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Thread: Reserve Input Vat to claim over multiple periods

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    Reserve Input Vat to claim over multiple periods

    Hi All,

    I have a situation where one of the entities in our group of companies has a VAT Refund due if the return is submitted as per tax report and reconciliation. I am aware that you have 5 years to claim Input VAT, my question in this though. We would prefer to not claim all the input at this stage, and offset it partially over the next couple of months to assist in Cash flow control etc. from an Ethical and accounting standards point of view, is there a problem with moving some of the Input Vat from the VAT control account to another control account "Input Vat reserved" and moving whatever is claimed to the VAT control account as and when it is claimed? I don't want to do something, however good intended, and then have it reflect as unethical or irregular during audit.

    Your kind assistance will be greatly appreciated

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    Hi AnnieA

    This is a very tricky question. I know the VAT act allows input VAT claims in later periods. But I do think that the intention here is to enable VAT vendors to claim on input that they missed. For you to plan this ahead of the time, means you are intentionally missing the claims. I completely understand your intention and why it is difficult from a cash flow perspective. I am not going to give you an answer here, but I can tell you that the reason SARS allow late claiming of input VAT is because they actually score on interest. If you claim late, the theory is that you either paid over more (less input deduction) or they will pay back less (more input than output). Below are some blogs on this subject matter:

    https://www.thesait.org.za/news/2340...-year-ago-.htm
    http://www.taxconsulting.co.za/5-yea...-tax-repealed/
    https://www.saica.co.za/integritax/2...be_claimed.htm

    I hope this helps.

    All the best.

    Alec Candiotes CA(SA), MCom Taxation
    www.mybi.co.za
    alec@mybi.co.za

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    Site Caretaker Dave A's Avatar
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    A cynic might suggest one is seeking to avoid a refund due situation to avoid the investigation from SARS that this will likely trigger.

    If there is any comfort to be had on this, my experience is that if there is a genuine reason for the claim, it isn't painful. Just make sure you've got valid tax invoices for the "unusual" expenditure that resulted in the situation.

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    Hi Alec,

    Thank you very much. It makes sense. Thank you for the links.

    Kind Regards

    Annie

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    Diamond Member Justloadit's Avatar
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    My experience in the past has been mixed.
    Did get the audit, which was quite easy. I was requested to send in a report of all invoices for the respective period.
    SARS then highlighted a number of entries, and requested the invoices for verification.
    Once they were happy they paid the input VAT.
    Other times they did refund the VAT, no audit.
    It also appears on the quality of the reports presented.
    Make sure that you have not claimed VAT on exempt items. These could be vehicles, petrol, vehicle repairs, staff emoluments, entertainment, etc.

    What I had noted was that the larger the amount, the longer it would take for the refund.
    Now on the whole this does not sound like an issue, however, if you are working on low markups, the input VAT could directly relates to your profit, and in some instances part of your working capital, which may or may not affect your business cash flow. This can be exacerbated if there is a huge purchase in a VAT period against a low invoicing period, and recouping the sale takes a few months due to a manufacturing/commissioning process, and capital is then required to maintain the company operational. The VAT refund would alleviate the situation.
    Victor - Knowledge is a blessing or a curse, your current circumstances make you decide!
    Solar and LED lighting solutions - www.microsolve.co.za

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    Quote Originally Posted by Dave A View Post
    A cynic might suggest one is seeking to avoid a refund due situation to avoid the investigation from SARS that this will likely trigger.

    If there is any comfort to be had on this, my experience is that if there is a genuine reason for the claim, it isn't painful. Just make sure you've got valid tax invoices for the "unusual" expenditure that resulted in the situation.
    Hi Dave,

    I'm sure cynics might see is as that. I used to work in the Gold Mining Industry, where massive VAT refunds were a monthly occurrence due to the Zero rated sales , and the mostly vat-able supplies. So my VAT returns were audited monthly without fail. Preparing for the actual Audit was part of the Vat reconciliation and submission process. I'm therefore very familiar with the process. The problem came in when SARS for some reason started delaying refunds. They have a 21 day turnaround time, which basically resets every time they decide to query something , at times our refunds were delayed as far as 8 to 10 months, which lead to massive cash flow problems for the mine.

    The current company I work for generally don't have refunds. This refund is due to the fact that a large amount of marketing material is being purchases on behalf of all our franchisees. They then in turn place orders as and when they require supplies. The expense therefore is a big once off, with the income being spread over months, sometimes longer. If SARS refunds without delay we can simply make provision for the amount in output vat we expect to invoice in our cash flow and reserve those funds in the call account. If SARS however delays the refund , we are going to be paying over Output Vat monthly without being able to offset it against any significant input vat.

    It would have been a convenient solution to this potential problem, but as I said, I did not want to do anything, however well intended, that would reflect negatively on the company or come across as unethical or irregular during either a SARS audit or our Annual Audits.

    Kind Regards

    Annie

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    Site Caretaker Dave A's Avatar
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    So the risk is the delay in passing the refund...

    On this point I must tap out - I have no recent experience of lengthy delays.

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    Quote Originally Posted by Dave A View Post
    So the risk is the delay in passing the refund....
    And with the current financial situation in RSA, less taxes being paid due to lower sales, the delays may be a norm, this could make or break a company
    Victor - Knowledge is a blessing or a curse, your current circumstances make you decide!
    Solar and LED lighting solutions - www.microsolve.co.za

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    I had a company recently for who a previous accountant did not submit supporting documents on periods ranging from 2013 to 2017. SARS then of course disallowed all input tax, and the client had a R270k debt payable (output plus penalty plus interest).

    She then attempted to claim all input back in a later period. Once again, when SARS asked for supporting documents, she did not provide them. Luckily the period was still open, so I spent quite a lot of time setting up the VAT reports and summaries and explaining the situation. SARS had no issue whatsoever with the fact that I claimed previous period inputs, they simply asked for the invoices.

    The inputs were allowed, and deducted from the VAT payable. Now we are only sitting with the interest and penalties payable (still R100k).

    What I am trying to say here, is that had this been unethical, they would have asked a lot more questions...
    Last edited by dellatjie; 28-Nov-19 at 10:09 AM. Reason: spelling

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