Credit notes under scrutiny, are you complying?

Credit notes under scrutiny, are you complying?

What we have seen now is increased scrutiny of credit notes for compliance with the VAT Act. The main challenge is that in most instances accounting packages being used by businesses do not contain all the information required on a credit note by the VAT Act. It is therefore important that businesses and accountants ensure that credit notes comply with the Act before they are issued and before VAT claims are submitted. Otherwise, it will be difficult for businesses to get back their legitimate VAT claims.


Key elements that must be found on the credit note are the following:

  • Vendor details (names and addresses, VAT registration numbers for both the issuing and receiving party)

  • The words “credit note” must be clearly stated on the document being issued

  • A brief description of the circumstances that gave rise to the credit note. Now this one is critical and what you may find is that some accounting systems do not allow for this. We would encourage you to add this narration to the description part of the credit note.

  • Information sufficient to identify the original transaction to which the credit note relates, that is the original invoice that is being credited. In other words, if someone else who is not familiar with your records comes to check the credit notes, they should be able to trace its origins with ease.

  • It would also be very important to make sure that the correct VAT rate is applied. If the original invoice was issued before the VAT rate changes to 15%, then the credit note should also be at 14%. One cannot claim back more than what they declared.

In more detail and in terms of Section 21(3), of the VAT Act, a credit note must contain the following particulars:

(i) The words “credit note” in a prominent place;


(ii) the name, address and VAT registration number of the vendor;


(iii) the name, address of the recipient. And where the recipient is a registered vendor, the VAT registration number of the recipient;


(iv) the date on which the credit note was issued;


(v) either—
(aa) the amount by which the value of the said supply shown on the tax invoice has been reduced and the amount of the excess tax; or
(bb) where the tax charged in respect of the supply is calculated by applying the tax fraction to the consideration, the amount by which the consideration has been reduced and either the amount of the excess tax or a statement that the reduction includes an amount of tax and the rate of the tax included;


(vi) a brief explanation of the circumstances giving rise to the issuing of the credit note;


(vii) information sufficient to identify the transaction to which the credit note refers;


(b) the actual tax charged in respect of the supply concerned exceeds the tax shown on the tax invoice as charged, the supplier shall provide the recipient with a debit note, containing the following particulars:
(i) The words “debit note” in a prominent place;
(ii) the name, address and VAT registration number of the vendor;
(iii) the name, address and, where the recipient is a registered vendor, the VAT registration number of the recipient, except where the debit note relates to a supply of goods in respect of which a tax invoice contemplated in section 20 (5) was issued;


(iv) the date on which the debit note was issued;


(v) either—
(aa) the amount by which the value of the said supply shown on the tax invoice has been increased and the amount of the additional tax; or
(bb) where the tax charged in respect of the supply is calculated by applying the tax fraction to the consideration, the amount by which the consideration has been increased and either the amount of the additional tax or a statement that the increase includes an amount of tax and the rate of the tax included;


(vi) a brief explanation of the circumstances giving rise to the issuing of the debit note;


(vii) information sufficient to identify the transaction to which the debit note refers:


Provided that—
(A) it shall not be lawful to issue more than one credit note or debit note for the amount of the excess;
(B) if any registered vendor claims to have lost the original credit note or debit note, the supplier or recipient, as the case may be, may provide a copy clearly marked “copy”;
(C) a supplier shall not be required to provide a recipient with a credit note contemplated in paragraph (a) of this subsection in any case where and to the extent that the amount of the excess referred to in that paragraph arises as a result of the recipient taking up a prompt payment discount offered by the supplier if the terms of the prompt payment discount offer are clearly stated on the face of the tax invoice.


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How to hold SARS accountable

How to hold SARS accountable

The office of the Tax Ombud was established to act as a bridging gap between SARS and the taxpayer. But, taxpayers do not always have a direct line to connect with the Tax Ombud. A taxpayer may lodge a complaint with the Tax Ombud after they have exhausted all the SARS complaints mechanisms unless they are compelling circumstances for not doing so.  Otherwise, the process below will have to be followed:


There are three ways through which one can lodge a complaint with SARS:

  1. Via eFiling. See the step-by-step guide on how to lodge a complaint via eFiling. Please note that you have to be registered on eFiling to be able to do this. You may not download or print the form to send it by any other means.
  2. By visiting the branch. If you do, you may need to ensure that you have spoken to all relevant higher people before you leave the branch
  3. By calling the SARS Complaints Management office (CMO) on 0860 12 12 16.

Here are a few tips on winning the battle against SARS poor service/administrative issues and making sure you have a winnable case when you approach them or the Tax Ombud:

 


Be specific: 

If you have a complaint, it is better to call the Complaints Management Office (CMO.) If you call SARS contact centre to get a reference number, specify that it is a complaint with a complaint, specify that it is a complaint and not a follow-up. If you keep calling the call centre and saying you are following up, it may remain just that, a follow-up. You need to specify that you have a complaint so that it is treated as one. Some complaints will need case numbers, make sure you call the contact centre to get one.


