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FAST FORMULA: How to calculate VAT payable
Total sales including VAT x (14 divided by 114)
Eg: Sales R228 000 x (14 divided by 114)
= R28 000
Rules to stick to:
- You must register for VAT if your business's income exceeds R1 000 000 a year.
- The VAT you charge is output VAT.
- The VAT you pay to suppliers is input VAT.
- Output VAT - input VAT = VAT payable.
- Keep adequate VAT records for five years.
- Complete a VAT return and submit it to SARS with payments every two or six months (check www.sars.co.za for guidelines). Note that if a business's turnover if more than R30 million, it must pay VAT on a monthly basis.
- Include a VAT number on your invoices and the words "Tax invoice".
- Ensure that every invoice you receive from your suppliers has a VAT number.
- Keep a record of all the invoices you receive and issue.
- Develop a good system of tracking all you input and output VAT.
Typical mistakes to avoid:
Not keeping your smaller receipts. Keep all your receipts, even those for small amounts. They might not be scrutinised by the tax pro but he or she will need to have a record of them.
For example, a receipt for a small expense for entertaining a customer will need to be detailed - where you went, who you went with, when you were there, etc. Write your customer's name on the credit card or cash slip, as well as the date and time.
Lumping equipment with supplies. Equipment is capital expenditure that has to
be depreciated. Special rules allow most small businesses to write-off a certain amount for tangible personal property such as computers and office furnishings.
These purchases must still be reported as capital expenditure and use the special method of expensing the costs. Bear in mind, however, that the full purchase price of a piece of equipment costing less than R5 000 can be deducted in the year of purchase. Higher value items must be written off over a specified period.
Forgetting to track reimbursable expenses. It is acceptable for small business owners to pay for some business expenses out of their own pocket or with a personal credit card, but don't forget to track these costs and submit the expenses to your company for reimbursement. You should also have a non-taxable reimbursement plan in place for employees.
Miscalculating car deductions. There are a number of ways to calculate deductions for vehicle use. Here are some brief pointers:
- Take a standard mileage deduction per business mile or a deduction for actual expenses and include depreciation of the car. You can't claim mileage and actual expenses.
- Switch between the two methods but be careful - using standard mileage to calculate actual expenses means you can't depreciate using the modified cost recovery system. You must use straight-line depreciation as per SARS tables, which usually yields a smaller deduction.
- If the vehicle is owned by the business, 100% of the costs can be deducted. Remember, personal use of a vehicle by an employee has to be included as part of their taxable income.
Giving more than you receive. There's no problem with being generous and giving gifts to your customers and associates, but don't go overboard.
Decide how much you want to spend before you start buying gifts. SARS usually allows the full amount for gift deductions but will investigate higher amounts, eg, an R100 000 car!
Zero-rated items: Depending on the nature of your business, there may be certain items within it that are VAT free. These include:
- Certain foodstuffs, such as brown bread, milk, eggs and fresh fruit and vegetables.
- Petrol and diesel.
- The sale of a business as a going concern.
- Certain educational services, rail, bus and taxi fares and home rental.
Visit www.sars.co.za to download their tax guide for small businesses.
DID YOU KNOW?
- As a vendor you must issue a tax invoice if goods or services total R3 000 or more.
- If you receive goods and services worth R3 000 or more VAT registration numbers must also be included on the invoice.
- A common error when issuing tax invoices is not including the purchaser's name and address.
- A scheme has been implemented to help informal small retail businesses, ie, spaza shops, to simplify their VAT and bookkeeping processes.
- To qualify for this scheme you must have a turnover of less than R1 million a year.
For more information visit www.sars.co.za.