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Thread: Admin Consequences of the VAT rate increase

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    Site Caretaker Dave A's Avatar
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    Admin Consequences of the VAT rate increase

    While much of the news has been on the economic and political consequences of the VAT rate increase, I think we need to have a discussion on the administrative consequences for VAT registered vendors.

    Perhaps I'm missing something, but administering this VAT rate increase is not going to be simple.

    Accounting software companies wasted no time getting messages out on how to change the VAT rate for a VAT code. I envy anyone who is going to get through this that easily.

    Nooooo. I'm going to have to introduce a new VAT code series. And my staff are going to have to be disciplined enough to use the 14% VAT code up to 31 March 2018, and the 15% VAT code from 1st April 2018 onward.

    Even the effective date is not entirely simple. We generate our monthly contract invoices 14 days in advance of their effective date. I also have one supplier who has a habit of invoicing a month in advance of our actual liability to them. Their invoice dated 1 March is actually for April's liability. Personally I'm not going to take any chances - for the invoices we generate dated 1st April the rate is going to be 15%, but I've got a sneaking suspicion I'm going to get a few clients arguing it should be 14%.

    Not that there's anything in it for them if they're going to be claiming the input VAT as a VAT vendor themselves, mind you.

    Credit notes for goods returned is also going to be fun. If the original invoice for supply is in March, but the credit note for a return is processed in April, how is the VAT supposed to be handled?

    And what happens with settlement discounts? I have suppliers where we get a 2.5% settlement discount that is processed when we pay at 30 days, and the settlement is VAT inclusive (per the relevant VAT note which I'm not going to try to look up right now). So when I'm paying the March bill at the end of April, what is the correct VAT rate for that settlement discount?

    My final one for now - If you're on a two month VAT cycle on even months, what is the April 2018 VAT return going to look like? Will we have to enter the March figures separately from the April figures?
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    This is an interesting question.

    Its going to be an administrative nightmare and quite detrimental to Even paying VAT clients. A simple scenario could be the client purchases majority of his stock as well as other input vat items during March 2018. Majority of his sales are in April thus meaning he will be receiving a much higher consideration on his sales for April which is truly unfair towards the taxpayer. I am expecting SARS to issue a statement in this regard

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    What about an invoice for sales made in March, but only received in April after you have completed your March VAT application? In my situation, I have to do VAT every month, not every 2 months.
    According to accounting practices, you can make the entry and payment of the invoice in April, however, you have to keep alert that that specific invoice as input VAT is entered at 14%, while all other invoices will be at 15%.
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    Perhaps recognising a tax liability for the amounts you expect to invoice and adjusting according

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    Quote Originally Posted by Dave A View Post
    While much of the news has been on the economic and political consequences of the VAT rate increase, I think we need to have a discussion on the administrative consequences for VAT registered vendors.

    Perhaps I'm missing something, but administering this VAT rate increase is not going to be simple.

    Accounting software companies wasted no time getting messages out on how to change the VAT rate for a VAT code. I envy anyone who is going to get through this that easily.

    Nooooo. I'm going to have to introduce a new VAT code series. And my staff are going to have to be disciplined enough to use the 14% VAT code up to 31 March 2018, and the 15% VAT code from 1st April 2018 onward.

    Even the effective date is not entirely simple. We generate our monthly contract invoices 14 days in advance of their effective date. I also have one supplier who has a habit of invoicing a month in advance of our actual liability to them. Their invoice dated 1 March is actually for April's liability. Personally I'm not going to take any chances - for the invoices we generate dated 1st April the rate is going to be 15%, but I've got a sneaking suspicion I'm going to get a few clients arguing it should be 14%.

    Not that there's anything in it for them if they're going to be claiming the input VAT as a VAT vendor themselves, mind you.

    Credit notes for goods returned is also going to be fun. If the original invoice for supply is in March, but the credit note for a return is processed in April, how is the VAT supposed to be handled?

