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.


Did you just get VAT registered and you need someone to configure your accounting system for VAT? Click here to contact us

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.


 

Are you frustrated with the way SARS has handled your affairs? How can we help you? Click here to contact us

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.
  • Click here to contact us

How to guard yourself against being sued by SARS

How to guard yourself against being sued by SARS

Since April 2018, SARS has been cracking down on non-complying taxpayers in filing their tax return. Since April, SARS has successfully prosecuted and convicted 10 taxpayers for failing to submit their outstanding tax return. Among these people is prominent soccer player, Teko Modise. Most of you would have also read about the socialite Bonang being dragged to court by SARS over non-compliance.


In terms of the Tax Administration Act, the following are viewed as criminal offences:

  • Avoiding paying taxes
  • Not submitting tax returns
  • Failure to submit information to SARS
  • Submitting false information to SARS
  • Giving an incorrect answer to SARS, whether in writing or orally
  • Failing or neglecting to register or failure to notify SARS of changes in registered particulars
  • Issuing an erroneous, incomplete or false document required under a tax Act

Here are a few tips to guard against being sued by SARS:


Appoint a tax practitioner:

Tax laws and requirements are constantly changing. Each year new laws are introduced. It is hard to keep up to date with these changes if you are non-tax experts. It is advisable to appoint tax practitioners to always advise you on tax-related matters and to submit the tax return for you in terms of the relevant laws. This will save you the costs of objections and “fighting” with SARS.


Always check your tax compliance status and inbox: 

One should regularly check their tax compliance status, which is a platform that gives an indication of whether one’s tax affairs are in order.


Your tax compliance profile should be green in all aspects as per the above image. The minute any of those tabs turn red, something has gone wrong with your tax affairs. You should immediately investigate and address these issues. SARS will also often send you a notification when your tax compliance status changes. When you receive this, immediately investigate and resolve it. If you hired a tax practitioner, you must also immediately notify them so that they can investigate and help you to resolve these identified issues.


Do not miss a return submission: 

You must always submit all your tax return where you are required to do so. Missing a tax return is a criminal offence and may land you in trouble. There are few instances where one may not be required to submit a tax return. If in doubt about whether or not you need to submit one, consult with your tax practitioner/professional. Generally, only people who meet the four below criteria do not have to submit an income tax:


– Your total employment income/salary for the year is not more than R350 000

–    You only received employment income/salary for the full year of assessment from one employer.

– You have no car allowance/company car/ travel allowance or other income (e.g. interest or rental income).

– You are not claiming tax related deductions/rebates (e.g. medical expenses, retirement annuity contributions other than pension contributions made by your employer, travel).


Keep and submit supporting documents: 

One must always ensure that for everything on their tax return, there is a valid supporting document. Constantly check your inbox to ensure that you respond to request for supporting documents by SARS. SARS is becoming quite strict with these. So, ensure that you have proper and valid supporting documents for your tax return.


Be truthful and honest: 

Remember, there is a difference between tax avoidance and tax optimisation. Tax avoidance is a criminal offence in terms of the Tax Administration Act and can land you in big trouble. When submitting your tax return, ensure that you have honestly done so. Declare all income that accrued to you in that tax year (salaries, rental income, commission and other incomes). In terms of expenses, you must take care not to include personal or expenses of a capital nature. As an example, personal groceries or drawings will not be allowed as deductions and should not form part of your deductions. Similarly, if you are in the business or renting cars or accommodation, the capital repayments on the car or property cannot be deducted as business expenses. If you have a home office, you may not claim your entire house’s rental expense.


For home office expenses, one would need to work out the total square meterage of the home office in relation to the total square meterage of the house, and then convert this to a percentage. One then applies this percentage to the home office expenditure in order to calculate the portion, which is deductible.


