VAT value added tax Chapter 6 Cost Price

  • Slides: 36
Download presentation
VAT – value added tax Chapter 6

VAT – value added tax Chapter 6

Cost Price Mark-up Selling Price Profit Farmer R 5 R 10 R 5 Manufacturer

Cost Price Mark-up Selling Price Profit Farmer R 5 R 10 R 5 Manufacturer R 10 R 5 R 15 R 5 Wholesaler R 15 R 20 R 5 Retailer R 20 R 5 R 25 R 5 Consumer R 25

Cost Price VAT Input Mark- Selling VAT Pay to Profit up Price Out put

Cost Price VAT Input Mark- Selling VAT Pay to Profit up Price Out put SARS Farmer R 5. 70 R 0. 70 R 5 R 11. 40 R 0. 70 R 5 Manufacturer R 11. 40 R 5 R 17. 10 R 2. 10 R 0. 70 R 5 Wholesaler R 17. 10 R 2. 10 R 5 R 22. 80 R 0. 70 R 5 Retailer R 22. 80 R 5 R 28. 50 R 3. 50 R 0. 70 R 5 Consumer R 28. 50

VAT Indirect tax Charged on the supply of: Goods or Services 2 types of

VAT Indirect tax Charged on the supply of: Goods or Services 2 types of VAT Input VAT - purchases Output VAT - sales

VAT Input VAT ( into the business) When we buy goods from a supplier

VAT Input VAT ( into the business) When we buy goods from a supplier Output VAT (out of the business) When we sell goods to customers

VAT Standard Rated Supplies VAT Zero. Rated Supplies Exempt Supplies

VAT Standard Rated Supplies VAT Zero. Rated Supplies Exempt Supplies

VAT – standard-rated Standard-Rated Supplies All goods and services are standard rated unless specifically

VAT – standard-rated Standard-Rated Supplies All goods and services are standard rated unless specifically Exempt Zero-rated Standard-rated 14% supplies are taxed at a rate of

VAT - exempt supplies Exempt No Supplies VAT is paid or charged à No

VAT - exempt supplies Exempt No Supplies VAT is paid or charged à No VAT is or can be claimed back VAT is not charged on these goods or services No VAT, not at standard rate (14%) zero-rate (0%)

VAT - exempt supplies No VAT is charged on the following Financial services –

VAT - exempt supplies No VAT is charged on the following Financial services – interest received & interest paid medical aids, provident, pension or retirement funds Life assurance Donated goods or services sold by non-profit bodies Rent – for use as a private home (not holiday homes) Passenger transport in South Africa – bus, taxi or train Educational services – schools, universities

Vat - zero-rated supplies Taxable supplies where 0% can be claimed back 0% charged

Vat - zero-rated supplies Taxable supplies where 0% can be claimed back 0% charged to customers Fuel – petrol, diesel and illuminating paraffin Services provided to foreign residents (certified by customs) Direct exports – supply to a customer in another country Sale of a going concern Any service rendered by a welfare society

VAT – zero rated supplies Brown bread Brown flour Eggs Dried beans Maize meal

VAT – zero rated supplies Brown bread Brown flour Eggs Dried beans Maize meal Pilchards in cans Milk or milk powder Mielie rice Dried mielies Samp Fresh/frozen fruit & vegetables Lentils Rice Oil – only vegetable

Non-allowable items Does the item paid for constitute an essential input to our business

Non-allowable items Does the item paid for constitute an essential input to our business to create outputs on which VAT output will be charged?

Non-allowable items A business cannot run properly without water & electricity, telephone, advertising and

Non-allowable items A business cannot run properly without water & electricity, telephone, advertising and equipment. SARS will therefore allow a business to claim VAT input on such items.

Non-allowable items A business can operate without gym membership, refreshments and entertainment. SARS will

Non-allowable items A business can operate without gym membership, refreshments and entertainment. SARS will therefore not allow any VAT claims on these items.

Denied Input Tax Entertainment – goods or services obtained for entertainment purposes Any fees

Denied Input Tax Entertainment – goods or services obtained for entertainment purposes Any fees – sporting, social or recreational Buying Goods a motor car or services acquired by Medical schemes or

Denied Input Tax Entertainment Refreshments, Christmas parties, customer entertainment & equipment to provide staff

Denied Input Tax Entertainment Refreshments, Christmas parties, customer entertainment & equipment to provide staff refreshments Allowable While entertainment away on business Seminars Entertainment is what the business does Welfare organisations events for fund-raising

Denied Input Tax Motor cars The Act specifies what a motor car is Cannot

Denied Input Tax Motor cars The Act specifies what a motor car is Cannot claim VAT even if the vehicle is strictly being used by the business Motor cars as per the Act includes: Double cab bakkies Sedan type passenger vehicles Station wagons Minibuses Sport utility vehicles