Try again: 

Sometimes, a complaint lodged on eFiling may be rejected for one reason or the other. If you feel you have a  compelling case, pick up the phone and call the CMO so that they may record and lodge the complaints on your behalf. You may also call them if you are not sure how the process works on eFiling or if you are too far from a SARS office. For example, I once lodged a complaint about a delayed refund (because refunds should be paid 7 workings days after verification or audit is finalised) but the system kicked me out and rejected my complaint. The complaint was successfully lodged after calling the CMO.


Build a compelling case:

The most important thing to do when dealing with SARS is to build a good case, this is whether you are raising a complaint, an appeal or an objection. You will need a system to record your interactions with SARS (at each touchpoint with them). You also need to store documents and supporting documents relevant to the taxpayer’s case. The system of recording your interactions with SARS should allow you to build a timeline of how the case is developed and to ensure that you have all the documents you need for this case.


One such system is to make sure each client file/folder contains relevant subfolders that will help you gather the important and necessary information. The other is to build a dashboard that records the timeline and communications with SARS. This can take any form, for example, Word or Google docs, a task management tool like Asana, Trello or Monday.com.


NB: You do not do this because something has gone wrong, but because things may go wrong and often they do go wrong. Below is an example of client folders that tax practitioners or individuals can use:


The advantage of doing things this way is that you will save yourself a lot of time when doing the actual complaint, even an appeal or objection. The Tax Ombud form will ask you to summary your case in chronological order. So, if you had been building a case over time, this process will be a breeze. You have all the facts and timeline at your fingertips.


 

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How to avoid or reduce the risk of a SARS audit

How to avoid or reduce the risk of a SARS audit

By now we all know that SARS is looking to raise more tax revenue to make up for revenue collection shortfalls. This means SARS may and will do all they can to increase revenue collections.


It will not be surprising to find that SARS audit teams will target taxpayers in order to raise additional income. Besides, their systems are designed to pick up “discrepancies” on a taxpayers’ return and these can easily trigger an audit. So do not be surprised if, a few days after submitting, you get a notification from SARS saying you’ve been selected to submit your supporting documentation for inspection or even that you have been selected for a full audit.


At Eva Financial Solutions, we have a team of dedicated and diligent tax practitioners working around the clock to ensure that you do not pay a single cent more that what you should legally pay over to SARS. We have designed our internal processes, checks and balances to ensure that, even if the audit comes, our clients can avoid an audit or the process goes smoothly without causing them unnecessary emotional stress.


Here are a few tips:
  • Always ensure that your tax affairs are up to date and that you have filed all tax returns as they fall due.

  • SARS has now made it easy to check your tax compliance status online. You should always check that your tax status is green (compliant). Once you have picked up that you are not compliant seek to address the issues sooner rather than later or consult your tax practitioner for help.

  • You should always come clean with the taxman before being audited. Once the audit has started, you are prevented from claiming the relief under section 227 of the TAA for coming clean.

  • Before you submit your return, ensure that you have all supporting documents for every income and deductions on your return. If you kept a personal data room, by the time your return is due you would have gathered all the necessary supporting documents for your tax return (Medical aid, Travel logbooks, Interest and Dividends certificates etc.).  Be warned, do not convince yourself that if you ignore SARS’ requests for documents long enough, it will just go away. Always have your house in order.

  • If you own and run a business as a sole proprietor or have a rental property, ensure that you do not include and deduct your personal expenses.

  • Chances are that an ordinary taxpayer will struggle to interpret various tax laws or will misinterpret certain SARS requests or requirements. Therefore, always use the services of a reputable tax practitioner or accounting firm. Eva Financial Solutions can assist you in this regard, contact them if you cannot get your own personal tax practitioner.

  • After submitting your return log into (or at least ask your tax practitioner to do so) SARS at least a few more time to check if SARS hasn’t issued any sneaky notifications that require your attention. If your email address and not that of your tax practitioner is linked to your profile, alert your tax practitioner if and when you receive any kind of notification from SARS.

When it comes to VAT, these tips might be helpful:

  • When you get VAT registered ensure that you have sent your VAT number to all your suppliers so that they may update their databases and add your VAT numbers onto your invoices.

  • Insist on getting a valid tax invoice from all your suppliers. When you receive a tax invoice, check that it meets all the requirements of a valid tax invoice

  • Check that the new VAT rate of 15%, and that the total price (including VAT) is correctly calculated before accepting the invoice/quote.

  • Before you submit your VAT return:
    • Check that you have claimed only where you are supposed to claim VAT (for example, you may not claim on motor car (passenger vehicle) rental or entertainment expenses as defined and other zero-rated or tax-exempt supplies.

    • Check that you have applied the correct tax types/rates to each transaction, for example, Zero-rated sales cannot be classified as tax-exempt. Ensure that each tax type is correctly populated on the VAT201 return.