Conclusion: 

It is a criminal offence not to submit a tax return. Late submission of a tax return also has huge consequences. Submitting late can attract penalties, interests and administrative penalties, which can range from R250 to R16 000 per month. If you have a couple of outstanding returns, this is when SARS can get the NPA involved leading to an individual’s case being heard before the court.


Do you or your business need help to comply with tax laws or SARS? Click here to contact us

How to pay for your house (bond) quicker

How to pay for your house (bond) quicker

Do you want to know how to get fewer years to pay off your first property or how to pay for it quicker? Let’s look at a few ways through which you can do this, pay off your mortgage quicker. For this article, we will assume the property you want will cost R1000 000. We will also assume the repayment term to be 20 years straight without any reduction tactics.


  1. Raise a deposit:

This is the most important first step. Saving for a deposit will work in your favour because it can serve as an indication to the bank that you are a good personal finance manager. It also reduces your credit risk and exposure and makes it easier for banks to fund your first house.


Lets’s look at what the numbers will look like without a deposit:


  • Your monthly instalment will be R7752 over 20 years
  • This means, at the current interest rates, your total interest will be R860 480 by the time you finish paying for this bond in 2040.

Who covers the bond and transfer costs:

Another issue to consider here is that your first property will have transfer and bond registration fees. If you do not have a deposit, assuming your first property is R1 million, then you are looking at an additional cost of R55 712 in both transfer and bond costs. If you do not have any cash savings to cover this, you are more likely going to ask the bank to cover this as well. How does this change the numbers?

  • Your initial capital outlay increases from R1 million to R1 055 712
  • Your monthly instalment increases to R8 200
  • Your total interest over the 20 years increases to R910 288

2. What if you raised a deposit?

Lets’ assume you can raise a 10% deposit, that is R100 000 of the purchase price. Without complicating the maths with bond and transfer fees, you have already managed to reduce your loan amount to R900 000:


  • Your instalment falls from R7 752 to R6 977 monthly
  • You have also now managed to reduce your total interest over the 20 years to R774 480

So, you can already see how the deposit can help you to be able to qualify for a home loan more than when you did not have a deposit.


3. Negotiate the price:

You can also negotiate the price or buy directly from the seller without having to go through an agent. From personal experiences, I have noticed that most agents will increase the selling price by between 6 and 10% of what the seller is asking for. So, when you put your offer, assuming you will be the first one and the seller accepts, put an offer that is between 6 and 10% lower than what the agents told you the house is worth.


The reason for this is because the agents are not your friends. They are in the business of making money through commission and they might want the owner to still get what your actual offer would have been after the agent’s commission.


Assuming the same examples as above, and assuming you have been able to negotiate the price by 10%, this is what the numbers would look like:

  • Your purchase price is now R900 000.
  • Because you raised a deposit of R100 000, your initial loan amount is R800 000
  • Your monthly instalment falls to R6 202 as compared to the original R7 752
  • Your interest is now R688 480. What a saving on interest!

4. Negotiate the interest rate:

In the book “Is your thinking keeping you poor,” Douglas Krugger talks about the concept of being able to represent your interest. One example he gives is that of an employer and employee. He asks whether we negotiate employment contracts with employers before we start working. If we do not, he urges us to do so because a contract is just a document that documents the interests of two parties. It is in our best interests to negotiate the terms of the contract that represents our interest.


The same concept should apply to negotiate for interest with the bank. The interest rate you see on those papers is in the banks’ best interests. What is your best interest? It is in your best interest to negotiate a better interest rate with your bank. I negotiate a minus 0.5% on my first house. I am sure you can do the same.


If this sounds like a huge mountain for you to climb, apply to a few banks and use the results of your application for negotiating with the banks to get the best interest rate you can get.


5. Pay extra if you can:

In this article, I referred to some advice I received from my property mentor, let me repeat it here for the benefit of those that have not seen this article yet:

  • If you have a high-value vehicle, sell it and put the money into your bond.
  • If you pick up even a ten-cent coin, put it into your bond.
  • Pay your bond as quickly as possible and get onto your next property, preferably within 5 years.
  • If you are renting out your property, make it unique and different from other properties in your location so that you always have tenants and tenants who are willing to pay for whatever you ask for.

