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Keep all financial records if you're charging Vat at the zero rate, or else...

by , 10 April 2013
Vat's been around for 20 years in the UK, and the UK's standard rate was increased to 20% in 2010. It's still just 14% in South Africa. But this is seen as the 'easy side' of Vat. It's when you're business charges Vat at the zero rate that you open yourself up to problems with the tax man. Here's how to make sure you're charging Vat at the zero rate correctly so you stay out of trouble with SARS.

 
When Vat was introduced, certain goods and services were considered so essential that it was decided they should be subject to no tax, says The BBC.
 
This was done in two ways: zero-rating and exemption.
 
And it's this zero rating that causes the most confusion among local businesses.
 
Because many ask why include a Vat component at all if the amount is 0%?
 
It's simple – it counts as proof to SARS that you comply with the Vat Act.
 
That's why you must keep all documentary proof when you charge Vat at the zero-rate, as you must be able to prove to SARS that you were entitled to do so, says The Practical Vat Loose Leaf Service.
 
Here's why you need to keep all financial records as proof that you were entitled to charge Vat at the zero rate…
 
If you don't have your documents correct, SARS'll see the zero-rated invoice as a standard-rated one.
 
And you don't want this to happen, as it'll then deem the amount to include Vat at 14% – even though none was added.
 
SARS'll also charge you additional penalties and interest. 
 
So you'll end up losing money, as you are out of pocket by the 14% Vat and now need to pay SARS extra.
 
At the very least, you'll need to keep your copy of the zero-rated tax invoice. 
 
You'll need to keep all financial records like tax invoices for at least five years in case of a tax audit, says FSP Business.
 
Just remember that all tax invoices must clearly state 'tax invoice' and not 'Vat invoice', or they won't be seen as valid proof!
 
Another way 'zero' can get you in trouble with SARS…
 
Then be careful how you fill in your Vat return, as putting a zero in the wrong place on your Vat return is now all it takes to trigger the Vat audit process that could cost your business thousands, says FSP Business.
 
So keep all financial records, especially tax invoices if you charge Vat at the zero-rate, and you'll be able to satisfy SARS that you're charging Vat at the zero rate correctly.
 

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