Some more complex tax issues

Some tax issues are more complex than others.

While getting an accounting system going on Sage One for a bookkeeping client in Somerset West yesterday the following “more” complex tax issues came up. Starting a new business or new branch and developing a new accounting system will often present more complex tax issues which have to be dealt with initially. Thereafter what can be termed more complex can be resolved and no longer be viewed more complex.

Your accounting system need to deal with these tax issues. For example your accounting system should include being in possession of valid tax invoices.

The more complex tax issues encountered yesterday included:

  • When Input Vat on entertainment can be claimed
  • The backdating of the date of Vat registration
  • Deducting PAYE from Employees (Who is an employee?)

Fortunately the bookkeeping client has a tax practitioner and accountant to consult. There are also useful websites available dealing with these more complex tax issues in detail.

These websites are:

South African Institute of Chartered Accountants

South African Institute of Tax Professionals

South African Revenue Service

Great information is available on the websites mentioned above. I will provide a simple and brief as possible explanation on the mentioned tax issues with reference to the pages on the internet where these issues are dealt with in more detail

Input Vat on Entertainment

The general rule is that unless you are in the entertainment industry input vat on entertainment cannot be claimed. The exception to this rule is when you have to spend a night away for business purposes in another town.

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Backdating of Vat Registration

When applying for Vat registration you have to complete the Vat liability date on the registration form. This can cause problems when you are already busy quoting clients because you have to indicate whether you will be charging Vat or not as this can influence their decision to purchase from you / make use of your services or not. In general if your clients are Vat registered themselves they will not mind if Vat is added to the quoted price because they will simply then be able to claim the input Vat.

SARS does allow backdating under certain circumstances. Businesses would want to have registrations back dated because often at the start of a business expensive capital assets are acquired on which one wants to claim input Vat.

Problems may arise when you are in the process of registering for Vat but already incurring expenses on a project. On completion of the project your Vat registration might have come through and you will have to issue a tax invoice which will generate a Vat liability (Output tax). You will then need to go back to your suppliers and request that valid tax invoices be issued to you. This is where it becomes technical as Vat vendors are not allowed to change a tax invoice but will have to issue a credit note and then create a new tax invoice.

Invoices above R5000 need to have your business name, vat registration number and your business address included on the tax invoice. Its impossible for this to be done while you do not have a vat registration number.

My experience with SARS in practise during Vat audits has shown that a lot depends on the attitude, skill and experience of the specific SARS official doing the audit on how stringent they are in enforcing these technicalities. In general dishonest and grossly non compliant taxpayers can expect to be treated negatively where compliant taxpayers are treated “gentler”. Bear in mind that if one feels that one is treated unjustly by SARS that there is an appeals process. The processes are complicated and time consuming. One would rather want to avoid it ever coming to that stage by being compliant from day one.

The problem with these technicalities for start ups is that new business owners have to deal with a whole stack of new taxation laws, registrations and procedures. That is where tax practitioners earn their keep.

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Deducting PAYE from Employees

In general employers are expected to deduct PAYE from their employees. This can become complicated if payments are not done regularly say on a commission basis or on a once off per project bases, where the “employee” actually carries on a trade. The employee might be expected to use his own vehicle and other equipment like expensive computers and software or camera equipment. In such an instance the person will probably be practising his or her own trade and will the employer not be liable to deduct PAYE from such payments.

An important question asked is whether the work is performed under supervision or not in deciding whether a person is to be viewed as an employee for PAYE purposes.

People earning commission may apply for a tax directive so that PAYE can be deducted at a fixed percentage.

It is important that employers register for PAYE (Includes UIF and SDL registration) in time and that payment is done in time to avoid penalties.

An EMP 201 (Monthly employer declaration) needs to be submitted on time and payment made before the 7th of each month. Where the 7th falls on a public holiday or weekend then payment must be made before the end of the last working day preceding the 7th.

The monthly threshold for PAYE for 2018 is R6,317. (Once people in your employ earn more than that you will have to register for PAYE.) You will have to register for UIF even if employees earn less than that amount monthly.

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and also

I hope I have explained some these mentioned “more complex” tax issues in simple terms. What I want to illustrate is that there are good websites online where guidance on these more complex tax issues can be obtained.


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