Why is this so? Interest on your bond is calculated daily. So, whatever you put into your bond works in your favour by reducing the interest. If you can, and because interest rates are low right now, pay more into your bond as much as you can.


6. Are you self employed?

If you are self-employed, you might have already noticed that it is more difficult for you to qualify for a bond than it is for your employees. My advice for you is this simple, take a salary(have a payslip for it) from your company/business consistently and make sure this salary lands in your account on the same day every month. Secondly, your business and you are two different people. Do not treat your business as your second personal bank account.


7. Emergency fund:

The pandemic has reminded us how important emergency funds or excess funds in our bond accounts are. Most of us had to negotiate for a payment holiday because we did not have an emergency fund or any funds available in our bond accounts. What was the effect of this? Had it not been for the reduction in the interest rates, loan balances and instalments increased. This also implied more interest until the end of the bond because interest rates will not remain this low forever.


Let’s get talking:

  • What have you found a challenge when it comes to qualifying for a bond?
  • What other tactics have you used to pay off your bond quicker?

Drop a comment in the comment section. I reply to all comments. And even better, others can also cheap in and help. We are all about sharing ideas that can make us grow together.

What happens if you do not pay VAT on time?

What happens if you do not pay VAT on time?

Introduction: 

The past few months and weeks have been difficult for businesses in terms of cash flow management. This is due to the COVID-19, the lockdown and the uncertainty around the whole thing. When does the lockdown end, will it be extended again? How long will the COVID-19 pandemic last and what is the impact on a business’ cash reserves?


As month-end approaches, some businesses are wondering if they should pay their VAT obligations or if they should delay these a bit until their businesses have recovered cash wise.


In terms of the VAT Act, a registered vendor is required to submit their VAT returns and to pay their VAT taxes by the 25th of the month if they are submitting manually or the last day of the month if they are submitting online on eFiling. If these dates fall on a weekend or public holiday, the submission and payment have to be made on a day before the weekend.


As far as we all know, the government has not introduced any relief measures as far as VAT is concerned. This means that SARS is expecting your VAT returns at the end of the month.


What happens if you are unable to submit or submit but unable to pay? 

The VAT Act (section 39) and the Tax Administration Act (TAA, Section 187 and Section 4) provides for the interest application and treatment where a taxpayer fails to submit or pay a VAT return.

If you are unable to submit, SARS immediately levies a 10% penalty on the amount that was due.

If you are able to submit, but unable to pay, SARS will levy interest on the outstanding amount from the date the tax debt was due until the date the debt is paid off.

So, if you failed to submit and pay the punishment is two-fold. A 10% penalty and interest that is charged on a daily basis at the prescribed interest rate until the debt is paid off.

A question that arises is what happens should a vendor fail to submit a VAT return and have a “valid” reason for failing to submit and pay a VAT return?


What happens if you fail to submit? 

At the onset, we must point out that in terms of Section 234(d) of the Tax Administration Act, it is a criminal offence to fail or neglect to submit a return. So, if a taxpayer is to fail to submit a VAT return, there it has to be proven that there were circumstances beyond the vendor’s control that resulted in him/her not being able to submit or pay a VAT return. In terms of TAA section 187(7) these circumstances are limited to:

  • a natural or human-made disaster;
  • a civil disturbance or disruption in services; or
  • a serious illness or accident.

So, unless you can prove these things your return and payment remains due and payable at the end of the month.


Can the penalty and interest ever be waived? 

Section 187(6) provides that the interest can be waived (directed that so much of the interest as is attributable to the circumstances is not payable by the taxpayer) if a senior SARS official is satisfied that interest payable by a taxpayer is payable as a result of circumstances beyond the taxpayer’s control. The circumstances are covered above.


