VAT on commission "as and when basis" policy.

[ktersius]

We have a few policies that was written before we were VAT registered. The commission on these policies are as and when. Meaning we get a small payout every month for a certain period.

Our VAT registration has now been processed and we need to declare VAT on commission earned. The problem is now that the provider doesn't want to pay us VAT on these existing policies as it was pre-vat. We however get this commission on a monthly basis and should probably pay VAT on them.

What can be done about this situation? Should be backdate all those payments to the months the policies were written so that effectively they are not included as income post-vat? Or is the provider in the wrong here?

[HR Solutions]

Perhaps you need to explain a bit more ...... what type of business etc

You cannot charge and claim vat on anything before you were vat registered and neither can you now try to do it !

[BusFact]

HR is right. Any changes will only occur since your VAT registration everything else stays as it was.

More info is required though. For example, is your customer/provider VAT registered? If not, then I can see the problem from their side. If they are then they shouldn't have any issue with VAT now been charged to them.

[ktersius]

Business is insurance and life brokerage. My feeling is to just not mark commission coming in from them as VAT inclusive. If SARS queries it we will just have to state that this monthly income was generated before VAT registration, and is being paid out on a monthly basic over a period of X months.

They are VAT registered.

[HR Solutions]

Why would SARS query it, if you are not charging vat before you are registered and are now charging vat after you have registered ?
Them being vat registered has got nothing to do with your invoicing - if you are vat registered you will charge vat, if you are not, you won't.

Personally I think you are trying to fiddle something.

[ktersius]

Why would SARS query it, if you are not charging vat before you are registered and are now charging vat after you have registered ?
Them being vat registered has got nothing to do with your invoicing - if you are vat registered you will charge vat, if you are not, you won't.

Personally I think you are trying to fiddle something.

Understand that we do not invoice the provider(Sanlam) they generate a commission statement every month witch shows the amount being paid over to us.(For a sale of policies which occurred before we were VAT registered) Therefore the amount does not include VAT, and they said they will not start paying VAT since it was made before we were registered.

The only thing for me to fiddle is to tell the accounting package if this income received has VAT or not and maybe the effective date of the transaction. I can't go and declare that we received VAT on something which we do not receive VAT for, otherwise we are paying VAT out of our own pockets.

Therefore I need to know what the procedure is in such cases, as not to have VAT audit issues.

[Andromeda]

I would advise reading Sec (9) of the Act which defines time of supply. My take is that you should be charging VAT.

Besides that, Sanlam are being obtuse because they simply claim any input taxes paid, from their output VAT.

[ktersius]

I would advise reading Sec (9) of the Act which defines time of supply. My take is that you should be charging VAT.

Besides that, Sanlam are being obtuse because they simply claim any input taxes paid, from their output VAT.

I received this back when I enquired about the VAT.

The brokerage has an As-and-When (Full reserve) broker contract.

The amount that is being paid to the broker, is the amount released from the reserve account of the remuneration account. The money in the reserve account is commission which was already earned by the broker, before the VAT registration was placed on the records of the brokerage.

[Andromeda]

Well that is clearly Sanlam's view. Sec (9) basically determines that the time of supply is when the invoice is dated or payment received, whichever is the earlier....

Put another way, when is the commission accounted for as income in your hands, for income tax purposes?

[ktersius]

Well that is clearly Sanlam's view. Sec (9) basically determines that the time of supply is when the invoice is dated or payment received, whichever is the earlier....

Put another way, when is the commission accounted for as income in your hands, for income tax purposes?

Well it would be silly to set the date of income when the policies were sold because "as and when" means that when a client cancels you don't get the the rest of the money. Therefore on our side it is accounted for on a monthly basis as it comes in. But Sanlam sees it as money "already paid". I'm not sure what to do about it though, how do you convince Sanlam otherwise?

[Justloadit]

I think that you may be looking at this in the wrong manner.

As a agent for Sanlam, you made the sale on the behalf of Sanlam. The customer is paying Sanlam directly, because Sanlam is sending the invoice directly to the customer, and in that payment, it has the VAT portion.
YOU DID NOT MAKE THE SALE. You were instrumental in making the sale, there for the commission provided by Sanlam yo you, will not include VAT, as there is no sale that you made to Sanlam. They are providing you with a payment as commission for the original sale made. This is the reason that Sanlam will not provide you with a VAT invoice, but a statement that you received income. When you enter this income in your books, it will be a zero rated VAT output.

This is a similar manner in which Prepaid Electricity is handled by shops who are agents selling prepaid electricity.
You will need to make an entry on your VAT form, as the income received from Sanlam as zero rated sale, and is a separate figure from your output VAT figure..

