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If you gave your client a discount you MUST correctly issue a credit note! Here's how to do this...

by , 05 November 2014
You know you have to document every aspect of your company's Vat transaction. This will help you claim input tax and accurately declare your output tax to SARS.

That's why debit and credit notes are so important if something out of the ordinary happens during a Vat transaction.

For example, if you give your client a discount, you'll need to issue him with a credit note.

Here's how to do this correctly so SARS doesn't slap your company with a 200% penalty...


Here's how to issue your client with a credit note for a discount

The best way to explain what to do with a discount is to give you an example. Let's look at Sipho's Spaza's story.
Sipho's Spaza orders 10kg of chips from Supachips for R166 including Vat. Supachips invoices him for it. Sipho's settles the invoice within seven days and receives a 5% discount from Supachips ( 5% of R166 is R8.30).
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So what should Supachips do now?

Supachips must issue Sipho's Spaza with a credit note for the period for which it gave him the discount. It must reduce its output tax by way of reducing the amount of it supplies by R8.30.
The credit note must state the amount Supachips discounted from Shipos's Spaza's order.
Sipho's Spaza must reduce its input tax claim by the amount that the Vat payable is reduced (R8.30 x 14/114 = R1.01) in the tax period the credit note is received.
Both parties must keep a copy of the credit note as proof of the transaction. 
Now that you know what to do with credit notes if you give your client a discount, ensure you do it correctly to avoid SARS penalties.
Check out the Practical Vat Loose Leaf Service for more on the Vat implications of credit and debit notes. 

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