As you may recall from last week, VAT is not an expense to the business but is merely passed on to its customers and then at some point reaches the government. Besides not being an expense, there is another benefit that business owners should know of and take advantage of.
There are instances when a business is able to claim VAT from Sars, but this is only possible if the business paid more VAT to its suppliers than it received from its customers. For example, if you purchased plant and equipment from your supplier at R969 000 including VAT, and the VAT you paid was R119 000; but the total revenue you received from your customers was R285 000 including VAT and the VAT you received was R35 000, you would have paid R84 000 more VAT than you received. In that instance, you are able to approach Sars and claim the difference (R84 000) which Sars would then pay to you.
It is therefore unnecessary for the business to lose such an amount – especially if it can be avoided by simply being VAT registered. It usually takes 21 days to register for VAT and application forms are found at any Sars branch or on www.sars.gov.za, along with a list of necessary documentation.
But a word of caution: after you are VAT registered, you are able to charge and receive an extra 14% on top of the price you charged your customer. Remember, the 14% is not your money; you are merely acting as an agent collecting tax on Sars’s behalf. Many business owners see VAT as revenue and use the 14% for the business. As a business owner myself, I know the temptation. That extra 14% can go a long way to helping the business grow.
But the thing about tax is it never goes away; at some point you will have to settle your account with interest and penalties. Secondly, by getting into the habit of not submitting VAT returns, you could find yourself with multiple outstanding submissions which, when Sars comes knocking on the door, you will have to pay as an accumulative amount at once.
Hitting the wall
Such a heavy financial burden on the business can lead to liquidation. Tax is all about management. Put in place a system that ensures you submit on time the correct amounts. Enlist the services of an accountant if need be.
Munya Duvera (email@example.com) is CEO of Duvera Analytics