Note: always divide by what you have multiple by what you want

The VAT Fraction: examples

If the cost. is incl. VAT of R450, calculate the VAT

Answer R58,69
If the value of the supply is R450, calculate the VAT
Answer R67,5
If the VAT is R45, calculate the VAT exclusive portion
Answer R300

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Calculation of VAT

FRAMEWORK:
Output VAT XX
Less: Input VAT (XX)

Add / (Less) Adjustments XX/(XX)

= VAT payable / (refundable) XX/ (XX)

VALID INVOICE:

• The words “Tax invoice”, “VAT invoice”, or “Invoice”

• The date and a serialized invoice number
• The name, address, and VAT registration number of the supplier
• The name, address, and VAT number of the purchaser, if the
amount is more than R5 000
• The quantity
• A full description of the goods/services
• The value/amount
• The VAT amount or indication that the total includes VAT

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VALID INVOICE:

Activity 1

Next time you are at a shop and get a tax invoice, see if they meet the
requirements for a valid tax invoice

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Compulsory Registration –s 23

If the R1 million Branches are

Taxable supplies threshold is only seen as separate
exceeds exceeded as a VAT vendors if:
R1 million (ex result of a sale of (a) they keep their
VAT) in the a capital item then own accounting
preceding 12 compulsory records &
month period registration is (b) are separately
NOT required identifiable

Voluntary Registration - s23

Taxable supplies Commercial Continuously

exceeds R50K in Accommodation: and regularly
the preceding 12 value exceeding carrying on an
month period R120K activity

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Tax periods (s27)

• 2 month period (odd)/(even)

Category A & B • Taxable supplies does not exceed R30
million over 12 months
• Farmers whose taxable supplies
exceeds R1.5 Million over 12 months

• 1 month period
Category C • Taxable supplies > R30 million over 12
months

• 6 month period
Category D • Farmers
• Taxable supplies < R1.5 million

• 12 month period
• For specific entities
Category E • Only earn rental and management
income from connected persons

Accounting Basis (s15)

Accounting bases determine the time of supply

Invoice date
Invoice account
for VAT earlier of Date of ANY
payment is
received
Accounting basis
Payment is made
Payments basis (payments)
account for VAT
when Payments are
received (sales)

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Time of Supply s9

S9 -Time of Supply

Determines when VAT must be accounted for (i.e. during

which VAT period)
Applies to both input and output VAT
S9(1) - General Rule: Earlier of:
 Invoice OR
 Payment made to the supplier

Date of delivery of goods does not influence the time of

supply  unless where connected persons are involved

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S9 -Time of Supply

S9(3)(a) – Rental agreements: earlier of due date of payment or date

when payment is received

S9(3)(b) – Progressive supplies:

 Example: Construction industry – consideration depends on progress made
 Time of supply is earlier of payment due date/when pmt is received OR date of
issue of invoice

S9(4) – Undetermined consideration:

 Consideration cannot be determined upfront
 Time of supply is earlier of payment due date/when pmt is received OR date of
issue of invoice

Example - Time of Supply

Themba is a VAT vendor & provides goods to Singa. What is the time of supply is
the following cases? Singa is on the invoice basis.

(1) Invoice date: 13 February 2022

Payment (PMT) date: 9 February 2022

(2) Invoice date: 21 March 2022

PMT date: 30 March 2022

(3) Delivery date: 13 January 2022

Invoice date: 31 January 2022
PMT date: 10 February 2022

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S9 -Time of Supply

S9(2)(a) – Time of supply for connected persons:

 Goods that are to be removed  the time of removal
 Goods that are not to be removed  the time the goods are made available
 Services  time when services are performed

What is a connected person?

Connected Person

Any natural person (including his estate) AND his relative or

estate of any relative
Any partnership or CC AND any member thereof or any other
person connected to that member
Any company AND:
 Any person (A) (excl. company) , where that person, his
spouse or child holds at least 10% of shares, voting rights or
paid up share capital
 Or any connected person to (A)
Any company AND:
 Any company (B) that is controlled by the same shareholder
 Or any connected person to (B)

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QUESTION

Where do I find the definition in the VAT Act?

