Ten reasons to get excited about value-added tax.

Ah VAT, that three-letter acronym that sends a shiver down the spine of anyone who’s ever had to deal with a SARS audit.  Everyone hates it, everyone just pays it and thus VAT is generally the most ignored part of a business’s finance environment.

Today we discuss the hidden possibilities and risks in your VAT environment and why it is worth shaking off the fog of ennui to look carefully at what lies beneath.

When last did you do a health check of your VAT system? Are you exporting goods or services, or submitting regular claims for input tax credits that result in refunds, or about to submit a large input tax refund claim? Here are ten reasons why performing a regular VAT health check can save you money or reduce your risks.

  1. Are your processes outdated? VAT was introduced in SA in 1991 and many businesses assume that their original processes still work.  However there have been many complex VAT changes along the way, and if your system hasn’t been updated you may be making mistakes or missing out on optimisation opportunities. Mistakes can be costly, resulting in penalties and interest, lengthy verifications or audits by SARS, and delays in refunds which can impact your cash flows. Make sure your system is fit-for-purpose.

  2. Are you maximising your zero rates? Do you export goods or services on a regular basis and zero-rate these transactions? When last did you confirm that you have the correct documentation on hand to support those zero-rated transactions and within the required time limits? For example, if you don’t have the correct documents within 90 days of an “indirect” export of goods from SA by the buyer, do you reverse the zero rate of VAT and account for VAT at 15%? Export transactions are frequently audited by SARS, so get your ducks in a row!

  3. Are you claiming full input VAT credits on your general business/ running expenditure? If so, do you perform a check to ensure that your turnover derives at least 95% from taxable supplies?  Very often this check is not performed and an enterprise receives, for example, interest income that exceeds 5% of its turnover, which results in an apportionment of general expenditure being required.

  4. Are you often in a VAT refund position?  Perhaps the nature of your business results in your VAT returns reflecting a net VAT refund position, or in submitting a claim for large input credit? This applies to many businesses who had to replace equipment and machinery lost or damaged in the recent civil disturbances.  SARS’ system will likely identify the need for verification or audit: have you properly prepared for this by ensuring that tax invoices received are correct in terms of the VAT Act requirements and that your arguments in relation to the input claim can be correctly supported. The withholding of refunds can result in future refunds also being withheld and can be costly and cause cash flow problems.

  5. Have you borrowed recently? Many businesses have increased their borrowings as a consequence of damage caused by the recent unrest in Kwazulu Natal and Gauteng. If so, have you adequately checked whether VAT incurred on the fees charged by service providers who provide advice in this regard can be claimed? These services may be linked to the making of exempt supplies or to a non-taxable use, as confirmed in recent case law, and the resultant VAT cost may not be deductible.

  6. Are you part of a group? If so, do you make or receive intra-group supplies of goods or services? Are these recorded via journal entries only? Do you have a company in the group that employs staff who perform work for other group companies? Or which incurs group costs for other entities in the group? Have the VAT implications of inter-group transactions been correctly analysed?  So much can go wrong here, don’t get caught out.

  7. Do you receive or provide rebates or discounts? Or are group rebates passed on within the group? If so, do you meet the relevant documentary requirements? Make sure all your documentation is in order as these rules are complex and beloved by SARS.

  8. Are you claiming VAT on “entertainment” and motor vehicle costs? Most businesses think they are (correctly) not claiming VAT on entertaining or car expenses, but have you recently checked whether the system correctly captures these transactions? This is also an area regularly checked by SARS.

  9. Thinking about a group restructure? If so, have you reviewed the VAT implications to ensure that this is neutral or VAT efficient?  Lots of scope for pain here if not carefully managed.

  10. Finally – and importantly for most businesses – when last did you look at whether you have maximised cash flow opportunities and whether there are any savings opportunities available to your business?

VAT is a big number, so do all you can to make sure it goes the right way!  At Regan van Rooy, we have designed a smart VAT health check to pinpoint your VAT issues and opportunities, in order to mitigate costly SARS disputes and to save you money – contact us today.

How can we help?

How you structure your business is a critical question as you expand globally.  The right structure will protect your assets, improve your currency position, support your business operations, facilitate future business expansion and changes, and optimise your overall tax rate. Trying to unscramble a sub-optimal structure entered into in haste or without full consideration of relevant facts is complex and expensive, so it’s important to plan upfront.

Structuring an international business is both a science and an art – this is our specialist area of expertise. Regan van Rooy is an international tax and structuring advisory firm focussing on Africa. We have offices in South Africa, Mauritius and Ireland and we can help you with any international tax or structuring query.