Corne van Dyk, founder of Pretoria based financial services firm, Accountants on Site, provides advice on guidance for small business owners on the importance and benefits of lifting your head out of the sand when it comes to registering for, and paying VAT.
“So many of my clients complain about the VAT that they need to pay over to SARS,” says van Dyk. “When the reality is that any business owner, as a VAT vendor, should not be concerned about the amount of VAT their business pays to SARS. The bigger concern should be the amount the VAT that you get back.”
According to van Dyk, the simplest explanation of VAT is as follows; The amount of VAT you pay over to SARS, on monthly or bi-monthly basis, is calculated as the difference between the VAT that a business has collected from its clients and the amount of VAT that was paid over by a business to its suppliers.
The amount that a business collects from clients is calculated at 14% of the value of VATable goods or services supplied to your clients. This means that if your goods or services were priced at R100 you would then charge and receive R114 from your client. Your profit should therefore be calculated on the R100 and not the R114.
“I hope that from the above explanation it is clear that VAT does not affect your company’s profitability and financial performance. It should also be evident that the VAT comes from your client’s pockets and not from your own pocket. It is merely that extra R14 you have collected that will have to be paid over to SARS,” van Dyk explains.
According to van Dyk, your focus should actually be on the fact that the R14 amount collected from your client that you have to pay over to SARS can by reduced by the VAT you have paid over to your suppliers. “There are some exceptions of course, but in most cases VAT can be claimed on all VATable supplies received by your business – with the exception of entertainment and staff welfare – as long the supplies received by your business are used for the production of VATable goods or services and that a legal tax invoice or contract is obtained,” van Dyk advises.
Van Dyk says that this is unfortunately where so many business owners get it wrong. He notes that financial controls should implemented to ensure that all invoices are received, recorded and filed to enable the maximum amount of VAT to be claimed. “Furthermore, an analysis should be performed on every VAT return your business submits to evaluate whether your accountant or bookkeeper has claimed all possible VAT that was paid.”
Van Dyk concluded by saying that through the implementation of these simple controls, the amount paid over to SARS can be reduced. “I hope that business owners will realise that VAT should not be their worst challenge. Business owners have enough challenges to deal with on a daily basis, VAT should not be one of them.”