As a VAT vendor, you should know that the most important link in the VAT chain is the tax invoice. If you claim VAT without it, SARS will raise an assessment and penalise you heavily!
Yet, in a recent VAT case law I studied, a certain vendor, let's call him Mr X, claimed input tax of over R3 million. And being such a large claim, he shouldn't have been surprised when SARS asked for the tax invoices to prove the claim.
But, Mr X couldn't provide the tax invoices.
Here's what Mr X faced for claiming input tax without a tax invoice...
Are there any inaccuracies in your tax invoices?
Have you ever thought about if:
The tax invoices you receive are issued properly; and
All the SARS requirements are on the tax invoice?
If they aren't accurate, you could be liable for penalties, interest and even prosecution!
Here's what you need to do…
What happened to Mr X?
Because Mr X couldn't produce a tax invoice, SARS raised an assessment on him. And they added an understatement penalty of 200% and interest. This came to more than R4.5 million in total!
Mr X tried to get out of his assessment. He claimed there was fraud at his supplier's business. So because of this, he couldn't get the necessary tax invoices. He said SARS should exercise their discretion in terms of Section 20(7) of the VAT Act
, to allow the input tax without tax invoices.
But SARS refused to do this. And to make it worse, the VAT Act doesn't allow you to object or appeal against such a decision!
So this meant Mr X couldn't go to the tax court to review SARS' decision! He had no choice but to pay the R4.5 million or go to the High Court.
Here's what you can learn from this case…
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SARS issues TWO MILLION VAT review letters a year
That's the letter that pops up immediately after your submit your VAT returns. The same letter that has seen people around the country wake up to thinned out bank balances.
Now get this: There are only 700 000 vendors registered with SARS…
You do the math.
Every vendor should receive this letter at least once a year.
Here's how to protect your bank account before you do…
Three lessons we can learn from this case
1. Don't claim input tax without tax invoices.
If you can't produce your tax invoices, SARS will think you're trying to claim money fraudulently and will raise an assessment against you. They will slap you with penalties and fines!
Mr X is now out of pocket by over R4.5 million. Something he could've easily avoided if he just didn't claim the input tax when he had no tax invoice to support it!
2. Make sure you have valid tax invoices for all your purchases.
If your tax invoice doesn't meet all the requirements of a valid tax invoice according to the VAT Act, SARS will deny your input tax claim. So make sure you know what should be included in your tax invoice.
3. Keep your tax invoices safe and on file for at least five years.
It's your responsibility to get valid tax invoices for purchases over R5 000 from your suppliers with your correct VAT registration number. Or you'll forfeit your refund. Here's how you can make sure it's valid…