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When it comes to Vat, make sure you understand which accounting basis you're on to avoid costly SARS penalties

by , 07 January 2015
When you register as a Vat vendor, SARS will tell you which kind of Vat accounting basis you must use to handle your Vat.

There are two types and, if you don't understand how yours works, it could land you in serious trouble with SARS.

That's why I'm going to explain how these two Vat accounting bases work, so you never get yours wrong...


These are the two Vat accounting bases 

1. The invoice basis is where you declare your Vat to SARS based on the invoices you issue. It doesn't matter if your customer has paid yet or not. Similarly, you can claim your input tax on invoices you've received, regardless of whether you paid them or not.
Just remember, if you've claimed input tax and you haven't paid the invoice within 12 months, you'll have to add the input tax back, as output tax. If you don't, SARS will penalise you in the form of penalties and interest.
This Vat accounting basis applies to most vendors and it's why your tax invoice is such an important part of your Vat process. 
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2. The payments basis is where you declare your Vat over to SARS on all payments you receive. You can then claim input tax on expenses or purchases you've actually paid. So essentially, you calculate your Vat according to your cashbook. But only certain vendors can use the payments basis. These are:
- A sole trader, i.e. a person trading on his own, with a total income that doesn't exceed R2.5 million in a 12 month period;
- A partnership where all the members are natural persons and total income in a 12 month period hasn't exceeded R2.5 million;
- An Association Not For Gain, e.g. a sports club; and
- A welfare organisation, e.g. a children's' home and old age home.
(There are four more types of vendors that can use this type of Vat accounting basis. You can find them in the Practical Vat Loose Leaf Service.) 
If you registered on the payments basis and your turnover goes over the R2.5 million mark, you have to tell SARS. It will change your details to place you on the invoice basis, from a date it specifies.
Just make sure you follow this important rule if you account for Vat on the payments basis.
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By reading this letter, it will tell you how to avoid costly Vat mistakes, save you money, time and be your CEOs favourite person when you save the company R1 000s of Rands in Vat refunds this year.

One important rule you need to follow if you use the payments basis

If you account for Vat on the payments basis and issue an invoice for a supply of more than R100 000, you must account for the Vat as if you use the invoice basis. 
This means you must pay the full Vat amount upfront even if your client hasn't paid you yet!
If you're not one of the vendors SARS allows to use the payments basis, you'll automatically use the invoice basis. 
To help you handle this Vat accounting basis correctly, check out the Practical Vat Loose Leaf Service for everything you need to know. 

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