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Three vital steps to calculate your company's Vat correctly

by , 08 May 2014
SARS requires you to submit your company's Vat return according to your tax period. You must calculate your Vat correctly and submit your Vat return to SARS on time to avoid penalties. Not sure how to do this? Here's three steps you can follow to ensure you calculate your Vat correctly.

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Errors in Vat invoices could cost you thousands!

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

Click here to find out how to make sure your Vat invoices are 100% legal.

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Follow these three steps to calculate Vat correctly

The Practical Vat Loose Leaf Service says the only way you'll be able to calculate Vat correctly is to use the following Vat calculation:

Vat charged on supplies you made (output tax) less Vat paid to your suppliers (input tax) = the amount of Vat payable/refundable.

This means if your input tax exceeds your output tax, you're entitled to a refund. But if your output tax exceeds your input tax, you have to pay over the difference to SARS. This amount represents your Vat liability, which is the amount you owe.

Here's what you need to do for each step…

Step #1: Determine your output tax

If your company uses the invoice basis, add all the sales invoices (cash and credit sales, including the Vat you charged) that you've issued, irrespective of whether those invoices have been paid or not.

And if you use the payments basis, add together all the actual payments you've received for your sales and / or services, including the Vat you charged.

This will be your output tax amount.

Step # 2: Calculate your input tax

If you work on the invoice basis, add up all the amounts of your business purchases and expenses you have valid tax invoices for. Whether or not you've paid for these transactions doesn't matter. Then apply the tax fraction (14/114) to come to your input tax claim amount.

If you work on the payments basis, add up all the valid tax invoices paid for the tax period you're calculating and accounting for. Apply the tax fraction (14/114) to reach the final amount of input tax you can claim back.

This will be your input tax amount.

Once you have these two figures, it's time for the final step of the Vat calculation process.

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Think Vat doesn't apply to your payroll?

You're wrong!

Avoid this common error and keep SARS away from your door at audit time

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Step #3: Pay the difference or claim your refund!

Take the total output tax and deduct it from the input tax amount.

If your output tax is more than the total amount for your input tax, the difference is the amount of Vat you must pay over to SARS for the tax period of the return.

Following these three steps will help you calculate Vat correctly and avoid penalties, says the Practical Vat Loose Leaf Service.



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