[Question] When is output tax payable?

[Neville Bailey]

I am registered for VAT on the invoice basis (not the payment basis).

In other words, I am liable to pay SARS output tax, based on the tax invoices that I processed in the two months prior.

I offer, as an incentive to my clients, discounted support bundles which they can purchase in advance of my providing my services to them. I provide the client with a Proforma Invoice and they pay me for the support bundle, and their account goes into credit.

As and when I provide them with my services, I process a Tax Invoice to the client for the time spent, which is offset against the credit balance on their account. I then pay the relevant output tax on that invoice when the next VAT return is due, and the client can then claim the same VAT from SARS.

One of my clients has challenged me on this approach, and they insist that I provide them with a Tax Invoice for the full amount of the support bundle, so that they can claim the VAT immediately. They say that, in terms of the VAT Act, I am liable for the output tax at the time of the receipt of the payment or the tax invoice, whichever comes first.

This is the first I've heard of that approach - is it correct?

[EAB]

Unfortunately your client is correct, the time of supply is the earliest of invoice issued or payment received.

9. Time of supply

(1) For the purposes of this Act a supply of goods or services shall, except as otherwise provided in this Act, be deemed to take place at the time an invoice is issued by the supplier or the recipient in respect of that supply or the time any payment of consideration is received by the supplier in respect of that supply, whichever time is earlier.

There is a list of exceptions and I don't see where the service you offer will form part of any of those exception

[Neville Bailey]

Interesting...

Well, I've learnt something new today.

[Justloadit]

This is similar to prepaid airtime.
You provide a payment to the service provider, and on a daily bases an invoice is generated for the previous days sales.

If you treat the payment as a deposit, then there is no VAT, as the sale only takes place when you invoice.

It seems that you may have a customer who does not like this approach.
Why do you not invoice him immediately. You already have his money which includes the VAT portion.
You are not losing or even financing this invoice, as you already have the money in your account.

It does add some extra book keeping to keep tabs on what has been done and the balance. The other way is much easier, but certain clients insist on making ones life a little more difficult.

[Neville Bailey]

It does add some extra book keeping to keep tabs on what has been done and the balance. The other way is much easier, but certain clients insist on making ones life a little more difficult.

This is the problem I now face, so I will have to give some thought to it. When I used the Proforma Invoice approach, I could link a Tax Invoice to it and the system would automatically track the remaining hours (much like sales back-orders), but now I won't have that control.

Oh well...

[BusFact]

If you treat the payment as a deposit, then there is no VAT, as the sale only takes place when you invoice.

I suspect you could get away with this if it was a deposit. It would most probably have to be fully refundable if not used. The Sanral E-Toll system seems to use this approach. They only issue VAT invoices once a toll is used, not when a deposit is paid.

I wonder what other characteristics would make a deposit differ from an early payment?