When entering into a barter transaction, such as a sponsorship agreement, in which goods or supplies are exchanged instead of cash, you need to ensure that you handle the VAT correctly.
Failure to do this will lead to hefty SARS penalties!
To help you understand what's required of you, let's take look at where South Atlantic Jazz Festival (SAJF ) went wrong...
CASE LAW: South Atlantic Jazz Festival (SAJF) vs. SARS
What were the facts?
If you claim input tax, your SARS VAT audit is impending
And when the SARS auditor comes knocking or sends a query, he'll check if:
· Your books and records comply with the requirements of Section 55 of the VAT Act;
· You didn't claim on exempt supplies;
· Any of your claims were for non-taxable supplies;
· You apportioned inputs correctly and at the right tax rate (Sections 16, 17 and 20
of the VAT Act);
· And more!
But the truth is, even if you're entitled to your claim, but don't have the valid documentation, he'll still reverse your deduction!
Here's everything you need to secure every input tax claim you submit.
The SAJF plays host to annual jazz festivals in the city of Cape Town.
They gave sponsors branding and advertising rights, in exchange for services such as TV and radio advertising.
But they didn't declare output tax on the value of the sponsorship.
Also, they failed to issue or receive tax invoices for the services.
Because SAJF didn't declare output tax on the sponsorships, SARS calculated their values from the sponsorship contracts and levied the output tax – with interest and penalties!
They also made them issue tax invoices, for the output tax, to the sponsors.
What's more, SARS refused to give them any input tax, on the services they received from the sponsors, because they couldn't produce any tax invoices for them.
After losing to SARS in the Tax Court, they appealed the decision in the High Court.
What happened in the High Court?
The High Court noted that a VAT vendor can in fact claim input tax without tax invoices, but only if the vendor can provide documentary proof which is acceptable to SARS.
And so, because SARS used the contracts (proof) to calculate the output tax, they should allow SAJF to claim input tax equal to the output tax assessed.
SARS was also made to pay the legal costs.
What can you learn from this case?
Even though SAJF won this case, they could have saved themselves a whole lot of trouble by just following 4 simple steps…
*To find out what they are, simply page over to Chapter T 14
in your Practical VAT Loose Leaf Service
handbook, or click here
to order your copy today.