Example – Connected Persons

CONNECTED PERSON? (YES / NO)

1. Mr A & His Son

2. Mr B & ABC Ltd – Mr B holds 8,5% of the shares of ABC Ltd

3. Mr B & ABC Ltd – Mr B holds 12,5% of the shares of ABC Ltd

4. A Ltd & B Ltd – A Ltd is a subsidiary of B Ltd

5. Mr A & Mr B – best friends

6. Mr A & Mrs C – brother and sister in law

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VALUE OF SUPPLY

S10 - Value of Supply

S10(3) – General rule:

 If consideration is in money  then money OR
 If consideration is NOT money  Open market value less VAT
amount
S10(4) – If Vendor supplies goods to connected person (CP):
 For no consideration OR
 Consideration is < open market value OR
 Consideration cannot be determined @ time of supply AND
 CP cannot claim a full input tax
 Then value = is the open market value
S10(4) – not applicable to fringe benefits between connected
persons

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S10 - Value of Supply

S10(18) – vouchers (redeemed for money)

 No VAT on purchase
 VAT consequences on redemption
S10(19) – Vouchers (redeemed for goods or services)
 attracts VAT on purchase
 No VAT consequences when redeemed
S10(20) – Discount vouchers:
 If voucher issued & redeemed by the same supplier  no VAT
consequences on issue and on redemption of the discount
vouchers
 Voucher issued & redeemed by two different suppliers  the
supplier accounts for VAT on the entire amount (i.e. includes the
discount)

S10 - Value of Supply

S10(21) – Entertainment: Supply of goods & services for

entertainment & input tax denied  Value = NIL (even to
connected persons)

S10(22) – Dual supplies (single consideration for more

than one supply)  VAT calculated on the supply that
attracts VAT

S10(23) – Supply for no consideration  Value =NIL

(excluding connected person)

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OUTPUT VAT

Output VAT

Output VAT is levied on the supply of:

goods, or
services
in RSA
by a vendor
in the course or furtherance of an enterprise

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Output VAT – Goods (definition)

Goods defined as (s1):
Corporeal (physically touched) movable things
Fixed property
Any real right in such a thing or fixed property
Electricity included in definition!!!
Excludes:
Money
Revenue stamps
Certain rights

Output VAT – Enterprise is defined as

any enterprise or activity carried on continuously or

regularly
in RSA or party in RSA
by any person
in the course or furtherance of which
goods or services are supplied for a consideration
whether for profit or not

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Output VAT - Enterprise

Enterprise definition excludes:

Supply of services by employee to employer
Hobby
Exempt supply
Commercial accommodation (value of supplies
not > R120 000 for a period of 12 months)
Certain supplies made by branches or main
businesses situated outside RSA

Output VAT Basics

TAXABLE SUPPLIES
EXEMPT SUPPLY - S12

Standard- Zero rated

rated supply supply

@15% 0%

All other NO VAT IMPLICATIONS

supplies (i.e Listed in
not zero rated S11
or exempt)

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ZERO RATED SUPPLIES - GOODS

Let’s try and find zero rated supplies in the legislation

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Output VAT - S11 Zero Rated Supplies

VAT is charged at 0%
Zero rated supplies are taxable supplies
Meaning: Vendor can claim back all input tax for zero
rated supply
S11(1) – Zero rating for supply of goods
S11(2) – Zero rating for supply of services

Activity 2

Next time you are at the shops doing grocery's check your slip and
identify if you can see any zero-rated items of food.

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S11(1)(a) – Direct Exported Goods

Applies to movable goods delivered to a customer at an

address in an export country
Exports can be delivered by the supplier’s own transport
or via contractor (e.g. courier company)
Zero rating also applies where RSA resident requests
delivery to himself to another address in an export country

S11(1)(e) – Sale of going concern

Zero rating applies ONLY if:

Parties agree in writing that the enterprise will be
an income-earning activity @ date of transfer
All business assets are disposed off
Parties agree in writing that the sale will be 0%
rated
Both parties must be registered VAT vendors

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S11(1)(e) – Sale of going concern

Calculation (from the seller’s viewpoint)

If > 50% of assets are used for TS and some for non-
TS = all assets deemed to part of going concern = seller
calc VAT @ 0% on the full price
If < 50% of assets used for TS = only the portion that
relates to the going concern = VAT @ 0%, the non-going
concern = charge VAT @ 15%

S11(1) – Zero rated supplies - Other

s11(1)(j) - Certain Food Stuffs (Part B of Schedule 2)

E.g. = brown bread, fresh fruit, eggs, etc.

s11(1)(h) - Supply of fuel levy

E.g. = petrol, diesel, biofuels

 s11(1)(q) - Goods supplied by a vendor on behalf of a

foreign company to another vendor in RSA

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ZERO RATED SUPPLIES - SERVICES

S11(2) – Zero rating – Exported Services

s11(2)(a),(b),(c) & (d) - Transportation services:

 a place outside RSA TO a place outside RSA
 a place in RSA to a place in an export country
 a place in an export country to a place in RSA
 Includes any services related to insurance

s11(2)(e) - Ancillary (additional) services related to

exported goods  ONLY applies if ancillary services are
supplied to a non-resident that is not a vendor

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S11(2) – Zero rating – Exported Services

s11(2)(k) - Services rendered outside RSA:

Services PHYSICALLY rendered outside RSA
Zero rating also applies if rendered to a resident  as long
as it’s PHYSICALLY outside RSA
s11(2)(l) & (i) - Services to non-resident:
Services supplied DIRECTLY to a non-resident who is NOT
present in RSA
NOT applicable if services is related to:
 Land/improvements to land situated in RSA
 Movable property situated in RSA @ the time when services are rendered

EXEMPT SUPPLIES

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S12 – Exempt Supplies

Financial Services – s12(a):

 Issue of debt security – s2(1)(c)
 Transfer of ownership of a share or member’s interest – s2(1)(d)
 Provision of credit and paying of interest – s2(1)(f)
 Fees related to the above services are NOT exempt
 If financial services are rendered outside RSA then the services will be zero rated in terms of
s11(1)(l), therefore zero rating OVERRIDES exemption

S12 – Exempt Supplies

s12(c) – Residential Accommodation: Supply of a “dwelling” for
letting and hiring  exempt
 Dwelling is defined in section 1 as:
 Any building, premises structure or other place or part thereof
 Intended for use mostly as a place of residence for a natural
person
 Except where it used as a supply of commercial
accommodation
Exemption also applies where accommodation is provided by
employer to employee and:
 employee entitled to occupy it as a benefit of employment
 or employer operates a hostel (not for profit) mainly for
employees

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Commercial Accommodation

Supply of commercial accommodation will NOT qualify for

exemption
Commercial accommodation is defined in section 1 as:
Lodging or board and lodging together with domestic
goods and services (hotel, guesthouse, holiday home)
Hospice
Home for the aged, children, physically or mentally
handicapped person
Domestic goods (defined in section 1) includes: cleaning
and maintenance, meals, laundry, electricity, telephone,
furniture & fittings, air con

Commercial Accommodation (cont.)

Taxable supplies must exceed R120 000 over a 12

month period for a commercial accommodation to be
classified as an enterprise

Output tax charged on the full supply (for 28 days or

less)

S10(10) - Where commercial accommodation is

provided for an unbroken period of greater than 28 days,
then output tax is charged at 60%.

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EXAMPLE - Commercial Accommodation

Neo has a B&B in Quigney. The total annual receipts is

R580 000. Most guests only stay for 3 nights, but
occasionally guests stay for a month. He charges R350
(ex VAT) per night. What are the VAT consequences?

Solution:

• Would he be able to register as a VAT vendor?

• Accommodation is broken up into 2 categories:
1. Bookings over 28 days
Where commercial accommodation is provided for an unbroken
period of greater than 28 days, then output tax is charged at 60%.
Therefore the VAT will be calculated at 15% and then multiplied by
60%.
2. Bookings less than 28 days: will be charged at full supply of
15%

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S12 – Exempt Supplies

s12(g) - Transport of fare-paying passengers:

 Only by road & railway (excluding game viewing vehicle or
hearse)
 Not for courier services
 For fair paying passengers and their personal items
Supply of educational services – s12(h)
Childcare services – s12(j)

Indemnity
payments

Supply to
Ceasing to be
independent
a vendor
branches
Deemed
supplies

Excess Fringe
consideration benefits

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Deemed Supplies – s8
S8(2) - Ceasing (Stopping) to be a vendor
 Output VAT payable on goods and rights still owned on the day a
vendor ceases to be a vendor
 Output VAT also payable on creditors outstanding balances
 NOT applicable to goods where input tax was denied
 NOT applicable  if cease to be a vendor due to death or
sequestration
 Time of supply (s9(5)) – immediately before the vendor ceases to
be a vendor
 Value of supply for goods and rights  lower of cost and open
market value

Deemed Supplies – s8
S8(8) - Indemnity payments
Input VAT is claimed on insurance premiums therefore vendor
must pay Output VAT on the indemnity payment received
Consideration = insurance payment received by the vendor
S8(8) applicable to 3rd party payments under insurance contract of
the vendor
S8(8) NOT applicable to payments:
 related to non-taxable supplies made by the vendor
 Total reinstatement (replacement) of goods = where input
tax was denied AND the goods are stolen or damaged beyond
economic repair
 Long term insurance policies

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Deemed Supplies – s8

S8(8) - Indemnity payments (cont…)

Value of supply: consideration (insurance payment) x Tax fraction
(15/115) x % that relates to the taxable supply (i.e. apportionment)

NB!! Output tax NOT apportioned: EXCEPT for (a) indemnity

payments & (b) fringe benefit.

EXAMPLE: Deemed Supplies – s8

Justin in was robbed. The insurance company paid the following

amount:
R
Delivery vehicle 132 250
Passenger vehicle 100 000
Coffee machine (considered as entertainment) 18 500

Required:
Calculate the deemed output VAT payable?