Denied Input Tax (allowed vehicles – per the ACT) Goods transportation trucks. Single cab

Denied Input Tax (allowed vehicles – per the ACT) Goods transportation trucks. Single cab delivery vehicles. Motor cycles. Caravans. Ambulances, game viewing vehicles and hearses. Vehicles capable of accommodating more than 16 persons (for example, a bus). Vehicles with an unladen mass of 3500 kg or more. Special purpose vehicles constructed for purposes other than the carrying of passengers. Equipment such as bulldozers, graders, hysters, harvesters and tractors.

VAT - deemed supplies Required to pay output tax Goods or services taken for

VAT - deemed supplies Required to pay output tax Goods or services taken for own use Certain fringe benefits to staff Assets retained when deregistering as a vendor Insurance claims Subsidies or grants received from state Goods acquired under an instalment credit agreement that’s been repossessed from you

VAT - Notional VAT A VAT vendor can claim input tax when purchasing second-hand

VAT - Notional VAT A VAT vendor can claim input tax when purchasing second-hand goods Even if no VAT was paid E. g if you buy a second-hand car If you paid R 20 000 then you can claim the input tax. Can claim R 20 000/1. 14 x 14% = R 2 456 Calculate the VAT assuming the purchase price includes VAT

VAT vendors Turnover = > R 1000 compulsory to register for VAT Pay VAT

VAT vendors Turnover = > R 1000 compulsory to register for VAT Pay VAT over to SARS every 2 months Group A - Jan, Mar, May, July, Sep, Nov Group B - Feb, Apr, June, Aug, Oct, Dec

VAT is not charged on: Money received from or paid to the owner Salaries

VAT is not charged on: Money received from or paid to the owner Salaries Interest and wages income

Payment vs Invoice Basis Payment Basis Only record VAT input once cash is paid

Payment vs Invoice Basis Payment Basis Only record VAT input once cash is paid Only record VAT output once cash is received Invoice Basis Record VAT input once the sale is made, invoice is created. Record VAT output once a purchase is made, invoice is received.

Payments Basis Vendor only accounts for VAT on actual payments made and actual payments

Payments Basis Vendor only accounts for VAT on actual payments made and actual payments received A vendor must apply in writing to SARS to apply the payments basis.

VAT – Tax Invoices must contain the following information The words “Tax Invoice” Name,

VAT – Tax Invoices must contain the following information The words “Tax Invoice” Name, address and registration number of the supplier Name and address of the customer The VAT registration number of the customer An individual unique number for each tax invoice

VAT – Tax Invoices The date on which the invoice was issued Total amount

VAT – Tax Invoices The date on which the invoice was issued Total amount of the tax charged and the rate of tax Amount excluding the tax Amount including the tax, OR Total amount of the goods/ services and it must be stated ‘includes Tax and the rate that was charged’ A description of the goods or services supplied

Approved methods for reflecting the consideration and VAT

Approved methods for reflecting the consideration and VAT

Calculating VAT Question 3. 6

Calculating VAT Question 3. 6

Calculating VAT

Calculating VAT

Calculating VAT

Calculating VAT

The Mark-up & Gross Margin Cost Price Gross Profit Amt Selling Price When dealing

The Mark-up & Gross Margin Cost Price Gross Profit Amt Selling Price When dealing with mark-up percentages or gross margins, we always work with the VAT EXCLUSIVE prices.

The Mark-up & Gross Margin Cost Price Gross Profit Amt Selling Price R 200

The Mark-up & Gross Margin Cost Price Gross Profit Amt Selling Price R 200 R 100 R 300 (Excl VAT)

The Mark-up & Gross Margin R 200 R 100 (Excl VAT) R 300 (Excl

The Mark-up & Gross Margin R 200 R 100 (Excl VAT) R 300 (Excl VAT) Let’s calculate what the mark-up percentage is… The profit amount as a percentage of the cost price 100 R 100 X = 1 R 200 50%

The Mark-up & Gross Margin R 200 R 300 R 100 Let’s calculate what

The Mark-up & Gross Margin R 200 R 300 R 100 Let’s calculate what the mark-up percentage is… The profit amount as a percentage of the cost price 100 R 100 X = 1 R 200 50%

Cost Price Calculations STEP 1: Calculate STEP the price excluding VAT 2: Determine STEP

Cost Price Calculations STEP 1: Calculate STEP the price excluding VAT 2: Determine STEP Very what the mark-up percentage is? 3: importantly you need to know what the mark-up percentage is based on.