What is a broker?
The Practical Vat Loose Leaf Service says that a broker is a person who buys and sells goods, shares or arranges deals or plans on behalf of other people for fee (commission).
Brokers aren't exempt from Vat.
According to the experts at the Accounting & Tax Club when your total commission received in any 12-month period exceeds R1 million, you must register for Vat. If, on the other hand, your commission exceeds R50 000 a year, you may apply for voluntary Vat registration.
To demonstrate how Vat works if you're a broker, we'll give you a practical example…
P.S. Registering for Vat allows you to claim input tax back on Vat returns. To register for Vat your business must meet four requirements.
Find out what these are here.
Everything you need to know about brokers and Vat
Example: John is a life insurance broker and life insurance is Vat-exempt. Because the life insurance company receives the premiums and determines the commission, it makes use of 'self-invoicing'.
The life insurance company sends a tax invoice to John showing that he earned R57 000 (including Vat) commission. He must declare R57 000 as standard-rated supplies in Block 1 of the VAT201 and declare R7 000 output tax (R57 000 X 14/114 = R7 000) in Block 4 of the VAT201 form.
Here's how to treat Vat if you're broker
Although the underlying supply is exempt from Vat, any additional commission is subject to Vat at the standard rate which you must declare in Block 1 of the VAT201 return.
Now that you know how Vat works if you're a broker, make sure you comply with Vat law.