What are your options if you cannot pay your VAT taxes when they fall due? 

If your business is in a situation where you do not know if you should pay your VAT or not due to COVID-19 or lockdown, do some scenario planning before your VAT payments become due bearing in mind the penalties and interest that may hit you if you do not submit or pay in time. The three scenarios you can look at are:

  1. What happens to your business’s cash flow for the next three months if you pay the 100% VAt due without delay
  2. What happens if you pay a portion of it when the payment becomes due
  3. What happens if you delay the payment completely and pay in a month or two.

The second option is to submit your return and apply for a repayment plan with SARS.

The third option is to apply for business continuity relief plans the government has unveiled for SMMEs.

The fourth option is to get a VAT payment loan.


How to avoid a similar problem in the future: 

It is in your best interests to avoid repeat late submission and payment of VAT. Continually failing to pay your VAT may lead to your business going under. You act as an agent for SARS in collecting the 15% VAT. If your clients are paying you, there is no reason why you should not be able to pay VAT because technically that money does not belong to you. If your clients are paying you late, then you need to be looking at your debtor management systems and processes.


You do not want to make late payment a recurring problem. You may want to consider some of the following general measures:

  • Open a separate business VAT savings account.
  • Whenever an invoice is paid, put aside the 15% into this savings account.
  • Implement cash flow management tools and means that ensures you are always paid on time.
  • If you have retainer clients, switch them over to debit orders instead of waiting for them to do EFT.
  • Include a payment method when sending out invoices. Invoices that have a payment method tend to be paid much quicker.
  •  Do you have any asset that you no longer use or that you are under-utilising? Do you think these can be sold if there is a market for them?

How can we help? 

Contact or call me on 078 361 5200 for:

  • VAT registrations
  • Online VAT registrations
  • Cash flow management
  • SARS debt repayment plans
  • VAT audits
  • VAT submissions

Have a question? Join my community and ask post a question on what is keeping you awake at night.

Is SARS always right? What if I do not agree with their assessments?

Is SARS always right? What if I do not agree with their assessments?

Many of us see SARS as that horrible master who just wants to take our money at every opportunity possible, and it’s money they didn’t even work for. Sometimes you look at an assessment and you even wonder what they are trying to do. Maybe they even issue an assessment and go on to recover monies owed by you by issuing an instruction to your bank to deduct whatever they feel is due to them. If this happens, what are your options?


Once the Revenue Authority issues an assessment on your tax return and they have issued a notification for the tax payable or refundable under your tax return, you can:

  • Choose to accept the assessment
  • Ask for reasons as to how SARS arrived at the issued assessment. This must be done within 30 days from the date of the assessment
  • You can choose to lodge an objection within 30 business days from the date the assessment is issued or within 30 business days after receiving the reasons on how SARS arrived at its assessment

SARS has a detailed guide on how you may file a notice of objection. However, I would advise that you consult a professional tax practitioner to assist you:

  • Ascertain if SARS’ assessment is correct
  • Determine if the relevant tax laws were applied correctly
  • Correctly lodge a Notice of objection on your behalf

 


Tips to get your objection right: 
  1. Ensure that you have all the supporting documents for the amounts you are objection to justify your reasons for objecting to the assessment. (For example, if you believe SARS missed your Medical Aid contributions, then you must have the supporting medical aid certificate when you lodge your objections)
  2. Ensure that you indicate the tax type(s) and tax years that you which to proceed and object
  3. Ensure that you select the items to dispute against by selecting the relevant tick boxes
  4. Ensure you have selected the correct source codes/ transaction code of the disputed item is displayed. It is important that you get the correct source codes as SARS may reject the Objection based on the fact that you put an incorrect code even though the objection is on valid grounds.
  5. Watch that you distinguish between dispute amount and requested amount. Again, SARS may turn back your objection if the distinction between these two is not shown. The disputed amount is the amount that has been charged for interest or penalties for late payment are displayed. The requested amount indicate what you believe the amount should be. This is important because if this amount and the amount above are the same, SARS will reject the NOO on that technicality.

