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Screen your debit and credit notes before the SARS auditors do... Here's how!

by , 08 December 2016
Screen your debit and credit notes before the SARS auditors do... Here's how!SARS is very strict about WHEN, WHY and HOW you can issue a debit or credit note - especially when it comes to your VAT.

Get it wrong, and you'll face penalties for sure!

Not only that, but your clients/customers will also be targeted by SARS. And let's be honest - no business can afford to develop a reputation as a trouble-maker. If you answer 'no' to any of the screening questions, you're lining yourself up for penalties!


Errors in VAT invoices could cost you thousands!

Are there any inaccuracies in your VAT invoices? You may be charged a very high penalty!

The truth is brutal! Even if it wasn't you who made the mistake, it may be you who will bear the consequences. If SARS has found inaccuracies, you will be assessed, held liable to penalties and interest and possibly even additional tax! You may even be prosecuted!

To be continued here...

If you answer 'no' to any of the screening questions, you're lining yourself up for penalties!

Screening question #1: If you cancelled your order, did you issue your customer with a credit note and reduce your output tax?

Example
Weddings & Things ordered a candelabra from India for an on-supply to Your Special Day, a wedding venue. The price was R25 000, including VAT.

When it's delivered to Your Special Day, with the invoice, they find the candelabra broken. They return it to Weddings & Things, who in turn send it back to India for replacement.

They find out it will take a few months for the replacement to arrive. But Your Special Day can't wait that long, so they tell Weddings & Things to cancel the order completely! The supply of the candelabra is cancelled.

What to do now?

Weddings & Things must issue a credit note to Your Special Day for the full R25 000. They must reduce the output tax amount they declared for the specific tax period in which the credit note is issued. The credit note must make reference to the original tax invoice too.

Your Special Day, as the recipient of the credit note, must reduce the input tax they claim in the tax period the credit note is received. As the supply of R25 000 (the VAT inclusive price) wasn't made, the input tax deduction has to be R25 000 x 14/114=R3 070.18 less.

Keep reading for the second question...


SARS has issued correspondence for your VAT audit; it requires your immediate attention

The words 'VAT audit' send shivers down most Vat payer's spines...Once you've gotten over the shock that your company's been chosen for a VAT audit, you have to wait for that dreaded day to arrive where you'll spend hours on end sitting with auditors or running around to search through accounts, VAT returns and audit trails. This isn't only time consuming, it's a downright nerve-racking experience!

Now imagine, only 20 minutes into the audit the team finds a mistake that you made two years ago. Because you don't know what to expect, you start doubting whether or not all your VAT papers are compliant!

Put those fears to bed today!

The second question you shouldn't answer 'no' to

Screening question #2: if you changed the nature of your supply or increased its price, did you give the supplier a credit note?

Example
Using the example above: Weddings & Things doesn't cancel the supply of the new candelabra. But when the new candelabra arrives, it costs R28 000, including VAT.

What to do now?

Weddings & Things must issue a credit note for the full amount of R25 000 and issue a new tax invoice with the correct details of the supply. The credit note must mention the original tax invoice. Weddings & Things must also adjust its output tax by reducing it by R25 000 x 14/114=R3 070.18.

Weddings & Things must also claim input tax on the new tax invoice which shows the correct price of the new candelabra (supply). This will amount to R28 000 x 14/114=R3 438.59.

Your Special Day must reduce its input tax in the tax period it receives the credit note, by R25 000 x 14/114=R3 070.18.

Read on for the last question.


If you claim input tax, your SARS VAT audit is impending
 
And when the SARS auditor comes knocking or sends a query, he'll check if:
  • Your books and records comply with the requirements of Section 55 of the VAT Act;
  • You didn't claim on exempt supplies;
  • Any of your claims were for non-taxable supplies;
  • You apportioned inputs correctly and at the right tax rate (Sections 16, 17 and 20 of the VAT Act);
  • And more! 
But the truth is, even if you're entitled to your claim, but don't have the valid documentation, he'll still reverse your deduction!
 
Here's everything you need to secure every input tax claim you submit.

Screening question #3: If you gave your customer a discount, did you give him a credit note and reduce your output tax?

Example
Using the example of Weddings & Things, let's say India quotes Weddings & Things R28 000 for the new replacement candelabra.

When it arrives, Weddings & Things invoices Your Special Day.

But a week later, the Indian manufacturer gives Weddings & Things a credit note, because the an exchange rate fluctuation results in the price of the supply being a little lower than when originally invoiced. The credit note is for R1 500.

Weddings & Things must reduce the invoice amount to Your Special Day, to R26 500.

What to do now

Weddings & Things must issue a credit note for the difference (R28 000 – R26 500=R1 500) and reduce its declared output tax in the period the credit note is issued. The credit note must mention the original tax invoice.

Your Special Day must reduce its input tax claim in the tax period it receives the credit note. The difference in tax will be R1 500 x 14/114=R180.

Use these three questions to screen your debit or credit notes, every month. Do this and you're guaranteed to avoid the penalties.

Do your VAT invoices pass the five point check? Click here to find out



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