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BACKGROUND TO TAX INVOICES

INTRODUCTION

Value-added tax (VAT) in South Africa is an invoice-type of tax on the value added to goods and services consumed in South Africa and is levied at the standard rate of 14% (inclusive basis), but certain goods and services are subject to a zero-rate or are exempt from VAT. VAT is also levied on the importation of goods as well as on the supply of imported services into South Africa by any person.

The tax is calculated by allowing the vendor to deduct the VAT incurred on most business expenses (input tax) from the tax collected (output tax). The balance is paid to SARS (or refunded as the case may be).

Input tax may, however, only be claimed where proper tax invoices or bills of entry are held by the vendor making the claim. Tax invoices are, therefore, a very important part of how the whole VAT system operates, as it is used to create a paper trail for audit purposes.

THE DIFFERENCE BETWEEN AN INVOICE AND A TAX INVOICE

An invoice is a document notifying the purchaser of an obligation to make payment in respect of a transaction (not necessarily a taxable supply). The issuing of an invoice is one of the events which may trigger the time of supply for a transaction, which, if it is a taxable supply, will normally mean that there would be an obligation to declare output tax. Conversely, the fact that you may have an invoice from the supplier does not mean that you will be entitled to claim input tax thereon.

On the other hand, a tax invoice is a document which is provided for in the Value-Added Tax Act, 1991 (“the VAT Act”) to enable the vendor to claim input tax. It will therefore always relate to a taxable supply (whether wholly or partially). The VAT Act prescribes that a tax invoice must contain certain details about the taxable supply as well as the parties to the transaction.

In practice, some vendors combine the function of the two documents to avoid administrative duplications. However, vendors who prefer this method should ensure that their invoices comply with the requirements of a tax invoice, otherwise their customers will not be allowed to claim the VAT charged as input tax.

REQUIREMENTS FOR VALID TAX INVOICES

The following important points should be noted regarding tax invoices:-

o

A tax invoice must within 21 days of the date of that supply be issued to the recipient, whether requested to do so or not;

o

Where the consideration in money for a supply is R50 or less, a tax invoice is not required (however, a document such as a till slip or sales docket will still be required to verify the input tax claimed);

o

Where the consideration for a taxable supply exceeds R50 but does not exceed R3 000, an abridged tax invoice may be issued ;

o

A full tax invoice must be issued on transactions where the consideration for the supply exceeds R3 000 whether the recipient has requested this or not ;

o

A tax invoice must be in South African currency, except for a zero-rated supply (e.g. goods exported). A full tax invoice must be issued for a zero-rated supply, even if the consideration is less than R3 000;

o

A tax invoice is not issued by a debtor (vendor) under an instalment credit agreement if the goods are repossessed. This will be done by the person exercising the right of repossession (the bank or other financier);

o

A document will not constitute a valid tax invoice for a standard rated supply if it does not state the actual amount of VAT charged or contain a statement that VAT at the standard rate of 14% is included.

In order for a tax invoice to be valid in terms of the VAT Act, it must have certain details reflected on the document as set out in section 20(4) and (5) as follows:-

 

Full Tax Invoice (Consideration of R3 000 or more) Section 20(4) of the VAT Act

Abridged Tax Invoice (Consideration less than R3 000) Section 20(5) of the VAT Act

o

The words “TAX INVOICE” in a prominent place

o

The words “TAX INVOICE” in a prominent place

o

Name, address and VAT registration number of the supplier

o

Name, address and VAT registration number of the supplier

o

Name, address and where the recipient is a vendor, the recipient’s VAT registration number

o

Serial number and date of issue

o

Accurate description of goods and/or services

o

Serial number and date of issue

o

Accurate description of goods and/or services (indicating where applicable that the goods are second-hand goods);

o

Price & VAT (according to any of the three approved methods discussed below)

o

Quantity or volume of goods or services supplied

o

Price & VAT (according to any of the three approved methods discussed below)

 

The consideration and the VAT charged must be reflected on the tax invoice in one of the following approved formats:-

Method 1 : All individual amounts reflected

Method 1 : All individu al amounts reflected

Price (excl. VAT) VAT @ 14% Total including VAT

Price (excl. VAT) VAT @ 14% Total including VAT
Price (excl. VAT) VAT @ 14% Total including VAT

R500

R70

R570

Method 2 : Total consideration and the rate of VAT charged

The total consideration VAT included @ 14%

R570

Method 3 : Total consideration and the VAT charged

Method 3 : Total considerat ion and the VAT charged

The total consideration VAT included

The total consideration VAT included

R570

R70