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Don't make this mistake when it comes to declaring intercompany expenses

by , 10 March 2016
Many businesses have no idea how to declare intercompany expenses and the VAT.

And if you're one of those businesses, the chances are that SARS will hold you liable and penalise you.

That's exactly what happened in the Tax Court during VAT Case No. 847 (8 November 2012).

Take a look at one invaluable lesson you can learn from this case...

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In this case, Mr. X owned four companies which all traded from the premises company A owned.

Company B, C and D all entered into lease agreements with company A, and company A issued tax invoices for all the rentals owing under the leases.

Company B paid its rent to A.

But companies C and D never used its space. They had no employees, didn't pay any rent, nor did they claim the VAT shown on the tax invoices from company A.

SARS held that company A should've declared VAT on the rent due, but not paid, by C and D.

It issued an assessment for close to R1 million in penalties and over R200 000 in interest.

After that, the TAX Court dismissed the vendor's appeal!

From this case, there is one very important lesson you need to know, I'll discuss in more detail…

Lesson to be learned:

You must account for VAT as soon as the supply takes place on either the issue of the invoice or the receipt of payment for services/goods. This occurs when whichever of these takes place first.

So even though companies C and D didn't use the space, the fact that company A triggered the invoice triggered the VAT liability.

You should now realise that when you issue your tax invoice, you've triggered your VAT liability, and so you must account for it.

CAUTION: Even if you're still waiting for a customer to settle an account with you, you STILL have to pay the output tax to SARS within that tax period.

This could, in turn, have a negative consequences on your cash flow, especially if you have late payers.

If you account for VAT on a payment basis, then you'll only account for VAT when you receive your payments.

But this only applies if you're a sole trader, an individual, a not-for-gain organisation or a partnership in which partners are natural persons.
 
*To learn of 3 other detailed lessons to be learned from the above-mentioned case, page over to chapter I 15 of your Practical VAT Loose Leaf Service handbook.

Alternatively, click here to order your copy today. 

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