An objection that does not comply with the rules of objections and the Tax Administration Act may be disallowed. In terms of the rules, you may submit a revised objection within 20 days of receipt of the notice of invalidity by SARS


If the objection is disallowed, you may elect to accept the outcome or appeal against the decision. If you elect to appeal the outcome, then you may elect to take the Alternative Dispute Resolution (ADR) route or the litigation route (via the tax board if less than R1 million or the tax court in all other cases).


You can initiate ADR by indicating that you wish to make use of the ADR process in your notice of appeal. Within 30 business days of your notice of appeal, SARS will inform you whether the matter is suitable for an ADR process. The ADR process must be concluded within 90 days.


If the dispute is resolved between you and SARS, it must be recorded and signed by you and a SARS representative. A settlement agreement must be approved by a senior SARS official. SARS will issue, where necessary, a revised assessment to give effect to the agreement reached by ADR. If the dispute is not resolved by ADR you may continue to appeal to the Tax Board, if the tax in dispute is below R1000 000, or the Tax Court.


Again, I want to stress out the need to consult a professional Tax Practitioner to assist you with this process. if you have gone through all these processes and have now won your case against SARS (where SARS issued unnecessary assessment without proper foundation), may you recover wasted costs incurred (consultations with lawyers and tax practitioners or accountants fees) through the unnecessary conduct of SARS officials?


The decision to use the services of professionals rests on the taxpayer. However, it goes without saying that the complexity of tax laws and regulations renders it necessary for one to consult with tax lawyers, accountants and tax practitioners. Currently, there is no formal authority covering whether taxpayers can recover their costs from SARS. But, practices in other tax jurisdictions allows taxpayers to recover damages in cases where they have suffered financial losses due to the conduct of the revenue authorities. In South Africa damages may be awarded by a competent court if the taxpayer can prove that he/she suffered financial loss as a result of the conduct of SARS.

What does a SARS completion/verification letter mean?

What does a SARS completion/verification letter mean?

What is a verification: 

Being selected for an audit and verification are two different processes. With a verification, SARS is doing a face value verification of the information declared by the taxpayer on the declaration or in a return. This involves the comparison of the information on the return against the financial and accounting records and/or other supporting documents. All this is to ensure that the declaration/return is a fair and accurate representation of the taxpayer’s tax position.


Remember, in terms of the Tax Administration Act, the onus is on the taxpayer to provide supporting documentation in order to prove that the deductions and information on their declaration are reasonable, fair and accurate.


Who can be selected for verification:

Any taxpayers can be selected for a verification process for the purpose of proper administration of tax. The selection can also be done on a risk basis.


What should I do if I am selected for verification:

SARS will notify the taxpayer if they have selected them for verification. The letter issued will state what the taxpayer must do or provide to SARS. The letter will also notify the taxpayer to check their tax return and to make any correction if there are any discrepancies on their tax return. The taxpayer will be given 21 business days from the date of the letter in which to provide the supporting documents and schedules.


The supporting documents or schedules can be submitted via eFiling or manually at the SARS branch near you.


During the verification, you can expect to get another letter requesting additional information if the relevant material initially supplied was not sufficient to finalize the verification. If you are due for a refund, you may not get this until the verification process is finalised.

 


What happens if you do not respond to the verification: 

If you choose not to respond, SARS may:

  • Issue a second letter reminding you to submit relevant information
  • Issue a final request for relevant information
  • If you still do not respond, a SARS official will contact you telephonically and request that you submit the necessary relevant material within 5 business days.
  • Should you still not respond, SARS may raise an assessment based on information readily available or obtain from a third party.

