Small to Medium Businesses are increasingly experiencing financial difficulties given South Africa’s current economic climate. Cash flow has to be managed effectively to ensure that operations continue, employees and creditors are paid, and a positive cash reserve balance is maintained. Then there is always SARS to take into consideration…
Businesses often forget the pitfalls and dangers of non-compliance regarding Value-Added Tax (“VAT”). VAT is a continuous transaction-based tax and, depending on a vendor’s registration basis, is usually payable bi-monthly or monthly. To prevent penalties and interest being levied by SARS, businesses must ensure that they submit their VAT returns on time, make payment of any liability owing and adhere to any SARS requests for additional information timeously. A VAT return for a specific period has to be submitted (and payment of any liability made) by no later than the last business day of the month following the end of the relevant VAT period. For example, the April VAT return must be submitted by the last business day of May.
Vendors often miss SARS verification requests, resulting in refunds not being paid out by SARS or even additional liabilities where SARS has asked for supporting documentation, for example, zero-rating of supplies made. It is of the utmost importance to adhere to the timelines set by SARS and request an extension beforehand when the deadline is not reasonable. It is important to set out the feedback to SARS so that SARS can understand it and lessen the possibility of follow-up queries. Regular checks on e-filing must be done to identify any SARS correspondence or requests.
Understanding the nature of goods or services supplied can assist a business in identifying any preferential VAT treatment thereof – for example, if a business exports goods, it may qualify for zero-rating of the sales (i.e. where VAT is charged at 0%) – however, certain requirements must be met. When claiming VAT paid on goods or services consumed as input tax, businesses must know what requirements must be met, for example, what a valid tax invoice should look like, when an amount should be claimed, what are impermissible claims, etc.
Where SARS has raised additional assessments or levied penalties and interest, businesses must understand what remedies are available and not necessarily accept SARS’ decision at face value.
By understanding VAT compliance requirements and the basics of the VAT treatment of a transaction, Small to Medium businesses may save a lot of money and time. Consulting with a trusted and reputable VAT specialist will assist with this endeavour – a VAT “health check” can often identify risks or opportunities for VAT savings. Small to Medium businesses have several headaches… don’t let VAT be one of them.