    • Check that you have declared all standard rated sales (Sales VAT at 15%) that you should have declared and have done so using the correct VAT tax rate.

    • Perform turnover VAT reconciliation at each VAT return submission. This will always ensure that your income statement turnover matches your VAT return submission. This will also reduce the risk of an IT14SD and the time it may have to take you if you did this only because SARS asked you to do an IT14SD. Remember, SARS systems are designed to pick up discrepancies between your VAT return submissions and your annual income tax return turnover.

    • Before you hit submit, ensure that the VAT201 is correctly populated and the amounts contained are correct and matches your now correct VAT reports. Remember, once submitted you can only increase not reduce the amount payable.

    • Take care that cash register slips and tax invoices issued from 1 April 2018 reflect the correct VAT rate. This will generally be 15% unless a specific time of supply rule or a rate specific rule applies.

    • VAT vendors issuing debit or credit notes from 1 April 2018 must ascertain that the correct VAT rate is reflected and applied when determining the VAT amount. Debit or credit notes will generally reflect the old VAT rate of 14% where it relates to supplies of goods or services before 1 April 2018, subject to certain exceptions. Similarly, debit or credit notes relating to supplies made after 1 April 2018 must reflect the new rate of 15%.

    • If your accounting systems allow, ensure that you immediately lock the submitted periods so that no further changes are effected to a closed VAT period.

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Owing SARS, what are your options?

Owing SARS, what are your options?

If you follow my posts, you would have come across one of my articles that dealt with the approach SARS has taken to deal with the non-submission of a tax return. This is a follow up to this article.


So now you read that SARS will prosecute you for non-submission and charge you an R5 600 fine if convicted (of course, you will be convicted because there is overwhelming evidence against you/your company that you did not submit a few tax/vat returns.) You then went on to submit all your outstanding returns but you now owe SARS large sums of money.


Taxpayers are required to be fully compliant in all their tax matters by submitting and paying their taxes on time. If taxpayers are not compliant or have outstanding tax debt the SARS Debt Management department is committed to assisting businesses and individuals to become fully compliant. There are a few avenues that SARS uses to assist in this regard.


How much do I owe?

If you are not 100% certain how much you owe SARS, you will need to contact their call centre to enquire about your outstanding balances. If you stay not far away from a SARS branch, a visit to the SARS branch would not kill you. When you visit, just ensure you have all your particulars with you to avoid being turned away. Lastly, if you were registered for e-filing, run a statement of account to see how much you owe SARS. Your next step is to make the outstanding payment to SARS. Contact SARS or your tax practitioner to help you load a payment that can then be released from your bank account.

What if I can’t pay the outstanding amount now?

Every taxpayer must be aware that it is best practice to always file a tax return on time in order to avoid penalties and interest. But, if you are currently unable to pay your taxes, please contact SARS without delay. The following options may be available to you:


  1. Payment arrangements: 

Under certain circumstances, SARS can reach an agreement with a taxpayer to defer a tax debt for later payment or for payment by instalments. A deferred payment arrangement is s when a taxpayer can not settle the full amount owing to SARS immediately and want to apply for a payment plan to settle the debt. Under this option:


  • SARS has the option to decline the request.
  • Interest will accrue on any unpaid debt.
  • If you don’t adhere to the conditions of the payment arrangement the payment agreement will be terminated and normal collection proceedings will resume.
  • The taxpayer must suffer from a deficiency of assets or liquidity, which is reasonably certain to be remedied in the future.
  • Notwithstanding this deficiency, the taxpayer must anticipate that there will be income or other receipts which can be used to satisfy the tax debt.
  • At the time of concluding the agreement, the prospects of collecting the tax debt must be poor or uneconomical, but likely to improve in the future.
  • Moreover, the deferral should not prejudice the collection of the tax debt

2. Compromise agreement:

In certain circumstances, a compromise may be requested on taxpayers’ outstanding tax debt. A SARS Debt Compromise is a process whereby a taxpayer requests that SARS permanently “write-off” a large portion of their debt, with the balance being paid in full by the taxpayer immediately on the condition that the taxpayer complies with any conditions as may be imposed by SARS.


A compromise cannot be considered if the taxpayer disputes the debt. Therefore while a matter is under objection or appeal, a compromise cannot be considered. If the taxpayer wants to compromise he has to withdraw his objection or appeal.


What if you do not agree with the debt? 

If you are not in agreement with your tax debt, you may lodge a dispute.  To lodge a dispute please go to objections and appeals. Even though you are disputing the tax debt you remain under obligation to pay the debt whilst your dispute is being handled.


Why you should consult Eva Financial Solutions if you need a debt arrangement or compromise
  • We deliver on our promise
  • Compromise solutions are difficult to obtain
  • For this reason, it is important that it is handled by qualified and dedicated tax practitioners.
  • We have a team of experts who will always work to get the best result.
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