Accounting for Attorneys - My Academic

Accounting for Attorneys

Second Edition

(Revised Reprint) (VAT Changes)

Gordon Adams

BCom Hons (Acc) (UWC) CA (SA) Lecturer: University of the Western Cape

Silke de Lange

BAcc LLB MCom (Taxation) Lecturer: University of Stellenbosch

Ansia Storm

BCom Management and Financial Accounting, Hons BCom Financial Accounting MCom Forensic Accountancy, MCom South African and International Taxation

Senior Lecturer: North-West University

5 Value-added tax (VAT)

Learning objectives

After studying this chapter, you should be able to:

l understand the principle of VAT l explain the difference between input tax and output tax l list the requirements of a valid tax invoice l explain when to register as a VAT vendor l account for VAT in the accounting records.

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Accounting for Attorneys

Contents

Page 5.1 Introduction ...................................................................................................................... 57 5.2 Terminology...................................................................................................................... 57

5.2.1 Registration ......................................................................................................... 57 5.2.2 Vendor ................................................................................................................. 57 5.2.3 Category .............................................................................................................. 57 5.2.4 Supply of goods or services............................................................................. 58 5.2.5 Time of supply .................................................................................................... 58 5.2.6 Input tax ............................................................................................................... 58 5.2.7 Output tax ........................................................................................................... 58 5.3 Supplies ............................................................................................................................. 59 5.3.1 Taxable supplies ................................................................................................. 59 5.3.2 Exempt supplies.................................................................................................. 60 5.4 Input and output tax ....................................................................................................... 60 5.5 The requirements of a valid tax invoice...................................................................... 61 5.6 Operation of the VAT system ....................................................................................... 63 5.7 Recording procedure (ledger accounts)..................................................................... 64 5.7.1 Input tax ............................................................................................................... 64 5.7.2 Output tax ........................................................................................................... 66 5.7.3 VAT control account ......................................................................................... 66 5.8 Sundry aspects ................................................................................................................. 67 5.8.1 Tax returns and payments ................................................................................ 67 5.8.2 Assessments ........................................................................................................ 67

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Value-added tax (VAT)

5.1 Introduction

This chapter deals with specific VAT situations concerning an attorney's practice as a vendor.

The Value-Added Tax Act 89 of 1991 was promulgated on 12 June 1991 and determines that tax is levied upon the value added by an enterprise and is imposed upon each supply of goods and services rendered by the entrepreneur. VAT was implemented on 30 September 1991 and originally levied at 10%. From 7 April 1993 the rate changed to 14%, and as from 1 April 2018 it was changed to 15%.

VAT can be defined as an indirect tax levied by a vendor on the consumption of goods and services. The definition of a vendor will be explained in paragraph 5.2.

5.2 Terminology

5.2.1 Registration An entrepreneur is compelled to register as a vendor if the total value of the taxable supplies exceeds R1 000 000 in a period of 12 months.

From 1 April 2014 a person may register voluntary if: ? the person is conducting an enterprise; and ? the value of the taxable supplies was more than R50 000 in the past twelve months;

or ? the taxable supplies are not yet more than R50 000 but it is expected to be more than

R50 000 within 12 months of registration. Once the vendor is registered, VAT is payable when value is added to goods or services in the course of business.

5.2.2 Vendor Any person who is, or is required to be, registered under the VAT Act is referred to as a vendor.

This person includes a public authority, a municipality, a company, a close corporation, a body of persons (whether vested with a legal persona or not, for example, a partnership), a deceased or insolvent estate, a trust fund and any foreign donor funded project.

A vendor can be seen as an agent who collects VAT for the South African Revenue Service (SARS).

5.2.3 Category The Commissioner determines the category the vendor will be allocated to depending on, for example, turnover and type of business. Each category stipulates a tax period, in other words, it determines how often the VAT vendor has to report to SARS on VAT.

The categories are as follows: Category A: Two-month periods, ending on uneven months (e.g. January and March). Category B: Two-month periods, ending on even months (e.g. February and April).

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