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Revealed: A basic rundown of how the Vat system works

by , 03 October 2014
The Vat process confuses most business owners. There are so many components that make up the process that it's easy to get something horribly wrong.

The good news is, once you get used to the process, it's fairly easy to follow. It just takes a bit of time to familiarise yourself with all the components.

To help you with this process, so you don't make any mistake and incur SARS penalties, we're giving you the basic rundown of how the Vat system works...


Here's an easy-to-understand breakdown of how the Vat system works

Vat is an indirect tax that's included in the selling price of every taxable supply of goods or services.
The tax you add to the selling price of your goods forms the output tax for those goods. Whereas the tax you pay on goods you purchase forms the input tax. 
It's input tax you can claim back from SARS. If you're tax-smart, you can use your input tax credits to claim back every cent possible from the taxman and optimise your cash flow. (We give you tips and strategies on how to do this here.)
To claim your input tax, you must get a correct tax invoice from your supplier.
This all sounds pretty straight forward right. But there are two important things you need to remember. 
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Remember these two important points about the Vat process

1. Remember: Commercial dealings, whether in your business or private transactions generally:
Include Vat in their prices; and
Must include Vat in all quotes and advertisements.
2. There are two types of supplies a vendor makes:
Taxable supplies; and
Exempt supplies.
Ensure you know which kind of supplies you sell.
With these two things in mind it's easy to get through the Vat system easily without incurring any SARS penalties. 

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