    And what happens with settlement discounts? I have suppliers where we get a 2.5% settlement discount that is processed when we pay at 30 days, and the settlement is VAT inclusive (per the relevant VAT note which I'm not going to try to look up right now). So when I'm paying the March bill at the end of April, what is the correct VAT rate for that settlement discount?

    My final one for now - If you're on a two month VAT cycle on even months, what is the April 2018 VAT return going to look like? Will we have to enter the March figures separately from the April figures?
    Perhaps you also received the very simplistic email from Quickbooks? They did not even suggest "when". Sometimes I just despair.

    Your way is in my opinion the only way. Some users with a few thousand stock lines have an issue. We have exported all items to excel and allocated the new vat code. Those items then need to be imported again after trading on 31st March. Entries thereafter, mostly on the purchasing side, will have to be manually changed to the old code.

    Regarding settlement discount, I am of the opinion that the entry is triggered by the payment and is in fact a new transaction (unless the discount is stated on the invoice) and should therefore be at the new rate. I think.

    I doubt the return will separate the months. Assuming it doesn't then an SD14 return is going to be a ton of fun

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    Site Caretaker Dave A's Avatar
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    Quote Originally Posted by Craig Dlamini View Post
    A simple scenario could be the client purchases majority of his stock as well as other input vat items during March 2018. Majority of his sales are in April thus meaning he will be receiving a much higher consideration on his sales for April which is truly unfair towards the taxpayer. I am expecting SARS to issue a statement in this regard
    As VAT belongs to SARS pretty much all the way through, I'm quite sure that SARS is happily going to take the windfall.

    Quote Originally Posted by Andromeda View Post
    Perhaps you also received the very simplistic email from Quickbooks? They did not even suggest "when". Sometimes I just despair.
    Indeed. I didn't know whether to laugh or cry.

    Quote Originally Posted by Andromeda View Post
    Regarding settlement discount, I am of the opinion that the entry is triggered by the payment and is in fact a new transaction (unless the discount is stated on the invoice) and should therefore be at the new rate. I think.
    As long as both sides view it that way and allow for a discount (incl VAT) of 2.52% for payments in April instead of the usual 2.5%, no real harm done.

    Quote Originally Posted by Andromeda View Post
    I doubt the return will separate the months. Assuming it doesn't then an SD14 return is going to be a ton of fun
    Recons, the way the VAT201 auto-populates the Output VAT from the Gross Turnover... I think there is going to be little choice to separate the months in the return. Or force a vendor who would normally submit a two month return ending in April to have to be submit a one month return for March and separate one month return for April.

    Again, as long as both can be paid at the end of May, no real harm done.

    Hopefully SARS will drop a guide on the subject some time real soon.
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    Have to rewrite so many of our legacy CMS systems which still has VAT hardcoded everywhere.

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    Platinum Member AmithS's Avatar
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    That's the problem in my opinion that some companies will build in the admin costs to cater for the VAT changes... Especially if its on large turnovers - the costs of handling the cash and bank fees also needs to be considered amongst other things like mentioned above.

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    Quote Originally Posted by Dave A View Post

    Recons, the way the VAT201 auto-populates the Output VAT from the Gross Turnover... I think there is going to be little choice to separate the months in the return. Or force a vendor who would normally submit a two month return ending in April to have to be submit a one month return for March and separate one month return for April.
    Dumb me, I didn't even think of that

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    The following has also been pointed out to me:

    Supplies prior to 1 April 2018
    Where goods or services are supplied before 1 April 2018, the rate of 14% will apply to these supplies, irrespective of the fact that an invoice for such supply may only be issued on or after 1 April 2018, and the payment is received after that date.

    Supplies commencing before and ending on or after 1 April 2018
    Periodic or progressive supplies that commence prior to the effective date and end after the effective date will need to be split between the new and old rates. This split should be on a 'fair and reasonable' basis.

    Supplies made on or after 1 April 2018
    Supplies after 1 April 2018 will be subject to VAT at 15%. Please note that there are specific rules prohibiting vendors from issuing invoices or making payments prematurely in order to benefit from a lower Vat rate.

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