[Question] vat(value added tax) rounding

[Marvin99]

How do you guys round vat?do you round it up or down and why?if anyone has once asked SARS about this please share the answer they gave you with the rest of us.

[Andromeda]

You round it to the nearest cent. Why? Because it makes cents

[Dave A]

What I tend to find more interesting is whether VAT should be calculated per item, per line or per invoice. It can make a substantial difference.

[Marvin99]

Yes you must round it to the nearest cent and that makes cents but I was asking when rounding it to the nearest cents do you round it up or down.

[CLIVE-TRIANGLE]

Hi Marvin, what Andromeda is saying is if you round to the nearest cent then it will be up if that is nearer, or down if that is nearer. So it is neither up nor down, it is to the nearest cent.
R4.364 becomes R4.36, while R4.367 becomes R4.37.

[SilverNodashi]

What I tend to find more interesting is whether VAT should be calculated per item, per line or per invoice. It can make a substantial difference.

Surely it shouldn't, since you're working with percentages?

[Justloadit]

Surely it shouldn't, since you're working with percentages?

Yes but the 3rd and 4th decimal point comes into play here.

Lets take a line item of R 2.27, VAT is 0.3178 or R 0.32c
Lets take 221 items of R 2.27, totaling to R501.67, VAT is R 70.2338 or R 70.23 on the total.
If we take the individual item VAT, R 0.38c times 221 items, then the VAT is R 70.72, an error of R 0.49c

[SilverNodashi]

Yes but the 3rd and 4th decimal point comes into play here.

Lets take a line item of R 2.27, VAT is 0.3178 or R 0.32c
Lets take 221 items of R 2.27, totaling to R501.67, VAT is R 70.2338 or R 70.23 on the total.
If we take the individual item VAT, R 0.38c times 221 items, then the VAT is R 70.72, an error of R 0.49c

I always round off to two decimal points, but see what you mean with this.

[SoTrue]

Yes but the 3rd and 4th decimal point comes into play here.

Lets take a line item of R 2.27, VAT is 0.3178 or R 0.32c
Lets take 221 items of R 2.27, totaling to R501.67, VAT is R 70.2338 or R 70.23 on the total.
If we take the individual item VAT, R 0.38c times 221 items, then the VAT is R 70.72, an error of R 0.49c

49c is still totally immaterial.

[Justloadit]

49c is still totally immaterial.

Yes immaterial, but the figures do not balance in trial balances and balance sheets with out an adjustment entry, and if it is owing to SARS you can not get a clearance certificate.
In this example it may be a small amount, how ever take this example over a million items, then it may become significant to the point that it can skew a trial balance
If you have R 999,999.51 in the bank, you are not a millionaire

[SoTrue]

Yes immaterial, but the figures do not balance in trial balances and balance sheets with out an adjustment entry, and if it is owing to SARS you can not get a clearance certificate.
In this example it may be a small amount, how ever take this example over a million items, then it may become significant to the point that it can skew a trial balance
If you have R 999,999.51 in the bank, you are not a millionaire

Not an accountant, are you?

Not sure how you got from VAT processing to balance sheet being out of balance to owing to SARS?

[Justloadit]

Not an accountant, are you?

Not sure how you got from VAT processing to balance sheet being out of balance to owing to SARS?

No I am not an accountant, you said that the error was immaterial, the question is to who?

Every business who is VAT registered must present a VAT report to SARS. All VAT figures must balance at year end when doing a balance sheet, which an auditor then has to sign off. If the figures you present toSARS, and the audited figures donot match, this raises a flag, and requires scrutiny to identify the reason. So small errors are material to a business.

[SoTrue]

No I am not an accountant, you said that the error was immaterial, the question is to who?

Every business who is VAT registered must present a VAT report to SARS. All VAT figures must balance at year end when doing a balance sheet, which an auditor then has to sign off. If the figures you present toSARS, and the audited figures donot match, this raises a flag, and requires scrutiny to identify the reason. So small errors are material to a business.

You don't understand, so I can't reason with you.

[Dave A]

49c is still totally immaterial.

You'd think. I've had big companies give me grief on smaller VAT calculation differences on a single invoice though.

And it can really add up across a year under the right (or should that be "wrong") circumstances. Imagine the Justloadit rounding example where that is your only product!

[SilverNodashi]

So, would it be better / safer to use all figures with 4 digits, instead of rounding off to the nearest 2 digits?