The concept is simple: as of April 1, South Africa’s value added tax (VAT) will increase by 1%.

But what does that really mean, especially for those who are going to have to practically implement the VAT increase from 14% to 15%?

Well, thankfully we are closely connected with local tax practitioners Galbraith | Rushby, and they were kind enough to give a breakdown of what you can expect.

Before we get right into the nitty-gritty of it all, let’s get the basics from Jeneen Galbraith, one of Galbraith | Rushby’s founding partners.

A few of the more interesting points:

• If you invoice early to try to avoid the VAT increase you need to be sure to have delivered the goods / services on or before the 23 April
• Commercial property disposals which are registered in the deeds office after the 1st April will attract VAT at the higher rate. There are special provisions for residential property deals.
• If you provide goods or services which start before the 1st April but end after the 1st April – then you need to apply a fair apportionment between the rates.
• Credit notes passed after the 1st April must be passed at the rate used in the invoice i.e. you cant make some money on this.

Here’s what Jeneen had to say before we delve deeper:

As we approach April 1, we are all starting to think about how to practically implement the VAT increase from 14% to 15%. The last VAT increase which South Africa had, was April 1993 when the VAT rate was increased from 10% to the current 14%. As a result of this increase, certain transitional rules were introduced into the VAT Act to prevent the old VAT rate applying to contracts concluded before the increase date but which were carried out after the effective date.

A number of areas will be affected, so let’s run through those step-by-step:

Time of Supply Rules

It’s important to understand the normal “time of supply rules” i.e. at what point does VAT become due in a transaction. Normally “output” vat becomes due when the invoice is issued, however, if payment for the invoice is received before the invoice is raised, then VAT is due on receipt of the payment and a part payment triggers the full VAT liability.

An “invoice” also includes a creditors statement or a contract. The invoice does not trigger the VAT, where there is an obligation to fulfil certain suspensive conditions. Payment does not include receipt of a deposit. A deposit only triggers VAT, when the deposit is applied to the payment or when the deposit is forfeited.

This is most easily explained in the situation where a guest house, allows you a refund of your deposit up to 48 hours before your stay. In this scenario the deposit is forfeited when it is no longer refundable and VAT is triggered at this point.

There are specific “time of supply” rules for certain type of agreements:

• a credit agreement (subject to Section 121 of the National Credit Act) which has a 5 working day cooling off period. VAT is only triggered on the expiry of the cooling off period;
• Lay-by agreements, where goods below R10,000 are sold but kept by the seller until a certain portion of the purchase price has been paid. Output VAT is triggered on delivery of the goods on the full selling price;
• Supplies by machines, meters or other devices, for example, parking meters, food dispensing machines. VAT is triggered for the supplier when the coins or tokens are taken from the machine. If the token does not have a monetary value, then the vat is only accounted when the token is exchanged for money. Input VAT is claimable by the purchaser at the time of inserting the coins.
• “successive supply” i.e. period or progress payments made under a contract for the successive supply of goods or services. This would include goods sold under a rental agreement or operating leases and this includes the letting of fixed property. The lessor normally remains responsible for the risk of damage, repair or maintenance of the goods. Goods are deemed to be supplied successively for each successive period of the agreement. The time of supply is the earlier of the receipt of the payment or when the payment becomes due, for example, under a property rental agreement this would normally be the 1st of every month. Similarly, for services VAT becomes due on the earlier of the receipt of the payment or when the payment becomes due. Construction contracts are also treated as successive supply and VAT is triggered in accordance with the agreement or any law and payments are triggered at certain stages of completion, for example, the issuing of the architect’s certificate. VAT is only accounted for on retention monies when the retention monies become due or are paid, whichever is the earlier.
• Instalment credit agreements – simply put these are agreements where goods are transferred to the buyer under an agreement which has instalment payments, interest is charged and the goods are sold at not less than fair value. Instalment credit agreements include finance leases. The owner can require the return of the goods if payment is not received. VAT is payable on the “cash value of the goods” i.e. excluding the interest charged and VAT is triggered on the earlier of the delivery of the goods or payment.
• Sale of fixed property disposed under a sale agreement is deemed to take place on the date of registration or on the date on which payment is made. Payment excludes the deposit which has not been ‘applied’ and has not been forfeited by the purchaser. Fixed property means, land (together with any improvements affixed thereto), any sectional title unit, any share in a share block company, any time-sharing scheme and any real right in any of these.
• Connected person transactions these are deemed to take place at the time the goods are removed, if they are not to be removed, then when they are made available, or if in relation to services, when the services are performed. These special rules don’t apply if an invoice is issued or payment is made, on or before the day on which the VAT return is furnished for the tax period in which the supply was made or the last day prescribed for furnishing the return for the tax period during which the supply was made by applying the special rules.