I hope I explained it properly here.
Maybe you should approach a SARs office, and allow them to explain it to you.

[ktersius]

I think that you may be looking at this in the wrong manner.

As a agent for Sanlam, you made the sale on the behalf of Sanlam. The customer is paying Sanlam directly, because Sanlam is sending the invoice directly to the customer, and in that payment, it has the VAT portion.
YOU DID NOT MAKE THE SALE. You were instrumental in making the sale, there for the commission provided by Sanlam yo you, will not include VAT, as there is no sale that you made to Sanlam. They are providing you with a payment as commission for the original sale made. This is the reason that Sanlam will not provide you with a VAT invoice, but a statement that you received income. When you enter this income in your books, it will be a zero rated VAT output.

This is a similar manner in which Prepaid Electricity is handled by shops who are agents selling prepaid electricity.
You will need to make an entry on your VAT form, as the income received from Sanlam as zero rated sale, and is a separate figure from your output VAT figure..

I hope I explained it properly here.
Maybe you should approach a SARs office, and allow them to explain it to you.

Well we are acting as agents for other providers, and they are paying VAT. The problem is a timing issue.

I've asked our accountant to get more clarity on this matter.

[BusFact]

Hi Justloadit, you seem to be saying that there is no VAT on the commission transaction. If its Sanlam then they are obviously VAT registered. Surely the transaction between Sanlam and the broker should be a Vatable one?

Unless I am missing something, the broker should be issuing Sanlam with a VAT invoice each month for the commission due. Up until now as there was no VAT, there was no problem. Now the broker has to charge VAT on the commission invoice he issues each month. Sanlam are perfectly entitled to say that they will be paying the broker say R1000 in commission, regardless of whether it includes VAT or not ( I suppose it comes down to the wording of the contract).

The change occurs on the brokers side where they now have to issue a VAT invoice for R1000 which is now inclusive of VAT. The broker is now really earning a little less commission each month, although some of this is offset by now being able to claim input VAT on some of their supplies.

Sanlam do seem to be benefiting unfairly here, but they may have a rigid system in place as trying to get VAT invoices from thousands of brokers may just not be practical.

I know you said the broker did not make the insurance sale, but surely they made the commission sale. The broker is the one who should be supplying the VAT invoice, not Sanlam.

I can't seem to find any reference for commissions being exempt from VAT, unless paid to an employee.

[ktersius]

Hi Justloadit, you seem to be saying that there is no VAT on the commission transaction. If its Sanlam then they are obviously VAT registered. Surely the transaction between Sanlam and the broker should be a Vatable one?

Unless I am missing something, the broker should be issuing Sanlam with a VAT invoice each month for the commission due. Up until now as there was no VAT, there was no problem. Now the broker has to charge VAT on the commission invoice he issues each month. Sanlam are perfectly entitled to say that they will be paying the broker say R1000 in commission, regardless of whether it includes VAT or not ( I suppose it comes down to the wording of the contract).

The change occurs on the brokers side where they now have to issue a VAT invoice for R1000 which is now inclusive of VAT. The broker is now really earning a little less commission each month, although some of this is offset by now being able to claim input VAT on some of their supplies.

Sanlam do seem to be benefiting unfairly here, but they may have a rigid system in place as trying to get VAT invoices from thousands of brokers may just not be practical.

I know you said the broker did not make the insurance sale, but surely they made the commission sale. The broker is the one who should be supplying the VAT invoice, not Sanlam.

I can't seem to find any reference for commissions being exempt from VAT, unless paid to an employee.

It's a tricky situation. As far as I can tell, brokers do not issue VAT invoices, it's almost impossible to create VAT invoices on commission payable. The brokerage does not control the amounts that will be paid, so invoices would have to be after a provider has issued a commission statement. Which will then anyway be too late to "add vat", so essentially you pay the VAT out of your own pocket. That is why they include VAT in commission once you give them your VAT number.

Regarding the VAT on commission the last time I googled I found a document stating that any commission income should include VAT.

[Justloadit]

Commission is not a sale, it is an agent fee for having facilitated the sale.
It would be in Sanlam's interest to create a VAT invoice, as they would then have 14% claimed as VAT input.

When in doubt find out, go to SARS and pose the question. Ultimately it is not my opinion or your opinion at the end of the day, it is what SARS will do and who will be accountable when there is an issue with the VAT.
So to clear up the issue, got to a SARS office physically and get the ruling out of SARS. If Sanlam is proceduraly incorrect, then Sanlam will have a problem with SARS, and knowing the company, I think they would not risk this issue, and that the staff at ground level are not aware of the correct procedure.