Impact of the VAT Increase – Are you ready?
Tuesday, 27 March 2018
Posted by: Tasveera Singh
On 1 April 2018, Value-Added Tax (VAT) will increase for the first time in 25 years, from 14% to 15%. All receipts, invoices, quotes, adverts, credit and debit notes must reflect the new rate.
Test your systems beforehand to make sure there aren’t any errors. Some important issues which business should consider are the following:
Transaction Date – “Time Of Supply Rules”
The VAT rate which is applicable, will be determined by the time of supply rules (i.e. when the transaction is deemed to take place). The general time of supply rule which would apply to most transactions provides that the time of supply is the earlier of the issuing of an invoice or when payment is received. Therefore, most transactions which occur on or after 1 April 2018 will be subject to VAT at the new rate of 15%.
Review existing agreements to ensure that you are entitled to recover the increase in the price from your clients. Generally, vendors will be entitled to recover the increase unless the parties have specifically agreed to in writing that the price cannot be increased as a result of an increase in the VAT rate.
The transitional rules in the VAT Act provide guidance in respect the VAT treatment of specific transactions which include the following:
• Lay-bye agreements
• The supply of fixed property
• Instances where goods are delivered or services are rendered before 1 April 2018
• Supplies commencing before and ending on or after 1 April 2018
• Agreements concluded between 21 February 2018 and 31 March 2018
• Goods delivered and/or services only rendered on or after 1 April 2018
Consult the VAT Act for rate-specific rules applicable to contracts and supplies starting before and ending on or after 1 April.
Adjust your pricing
The VAT Act states that displayed pricing and adverts must include VAT (unless the product is zero-rated). Some small businesses might want to close shop for the day to adjust their shelf and online pricing to reflect the new rate in time for the new business week on Monday. However, those that are unable to do this can display a notice at the till point, stating that prices do not include VAT at the new rate and will be adjusted at the tills.
Note: This grace period is only in place until 31 May, after which all pricing must include the new rate.
Check your quotes and invoices
Any quote or invoice you receive for purchases and expenses after 1 April should reflect the new VAT rate. You’ll need to submit this documentation when claiming input tax. If your supplier does not calculate VAT correctly, you will be liable for the shortfall, which could impact your cash flow.
Note: You will also incur penalties if you under- or over-declare VAT on your VAT201 return
Educate your staff and colleagues
It’s crucial that your team members know how to raise invoices and credit notes that are processed before and after 1 April, and how to process refunds for sales that occurred before this date, as these will attract different VAT rates.
The next VAT201 return you submit to SARS will be more complicated because you will need to calculate input and output tax at different rates, not to mention the apportionment rate that will need to be calculated for contracts and services taking place before and after 1 April.
It is of utmost importance that these rules are adhered to as failure to account for VAT in the correct period and at the correct rate will result in penalties and interest.
Furthermore it is likely that the number of audits for the transitional period, being February to April 2018, will increase as a result of SARS ensuring that these transitional provisions have been complied with by vendors.