Value Added Tax Grade 10

Value Added Tax Introduction: Lesson 1: Purpose of VAT How does it work? Lesson 2: Registering for VAT Lesson 3: Tax period Calculating VAT Lesson 4: Activities

Purpose of VAT Government requires funding in order to provide basic services and protect the welfare of the country. They collect funds to pay for the services through taxation: Direct Taxation on individuals and business (Fixed % of income). Indirect Taxation is used as an additional means of collecting funds. The most notable form of indirect Tax is VAT Value Added Tax, or VAT, is an indirect tax, which is imposed on goods and services at each stage of production.

How does VAT work? In South Africa VAT is currently at 14%

How does VAT work? Input VAT: VAT that the business pays when PURCHASING goods and services, or on any other business expenses. Example – Calculate the total Input VAT that has to be paid on the following transaction: Purchased goods for R4000 less 10% trade discount plus 14% VAT.

How does VAT work? Purchased goods for R4000 less 10% trade discount plus 14% VAT. Calculation: (a) R4000 x 90% (100%-10%) = R3600 (due after trade discount) or (b) R4000 x 10% = R400. R4000 – R400 = R3600 (due after trade discount) now, calculate the Input VAT amount, based on the total amount of R3600 R3600 x 14% = R504 (The total amount paid to the supplier: R3600 + R504 = R4104) (Alternatively: R3600 x 114/100 = R4104)

How does VAT work? Output VAT: VAT that the business charges when SELLING goods and services to customers, for example, VAT charged on sales, rent income etc. Example – Calculate the total Output VAT relating to the sale of goods worth R8000 plus 14% VAT.

How does VAT work? Calculation: (a) R8000 x 14% = R1120 (VAT) Total amount due: R8000 + R1120 = R9120 (Amount due by customer) Alternatively: R8000 x 114/100 = R9120 OUTPUT VAT INPUT VAT VAT PAYABLE TO SARS 1120 504 616 Thus, Output VAT > Input VAT = VAT Payable to SARS Output VAT < Input VAT = VAT Receivable from SARS

ACTIVITY 1: No. Purchase Price Profit mark-up Selling Price Input VAT Output VAT VAT “Payable” to SARS E.g. R4 000 60% R6 400 R560 R896 R336 Tip 160 / 100 = 1.6 x x 14% Output (minus) Input

ACTIVITY 1: No. Purchase Price Profit mark-up Selling Price Input VAT Output VAT VAT Payable to SARS E.g. R4 000 60% R6 400 R560 R896 R336 1. R10 000 100% A B C D 2. R4 200 25% E F G H 3. R6 000 50% I J K L 4. R1 200 20% M N O P

ACTIVITY 1: No. Purchase Price Profit mark-up Selling Price Input VAT Output VAT VAT Payable to SARS E.g. R4 000 60% R6 400 R560 R896 R336 1. R10 000 100% R20 000 A R1 400 B R2 800 C R1400 D 2. R4 200 25% R5 250 E R588 F R735 G R147 H 3. R6 000 50% R9 000 I R840 J R1 260 K R420 L 4. R1 200 20% R1 440 M R168 N R201.6 O R202 R34 P

Activity 2: Calculate the Output VAT if the selling price includes 14% VAT No. Selling Price 14% VAT Amount before VAT e.g. R2 850 R350 R2 500 1 R570 A B 2 R1 710 C D 3 R1 026 E F 4 R57 G H TIP: Selling price = 114% Amount before VAT = 100% and VAT amount = 14%

Activity 2: Calculate the Output VAT if the selling price includes 14% VAT No. Selling Price 14% VAT Amount before VAT e.g. R2 850 R350 R2 500 1 R570 R70 R500 2 R1 710 R210 R1 500 3 R1 026 R126 R900 4 R57 R7 R50 VAT Amount: 14/114 x Selling Price (incl. of VAT) Amount before VAT: 100/114 x Selling Price (incl. of VAT)

End of Lesson 1

Value Added Tax Introduction: Lesson 1: Purpose of VAT How does it work? Lesson 2: Registering for VAT Lesson 3: Tax period Calculating VAT Lesson 4: Activities

LESSON 2 Registering for VAT Any business or person who trades and has a turnover of > R1Million annually MUST (it is compulsory) register for VAT at their local SARS office. The VAT registration is completed by filling in form VAT101 and attaching the following documents: Copy of ID of the responsible person Letter from the bank confirming banking details Certificates/Statement Proof that turnover exceeds R1Million annually

On what do we pay VAT?

