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Avoid the clutches of SARS' auditors: Use these three questions to screen your credit and debit notes

by , 19 August 2013
Watch out! It's easy to make a mistake with Vat when dealing with discounts and credits received from suppliers. If you do, you could underpay your Vat and suffer huge penalties and interest as a result. Don't take that risk. Use these three questions to screen your debit and credit notes before submitting them to SARS and avoid penalties.

There's a way you can avoid being under SARS' radar when it comes to your credit and debit notes.

The Practical Vat Loose Leaf Service suggests you ask these three questions below to screen your credit notes or discounts that you get to keep you out of the clutches of SARS' auditors.

Use these three questions to screen your credit and debit notes

Question #1: Did you phone your supplier to cancel your supply or order?

Here's an example of how you can do this: Let's say Weddings & Things ordered a candelabra from India for an on-supply to Your Special Day, a wedding venue. The price was R25 000, including Vat. When it's delivered to Your Special Day, with the invoice, they find the head piece broken.

As no other candelabras are available, Weddings & Things sends the broken item back to be replaced. India is far away from South Africa, so the replacement product will take a few months to arrive. Weddings & Things and Your Special Day cancelled the order completely. That means the supply is cancelled.

What to do now?

  • Weddings & Things must issue a credit note for the full R25 000. They must reduce the output tax amount they declared for the specific tax period in which the credit note is issued. The credit note must make reference to the original tax invoice too.
  • Your Special Day, as the recipient of the credit note must reduce the input tax they claim in the tax period the credit note is received. As the supply of R25 000 (the Vat inclusive price) was not made, the input tax deduction has to be R25 000 x 14/114 = R3 070.18 less.

Question #2: Did you change the nature of your supply?

Let's say Johan's Restaurant has a Ferrari 456 GT as a courtesy car. Unfortunately, Johan Junior has an accident. He hit a gutter with the right front wheel, damaging the wheel beyond repair.

Juliano's Sports Equipe orders a replacement wheel from overseas and invoices Johan's Restaurant for R25 000, including Vat. Unfortunately, the wrong wheel was ordered and it must be sent back. Juliano's Sports Equipe orders the correct wheel the next day, but it's now at a higher price of R28 000, including Vat.

The solution:

  • Juliano's Sports Equipe must issue a credit note for the full amount of R25 000 and issue a new tax invoice with the details of the correct wheel (supply). The credit note must mention the original tax invoice. Juliano's Sports Equipe must also adjust his output tax by reducing it by R25 000 x 14/114 = R3 070.18.
  • Johan's Restaurant must reduce its input tax in the tax period it receives the credit note by R25 000 x 14/114 = R3 070.18. Johan must also claim his input tax on the new tax invoice which shows the correct type of wheel (supply). This will amount to R28 000 x 14/114 = R3 438.59.

Question #3: Did you increase the price?

For example, Bootcamp delivers ten pairs of hiking shoes to Big Sky Hiking and invoices them for R6 000, Vat included, subject to a possible price increase from the manufacturer in Taiwan.

Guess what? The price hike of 18% comes through in the same week as the shoes were delivered.

What to do now?

  • Bootcamp must issue a debit note showing the increase in price (R6 000 x 18% = R1 080). It must make reference to the original tax invoice. It must declare and pay the extra output tax too.
  • Big Sky Hiking must claim extra input tax in line with the debit note in the tax period they receive the note. This'll amount to R1 080 x 14/114 = R132.63 and they must review the terms of their agreement with Bootcamp, going forward.

Remember to keep your credit and debit notes for a minimum of five years should SARS ask for them. If you don't, SARS can slap you with penalties and interest just because the required proof isn't available.

In addition, make sure you use these questions screen your credit and debit notes before you hand them over to SARS.



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