Whenever someone buys supplies from you, you have to give them tax invoices. But what happens if your customer returns the supplies and asks you for a credit note? Or you have to give your client a debit note because you gave him supplies on credit?
This is perfectly acceptable, but your debit and credit notes have to be completely SARS-proof if you're going to avoid a backlash. For this to happen, you need to have all the right information and ensure there are no mistakes.
To ensure your debit and credit notes meet SARS' expectations, ask yourself these seven questions...
For SARS-proof debit and credit notes, ask these seven questions
1. Did your customer phone you to cancel the supply/order?
If so, issue a credit note that makes reference to the original tax invoice and reduce your output tax.
2. Did your client change the nature of the supply?
If so, issue a credit note with the details of the original supply, then issue a new tax invoice with the current details of the supply.
3. Did you reduce the consideration of the supply?
If so, issue a credit note that doesn't mention the original tax invoice and reduce your output tax for the period.
4. Did you give your client a volume discount for the supplies?
If so, issue a credit note for the discounted amount and reduce your output tax for the period.
5. Did your client return any goods or services?
If so, issue a credit note for the full original amount and reduce your output tax.
6. Did you increase the price?
If so, issue a debit note showing the increase in price. It must refer the original tax invoice. Declare and pay the extra output tax too.
7. Did you state a prompt payment discount on your client's tax invoice?
If so, don't issue a credit note to reduce your output tax.
Asking these seven questions will help you ensure your credit and credit notes have the right information on them.
It will also help you avoid SARS penalties if SARS decides to audit your business.
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It's important to have SARS-proof debit and credit notes for this reason
Be careful of giving customers tax invoices when you give them discounts. It's not only unwise for you to issue a tax invoice if you haven't made a supply, it's illegal.
Rather give them a credit note to ensure your client doesn't try claim his input tax on the supply tax-free. And remember, if the note doesn't have the right information and your client tries to claim input tax with it, SARS might end up auditing you.