VAT EXEMPT supplies are not subject to VAT and include: Supply of financial services (medical aid subscriptions) Residential accommodation Trade Union subscriptions Salaries and Wages (Remember, these are directly taxed!) Hobbies (unless they become a business) ZERO-RATED Supplies are subject to VAT at 0% and include 19 food items: Brown Bread Maize Meal Mealie Rice Dried Mealies Dried Beans Lentils Pilchards tin Milk powder Rice Vegetables Fruit Milk Brown wheat and flour Eggs Vegetable oil Dairy powder blend Note that exempt supplies are completely exempt from VAT. Zero-rated supplies refer to goods that are taxable but at a zero rate. Businesses selling such goods may still claim back input VAT. Fuel & Diesel are taxed separately through a fuel levy and no VAT is involved.

ACTIVITY 3: TCR Garage asked you to answer the following questions relating to VAT. TCR has only recently registered as a VAT vendor because her turnover now exceeds R1Million. i ii What do input VAT and output VAT mean and how will they affect payment to SARS? Calculate the following: a Amount of output VAT included in R1 140 (Price for 4 tyres) b The net selling price of one tyre excluding output VAT c The cost of one tyre excluding input VAT. (Cost = R125 incl. VAT) d The profit per one tyre earned by TRC Garage e The amount of input VAT per tyre f The amount of output VAT per tyre g The amount of VAT payable to SARS

Activity 3 (i) Input VAT includes VAT that the business pays when purchasing goods and services, or on any other business expenses. For example purchases of trading stock, vehicles, equipment, the rent for buildings and paying for consumables and services, etc. Output VAT is the VAT charged by the business to their vendors (customers). For example the VAT charged on sales, rent income etc. Examples from lesson 1: - Calculation of Input VAT: R8000 x 90% = R3600 (After discount) R3600 x 14% = R504 (VAT) Total paid: R4104 - Calculation of Ouput VAT: R8000 x 14% = R1120 (VAT) Total charged: R9120 OUTPUT VAT INPUT VAT VAT PAYABLE TO SARS 1120 (504) 616

(a) 1140 x 14/114 = R140 (Output VAT Charged) Activity 3 (ii) (a) 1140 x 14/114 = R140 (Output VAT Charged) (b) 285 x 100/114 = R250 (Net Selling Price) Thus Output VAT should be: 285-250=35 and/or 285 x 14/114 = R35 (c) 125 x 100/114 = R109.65 (Cost of one tyre excl. VAT) (d) R250 – R109.65 = R140.35 (Profit per one tyre) (e) R125 x 14/114 = R15.35 (Input VAT per tyre) (f) R35 (See (b)) (g) R35 – R15.35 = R19.65 (Per Tyre) Output VAT – Input VAT = VAT Payable to SARS V O L K S W A G E N   VOS/NN 1 2 3 4 5 6 7 8 9 125/00

End of Lesson 2

Value Added Tax Introduction: Lesson 1: Purpose of VAT How does it work? Lesson 2: Registering for VAT Lesson 3: Tax period Calculating VAT Lesson 4: Activities

The tax period Tax Period can be: 1 month – Category C – turnover annually > R30million 2 months 6 months 12 months The Trader is obliged to account for VAT according to these tax periods. Tax returns must usually be submitted on the last day of Feb and Aug.

Filling in the VAT return A VAT return form (VAT 201), containing personal particulars and the VAT registration number, must be submitted to SARS with the amount of VAT that is due at the end of the period (Remember: difference between output VAT and input VAT = VAT payable/receivable from SARS). View Pg. 322 for an example of a VAT Return Form.

Value of goods (excl. VAT) Value of goods (incl. VAT) ACTIVITY 4: Calculate the missing figures. VAT is payable on all sales at the standard rate. Value of goods (excl. VAT) VAT @ 14% Value of goods (incl. VAT) a Cash Sales R1200 b Credit Sales R252 c R2850

Value of goods (excl. VAT) Value of goods (incl. VAT) ACTIVITY 4: Calculate the missing figures. VAT is payable on all sales at the standard rate. Value of goods (excl. VAT) VAT @ 14% Value of goods (incl. VAT) a Cash Sales R1200 b Credit Sales R252 c R2850

ACTIVITY 8: Complete the following table. VAT is calculated at 14%. Purchases Input Tax Sales Output Tax Paid to SARS Manufacturer R1600 Wholesaler R5600 Retailer R9000

ACTIVITY 8: Complete the following table. VAT is calculated at 14%. Purchases Input Tax Sales Output Tax Paid to SARS Manufacturer R1600 Wholesaler R5600 Retailer R9000

ACTIVITY 10: The following info was obtained from the accounting records of Mabilengwe Trades for the month of February 2.12. Calculate the output VAT and the amount owed to the business before VAT. No. Selling Price 14% VAT Amount before VAT e.g. R4560 456 R4000 1. R2100 2. R700 3. R5600 4. R1400

ACTIVITY 10: The following info was obtained from the accounting records of Mabilengwe Trades for the month of February 2.12. Calculate the output VAT and the amount owed to the business before VAT. No. Selling Price 14% VAT Amount before VAT e.g. R4560 456 R4000 1. R2100 2. R700 3. R5600 4. R1400

End of Lesson 3