NB: It is always best to respond to all queries as quickly as possible. There is a possibility of penalties and interests

 


What to expect when verification is completed: 

You will receive a completion letter notifying you of the verification outcome. If all went well, this letter will normally notify you that no adjustments have been made. In that case, SARS will not be making adjustments to their assessments. If you are due for a refund, it should be paid out in 7 working days (provided you have no tax debt due or outstanding tax returns from prior years). If you were the one owing SARS, the amount due will remain payable.

 


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What you need to know if you are earning foreign income

What you need to know if you are earning foreign income

    • Key takeaway points:

 

    • 1. Before 1 March 2020, all foreign income (as defined) was exempt
    • 2. After 1 March 2020, the exemption is limited to R1.25 million
    • 3. Certain conditions have to be met before the exemption can be applied
    • 4. Independent contractors and individuals who are self-employed are excluded from this exemption.
    • 5. Tax residency is NOT based on Citizenship.
    • 6. You must notify SARS as soon as you cease to be a tax resident.
    • 7. SARS will require certain supporting documents to verify your foreign income and residency status

What is foreign income exemption?
“Section 10(1)(o)(ii) provides for an exemption for foreign employment income received for services rendered outside South Africa, provided the requirements are met.”

Before 1 March 2020, if all conditions were met, the entire income was exempt.

 


The conditions include:

1. Be a tax resident of South Africa
2. Earn certain types of income (such as salary, taxable benefits, leave pay, Wage, overtime pay, bonus, gratuity, Commission, Fee, emolument, allowances including travel and advances, amounts received in respect of share vesting…)
3. In respect of services rendered by way of employment
4. Outside South Africa
5. During specified qualifying periods (see paragraphs that follow)
6. Have a formal employment contract (with a resident or non-resident employer)


Since 1 March 2020, the exemption is limited to R1.25 million if the conditions are met. Any remuneration received in excess of R1.25 million will be subject to normal tax rules in South Africa. Before 1 March 2020, the income would have been exempt if all conditions were met.


You must file your tax return even when you qualify for this exemption and the qualifying income must be declared under the relevant SARS codes.

 


Who is a tax resident?
Citizenship does not define tax residency. A tax resident is a person who is ordinarily resident or becomes a resident by way of a physical presence test, which requires one to be in SA for a certain period of time to be considered a tax resident. If you do not want to be a tax resident, your option is to financially emigrate However, emigration alone does not remove the residency status as the physical presence test may still be applied to determine your tax residency status.


You must notify SARS as soon as you cease to be a tax resident.

 


The physical presence test:

This is a calculation of the actual amount of time you physically spend in SA. You are considered a SA tax resident if you meet all of the criteria below:

1. 91 days in South Africa in the current year of assessment, and
2. 91 days or more in each of the preceding five years of assessment, and
3. 915 days in total during those five preceding years of assessment.


You fail the physical presence test if you fail to meet any one of the above criteria.

 


What are the qualifying periods?

An employee must be outside South Africa for certain periods to qualify for the exemption:

1. A period not exceeding 183 full days (in total) during
2. Any 12 month period (not a calendar year or a tax season) and
3. A continuous period exceeding full and unbroken 60 days during that 12 month period

 


Who does not qualify for this exemption?

1.Independent contractors
2. People who are self-employed
3. A public office holder appointed or deemed to be appointed under an Act of Parliament
4. Employees who are employed in the national, provincial or local sphere of government, certain constitutional institutions, national and provincial public entities and municipal entities.

 


Supporting documents required by SARS:

1. Spreadsheet showing number of days in and out of SA
2. Copy of your passport showing days in and out of SA
3. Letter from your employer stating you’re allowed to work overseas (and for what periods), plus what amount was earned during that period
4. Foreign/ex-pat assignment employment contract
5. IRP5 showing foreign employment income earned (e.g source code 3651, 3653, 3655, etc.


We hope this was helpful. If you have any questions, feel free to use the comments section below or contact us here.

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