For the first time since 1993, the Value Added Tax Rate (VAT) is increasing from 14% to 15%. All receipts, invoices, quotations and adverts will be affected and must show the new rates. In order for you to ensure that you are doing the right thing during this next VAT return that you submit for your business, keep the following in mind:
- Transaction Date: Time of supply rules
The relevant VAT rate which applies, will be determined by the time of supply rules (when the transaction is deemed to take place). The general rule for time of supply is the earlier of the issuing of an invoice or when payment is received. This means that the most transactions which occurs on or after the 1st of April 2018 will be subjected to the new rate of VAT at 15%.
It is important to review your current agreements, to ensure that you are entitled to recover the increase in the price from your clients. It is a general rule that a VAT Vendor will be able to recover it from the client, unless the parties have specifically agreed to the otherwise.
With the changes in the VAT Rate, the transitional rules will give best guidance on how to treat specific transactions that fall outside the normal scope of time of supply rules. These include the following below that we deem important for the construction industry:
1.1. Instances where goods are delivered, or services rendered before 1 April 2018
Where goods (excluding fixed property supplied by way of a sale) are provided before 1 April 2018 or services are performed before the 1st of April 2018, the rate of 14% will apply to these supplies, irrespective if the invoice may only be issued after the 1st of April 2018 with payment after that.
Goods are deemed to be provided when they are delivered to the recipient. With regards to services, there is no guidance in terms of the Act or the courts on when services are deemed to be performed, and therefore it requires that services must have been physically performed for it to be considered to have been performed.
1.2. Supplies commencing before and ending on or after 1 April 2018
The rules regarding the supply of goods or services commencing before and ending on or after 1 April can be found in section 67A(1)(ii) and includes the following supplies:
- Goods that are provided under a rental agreement;
- services which are performed under an agreement or law that provides for periodic payments;
- good supplied progressively or periodically under an agreement or law that provides for the consideration to be paid in instalments or periodically; and
- goods or services supplied directly in the construction, repaid, improvement, erection, manufacturing, assembly or alteration of goods under any agreement or law that provides for the consideration to be paid in instalments or periodically.
Where these goods or services are provided during the period that started before 1 April and ends thereafter, then the vendor must apportion the value of the supply on a fair and reasonable basis between the supplies made before and after that date.
VAT will then be charged at the rate of 14% on the amount that is allocated to supplies before 1 April 2018 and 15% on that which happened after that date.
There is currently no guidance as to the apportionment which must be used, and therefore the Vendor will have to prove that the apportionment which has been used is fair and reasonable in the circumstances.
1.3. Agreements concluded between 21 February 2018 and 31 March 2018
An anti avoidance rule has been implemented for those who made payment for goods or services which are only provided after the 1st of April 2018. Where goods are provided 21 days after 1 April 2018, or services are performed on or after 1 April 2018, then the supplies will be deemed to take place on the 1st of April 2018 and Vat is levied at 15%.
However, if goods are delivered (provided) within 21 days from the 1st of April (before 22 April), then it will still be payable at 14%.
Other instances include lay-bye agreements and the supply of fixed property, which can be found in the VAT Act.
- Adjust your pricing
The VAT Act requires that all displayed pricing and adverts must include VAT, unless the product is zero rated. Ensure that until all prices are adjusted, that you have indicated to your customers and clients that prices may not show the correct values. Your business however should be fully compliant by the end of the grace period, which is the 31st of May 2018.
- Check your quotes and invoices
Ensure that all quotes and invoices that you receive for purchases and expenses after the 1st of April, reflects the new VAT Rate of 15%. This will be necessary to submit these documents when claiming input tax from SARS. Should your supplier not calculate their VAT correctly, your business will be held liable for the shortfall, and it could negatively impact on your cashflow. You could also be held liable for any under or over declaration on the next VAT 201 return that you submit to SARS.
- Educate your staff
Ensure that all those who deal with invoices and credit notes, as well as those who send out quotations are well informed of the effect of the VAT changes from the 1st of April 2018.
It is therefore extremely important that all businesses who are VAT vendors comply with the amendments to the VAT Act. Be aware that we expect an increase in the amount of audits in this transitional period, as to ensure that these transitional provisions have been complied with by Vendors.