Transitional rules for the “time of supply” – goods or services provided before April 1:

As a result of the VAT increase there are some changes to the normal “time of supply rules” as explained above. The date of delivery of the goods determines the rate of VAT which applies. If the goods are delivered before the 1st April but the invoice is only issued or payment only received after the 1st April, VAT is accounted for at the old rate of 14%.

A service is provided when the service is performed. The Act is silent as to whether “performed” means completed. Where the service is performed and completed prior to the 1st April, VAT at 14% applies, despite the invoice or payment after the 1st April. Where property is provided under a rental agreement, the transitional time of supply is when occupation or possession take place. The normal time of supply rules would be when the payment becomes due i.e. in accordance with the contract or when payment is received.

However, even if payment is made before or the invoice is generated before the 1st April, occupation is for the period from 1st April onwards and thus 15% would apply. The transitional rules for the “time of supply” with respect to the sale of fixed property is the date of registration in the deeds office, however see the special provisions applying to residential property below. This means that a sale agreement for commercial property entered into before the 1st April but only registered after the 1st April would trigger vat at 15%.

For lay-bye agreements, if the deposit is paid before 1st April but the goods are delivered afterwards, the old VAT rate applies.

The old rate of 14%, applies to goods provided for under a rental agreement, goods provided where the consideration is payable in instalments, goods provided in respect of construction activities where the goods are delivered or provided before the 1st April.

Goods or services provided or performed during a period beginning before but ending after April 1:

An apportionment at a fair and reasonable rate must be made for the value of goods/services performed before and after the effective date. The supply is accounted for in the tax period in which the supply takes place, according to the normal supply rules i.e. earlier of invoice or receipt of payment. This relates to goods provided under a rental agreement, goods provided under an agreement where the payments are in instalments, goods provided under a construction activity and services performed which begin before but end after the 1st April.

Anti-avoidance measures for “early invoicing” but goods are not delivered on or before April 23, 2018:

The Act has an anti-avoidance measure to prevent people from invoicing early in order to apply the old VAT rate. Where goods or services are “supplied” according to the normal supply rules between the budget announcement date but before 1st April then the new rate of 15% is applicable if the goods are not delivered on or before the 23rd April 2018 and similarly for services.

Transitional rule for the supply of residential property

For the sale of residential property where a sale agreement is signed before the 1st April but registration or supply occurs after the 1st April, the 14% VAT rate will apply. The supply of residential property includes, the sale of fixed property consisting of a dwelling together with the land on which it is erected, any real right conferring of a right of occupation of a dwelling e.g. a usufruct, any sectional title unit being a dwelling, any share block company which confers a right to or an interest in a dwelling, land for the sole or principle purpose of erecting a dwelling, construction by any vendor carrying on a construction enterprise of any new dwelling.

“A dwelling is any building or other structure which is used or intended to be used predominately as a place of residence by any natural person.”

Passing credit notes

Credit notes must be issued at the rate at which the original invoice accounted for vat i.e. if the old rate applied then the credit note must be issued at the 14% vat rate.

Accounting systems

Vendors must ensure that their accounting systems are set up to process transactions at the new VAT rate of 15% from 1 April 2018. The format of the VAT return will be changed to accommodate the additional disclosure requirements. We hope the above clarifies the position. Should there be any transactions that appear to fall outside the scope described above, it is recommended that you contact us in order to avoid incorrect submissions.

Phew, deep breath.

And now you know why we recommend them. Galbraith | Rushby deliver the kind of service you would expect from a big auditing firm, but at the price of a smaller firm.

Clients can rest assured that they’ll be able to talk to a partner whenever the need arises, and be treated as a person rather than a number.

Brace yourself, because here comes the VAT.