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Deemed Supplies – s8

S8(14) – Fringe Benefits (FB)

Applicable to the following FBs:
 Assets given to employees
 Right of use of asset to employees
 Services to employee by employer for private purposes
NO deemed supply if FBs relates to: exempt supply, zero rated
supply, or supply of entertainment
NOTE: Apportion the calculated amount for % use of taxable supplies
S10(13) - Value of supply (excluding use of motor vehicle) = cash
equivalent used for income tax purposes x tax fraction x % that
relates to the taxable supply (i.e. apportionment)

Deemed Supplies – s8

Fringe Benefit (FB) – Use of a motor vehicle - Steps

 1: Calculate determined value (DV) – excl. VAT & finance charges
 If not a new vehicle  calculate depreciation at 15% using the
diminishing balance method for each completed 12 month period 
from the date when it was first acquired by vendor to the date when
employee starts using it
 2: DV x 0,3% (where input tax was denied) or 0,6% (all other cases)
 3: Deduct:
 If input tax was claimed : ALL amounts paid by employee to employer,
excl. finance charges and fuel
 If input tax was denied : ALL amounts paid by employee to employer,
excl. finance charges, fuel and fixed costs
 R85 if employee covers full repair & maintenance costs

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Deemed Supplies – s8

Fringe Benefit (FB) – Use of a motor vehicle (continued)

 4: Multiply by the tax fraction
 5: Multiply by the % of taxable use
 6: Multiply by the number of months

 Why exclude fuel and finances charges?

 Fuel is zero-rated and finance charges is an exempt supply
S9(7) – Time of supply  end of the month the fringe benefit is
granted to the employee

Example Right of use of MV – s8

Liya is granted the use of a company-owned motor car (input tax

denied) with a determined value (excluding VAT) of R160 000, that is
fully used for taxable purposes. Liya pays R600 per month that is
allocated as follows:
Fuel .......................................................................................... 112
Insurance.................................................................................. 150
Maintenance............................................................................... 70
Interest...................................................................................... 168
Fixed costs of car.......................................................................100
Total........................................................................................... 600

Required:
Calculate the VAT consequences of the above.

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Deemed Supplies – s8

S8(27) – Payments exceeding consideration

If vendor receives excess payment for goods/services supplied
subject to VAT at 15%, then:
 Excess payment attracts Output VAT
 ONLY if not refunded back to the customer within 4 months
Time of supply: is the last day of the tax period during which the 4
month period ends
s10(26) - Value of supply = excess payment made
Calculation: Amount x 15/115
What if amount is refunded after output tax was accounted?
 Then vendor allowed to claim Input VAT in terms of s16(3)(m)

Deemed Supplies – s8

S8(9) – Supplies to independent branches

Supply by RSA branch to foreign independent branch or head office
OR RSA main business to foreign branch.
Only applies if head office or branch:
 Is permanently located outside RSA
 Can be separately identified and
 Has a separate accounting system
S10(5) - Value of supply = lesser of cost (incl. VAT) for vendor and
open market value
S9(2)(e) - Time of supply = Goods  when goods are delivered to
branch, Services  when services are performed

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After this class you should:

 Make your own notes for this section of work

 Do the practice questions
 Prepare for the tutorial for next week
 Complete the activities within the slides
 Consult with me if you have questions

QUESTIONS
Please email me on [email protected] or we can chat in our
live session

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See you next week and don’t forget

to

VAT SECTIONS –SCOPED OUT

VAT SECTION DETAILS SUBSECTIONS NOT WITHIN 3RD YEAR SCOPE
SECTION
8(2A) – (2G), (5), (5A), (5B), (6), (13), (13A),(14)(b), (14A)
S8 Deemed Supply (17) – (20), (22) – (24), (25); (26) & (28)

S9 Time of Supply 9(2)(d); 9(3)(e) & (f), 9(9), 9(10)& 9(11)

10(4A), 10(8), 10(14), (17), (17A), (21A), (24) (22A&B),
S10 Value of Supply
(25) & (27)
Zero Rated Supplies - 11(1)(a)(ii), (b), (c), (d), (f), (g), (hA), (i), (m), (mA),
S11(1)
goods (n), (p), (r), (s), (t), (u), (v)
Zero Rated Supplies -
S11(2) 11(2)(g), (h), (j), (n), (q),(s), (t), (u), (v), (x)
services
S12 Exempt 12 (b), (d), (e), (f), (k), (l) & (m)

S13 Importation of Goods 13(5) & (6); 13(2B) value to be provided

S14 Importation of Services 14(4)
S15 Accounting Basis 15(2)(a), 15(2A), (3) – (9)
S23 Registration 23(3A) & (5)

S27 Tax Periods 27(2) – (5)

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