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Thread: VAT and deposits

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    just me duncan drennan's Avatar
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    VAT and deposits

    If a deposit is paid, and then a VAT date occurs between the deposit being paid and final invoicing is any VAT due on that date?
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    Site Caretaker Dave A's Avatar
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    For smaller vendors, VAT can be calculated based on one of two methods:

    Accrual method: This is based on when the transaction takes place regardless of when it is paid. Essentially, this is the date of invoice.

    Payment date method: This is based on the date of payment!

    If you go for the cash basis, this has to be requested and approved by SARS first when making application to become a vendor. The default is the accrual method.

    Under the accrual method, this means the liability for VAT is incurred at the time of the invoice. Thus deposits received are not considered VAT events.
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    just me duncan drennan's Avatar
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    Thanks Dave, so why would anyone prefer the payment date method? Surely from a cash flow perspective the accural is better? (unless you are a compulsive spender )
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    Site Caretaker Dave A's Avatar
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    We aren't all so lucky to get our money in advance of the invoice!!!

    The scenario that illustrates the advantage of the payment date basis is where you get paid by your clients at 60 to 90 days, but you pay your suppliers COD. Your money is coming in only after you would have to pay SARS under the accrual system.

    The cash basis does come with its challenges, particularly in terms of record keeping to the satisfaction of SARS. Also, accounting systems work on the accrual basis in all other aspects.

    I know Quickbooks can handle the cash basis for VAT as an option, but I don't know about other accounting software.

    I also vaguely recall there was talk of doing away with the option.... And I'd hate to try and convert from one system to the other.
    The trouble with opportunity is it normally comes dressed up as work.

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    just me duncan drennan's Avatar
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    Quote Originally Posted by Dave A View Post
    I also vaguely recall there was talk of doing away with the option.... And I'd hate to try and convert from one system to the other.
    I assume you mean the cash basis option?

    I actually wasn't thinking clearly - obviously the cash basis is better! Then you only have to pay once the money is in the bank If in invoice is payed late on the accrual system then cash flow is an issue.

    I assume with the accrual system you can claim input VAT as soon as you have the invoice (invoice payable that is), and on the cash basis you can only claim the input VAT once it is actually paid?
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    Platinum Member Marq's Avatar
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    As far as I know the cash option has been removed and will only be accepted in special cases - which means effectively no more cash basis unless you run a government department and contemplating looking for excuses for qualified audit reports.

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    Site Caretaker Dave A's Avatar
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    Marq's certainly right about it being difficult to get registered on the cash basis.

    Actually, it's not all that much fun trying to get registered full stop. I recall submitting a tome of about 150 pages for each company with all their documentary requirements. But then I've got trusts and (Pty) Ltds, so that was part of the problem.

    You should have seen the look on the face of the Commisioner of Oaths that had to certify the copies of that little lot. He disappeared after about 5 minutes and I had to run around to find another one to finish the job.
    The trouble with opportunity is it normally comes dressed up as work.

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    Platinum Member Marq's Avatar
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    I enquired not to long ago, with sars up at Mt Edgecomb, about deregistering one of my cc's as I was no longer interested in contributing to their vat service. I just wanted to know the procedure, forms, repercussions etc.

    The advice I received from the helpful lady behind the counter was to keep plugging away every second month with the returns because that was going to be far easier than talking to the guys who they would send down to investigate and audit my business. She intimated that I should get into the situation where I had filed about six nil returns then perhaps they would lose interest in me and I could lodge a form SARSAVOIDIT and go away quietly. She did not even put out one those royal back salute hands so I was really impressed.

    It seems that one of their "random who gets an audit" programme selection criteria are the deregistering companies. They "need" to determine as to why you made all those "losses", claimed all that money from them and then decided to duck from their system. (Not that I was doing that, mind you - I was just using that as an example - you know)

    So unless your business really is going down the tubes and you could not care about a sars employee drinking your coffee (cause you would look after him wouldnt you) - beware.

    Once you are on the system there is a facility on their NITS system to check your vat returns to your income tax returns - be careful that the sales numbers on your returns look similar to your income tax declared turnover.

    Unless you have some sound reason to register for vat besides the turnover number reaching the R350,000 number (I think thats what is - havn't looked for a while), my thought on this is to try and split your income over two or more concerns and avoid getting into their clutches.

    I must say - at least I am forced to keep my books right up to date and not just manage cashflow from my bank statement, receivables and who I think I should pay this month. So its not that bad after all. (who am I kidding - I hate forms)

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    just me duncan drennan's Avatar
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    Quote Originally Posted by dsd View Post
    I assume with the accrual system you can claim input VAT as soon as you have the invoice (invoice payable that is), and on the cash basis you can only claim the input VAT once it is actually paid?
    Just to go back to this, is the above correct?
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    Site Caretaker Dave A's Avatar
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    Quote Originally Posted by dsd View Post
    Just to go back to this, is the above correct?
    Spot on, Duncan. To avoid confusion:

    On the normal (accrual) basis, you base your output tax and input tax on date of invoice.

    On the cash basis, you base your output and input tax on the date of payment.

    No mix and match to please I'm afraid.

    Interesting point, Marq. Another sure way to invoke an audit is to claim a VAT refund, I hear.
    The trouble with opportunity is it normally comes dressed up as work.

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