[Question] Raising invoice to clear out old credits/receipts

[VLW]

Hi There, could someone explain the procedure to me, usually bad debts are written off and the VAT claimed, but we had some 4/5 year old credits/receipts floating in a cash account, for which no invoice/s were raised, the clearing audit journal was passed, without Vat, is this correct?

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[Biz_With_Bruce]

Are these related to Bad debts?
Were these Credits or Receipts?
If they were manual credits then you would treat them one way, if they were receipts that were not allocated then you would treat them another way
Is the company on the VAT on payment basis or Invoice basis
What exactly was the clearing audit journal?

[VLW]

Vat on invoice basis, these are receipts. Sales person never raised the invoice, or so I presume. Audit jnl on one account cleared without Vat

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[dellatjie]

If these credits related to invoices never raised, VAT should definitely be declared.

The tricky part is, the invoice should have been raised when the amount was received (first of payment or invoice - timing). Should you revise those returns now, you will be audited and penalties and interest will be raised.

What I am curious about, is if the yearend journals do not indicate that VAT was taken out, then how did the turnover per the VAT returns balance with the turnover with the income tax returns. This also means that you paid income tax on the inclusive amount instead of the exclusive amount.. [emoji848]

If the credits related to an unknown deposit, you have some time to try and resolve the issue, whereafter you have to declare it in your VAT return. I think it’s 6 months.


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[Biz_With_Bruce]

or so I presume.

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This is the section I have a problem with, I would not do any journals if I don't have the facts, otherwise you are going to be adjusting the same thing 30 times over and over and over...
Find out what happened,

If the invoice was never raised and should have been raised, then you had 21 days to do this, which you obviously missed the deadline of, then you should make your way down to SARS and explain to them what happened.
When you do this, SARS also do not want you to guess, you must give them the facts.
If you do this before they come knocking and pick this up themselves, then worst case would be a couple of bucks admin penalty.
If they pick this up before you inform them of this then I hope you are stocked up with Vaseline

If these deposits relate to unknown customers who made the deposits and you have no idea what the deposits were for, then you go down to SARS and inform them of this and find out if you can raise an abridged invoice for "sundry income" then you follow their instructions, make sure you get them to put their instructions in writing, get them to specify what you should do regarding the VAT.

If these were deposits and you know who made the deposits, and depending on the amounts we are talking about, it might just be simpler to just refund the customers deposit. seeing as an Admin penalty could be 200% of the actual value of the invoice.

[Christel]

I would like to know.. how do one deal with deposits on goods that a person can only afford to pay off over a few months. Almost like a lay buy system. Would you keep the money, and not declare VAT or must you raise an invoice for the deposits, although your stock has not been ordered nor "checked out", so a sale has not taken place yet.
... sometimes we have deposits for more than 1 year, people move and forget about it, or they die and nobody informs us and it's just left as is.
At the moment we keep the deposits in a separate account. Our bookkeepers say this is the correct way in dealing with it. Only raise the invoice once the final payment has been made and stock has been sold.

[dellatjie]

Your bookkeepers are correct. Look for the VAT Guide for vendors on SARS’s website, they refer to laybuys very specifically.

The only part I am unsure about, are the deposits older than a year, as I am 99% sure you should declare the VAT thereon.


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[Biz_With_Bruce]

Hi Christel

Without getting too technical, There is No Vat on a Deposit
Vat only comes into effect when a payment is linked to a vatable supply or service
Hence "Value Added Tax" , you did not add any value to the depositor when you took the deposit.
You will only add value once you supply the recipient with a service or a item
Even if you were on the Vat on payment basis instead of Invoice basis, you still would not declare the vat on a deposit until you can allocate it to a supply of some sort.

Just imagine what would happen if deposits were vatable? No one would put any money into the Banks, if they had to pay VAT everytime their salary was deposited into their bank account.

Now to make this slightly more complex, once a deposit sits in your separate bank account for over 3 years and you don't have any means to contact the depositor, then technically you have the right to declare this amount as Sundry income (I call this the "dire straits" Money for nothing, section) This would mean that these amounts would have prescribed and the original depositor had no legal right to the money any more.
However I never recommend implementing this, word of mouth in social media these days will just destroy a company.
Just bear in mind that if you decide to implement this Sundry Income strategy, technically you still did not provide a Vatable supply and there will still not be VAT on this. No-Tax_invoice, Just a Journal entry

Just make sure that this "separate bank account" you mention at least earns more interest than what the bank charges are on the account.

[EAB]

If there is a deposit on your books for 3 years+, you will have to clear this. The only way to clear this is to write it off to the income statement as Other Income, and it will be vatable based on the following:

"A supply of goods or services by a vendor is normally subject to VAT at the standard rate
(currently 15%). As explained in Chapter 1, as a general rule, all taxable supplies of goods
and services are subject to VAT at the standard rate, unless they are specifically zero-rated
under section 11 (see 6.3), or exempt under section 12 (see Chapter 7)."

No actual supply took place, but the following would then apply:

"The term “supply” is widely defined in the VAT Act to include performance under any sale,
rental agreement and ICA. It also includes all other forms of supply, whether voluntary,
compulsory or by operation of law, irrespective of where the supply is effected, and includes
any derivative of the term."