Smart accounting, the smart way

The last several years have seen an increase in “smart accounting systems” that have online capabilities and that can integrate with various other business solutions. These smart accounting systems have revolutionised traditional accounting, and there can be no question that many businesses run a more organised and financially sound operation as a result of the availabilities of these programs and applications.

While the benefits of using these systems speak for themselves, businesses should ensure that the data processing and back-end of these systems (which is often based overseas) are compliant with local value-added tax (VAT) legislation. A prevalent example is where Point of Sale systems integrate with these accounting packages – when customers swipe their cards or make online payments using the Point of Sale systems, they often get email notifications confirming they have paid. These confirmations are presented in the form of a “tax invoice”.

Subsequently, when the Point of Sale system integrates with the smart accounting package, the bulk sales of a day are imported into the accounting package by means of an invoice posting in the accounting package. Therefore, one sits with a situation where a customer has received a tax invoice from the Point of Sale application system and a second invoice, in respect of the same supply, which is generated when the Point of Sale system integrates with the accounting package. This results in two tax invoices having been generated in respect of the same supply. This is specifically prohibited in terms of section 20 of the Value Added Tax Act, which only allows one tax invoice to be issued in respect of each supply. The mischief that the legislature is trying to prevent is clear – when multiple tax invoices are issued in respect of the same supply, multiple VAT input claims can be claimed by vendors in respect of the same supply.

There are also various other smaller challenges with using smart accounting packages and ensuring that its operations are VAT compliant (including the requirements for a valid tax invoice, the circumstances under which you are allowed to issue credit notes, and certain default settings in respect of VAT percentages applied to certain transactions). Fortunately, these smart accounting systems allow for specific customisation and certain transaction flows to be conducted in a different way.

Compliance with local VAT legislation should therefore by no means be an impediment in using these systems, as long as businesses ensure compliance. The use of these systems should be promoted, but should be done with professional assistance and persons who have a keen grasp of both the accounting side of the systems, as well as tax legislation, especially during the set-up phase of the systems and new applications.

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

Interest on delayed VAT refunds: The “materiality” question

Section 45 of the Value-Added Tax Act makes provision for the payment of interest on delayed VAT refunds. In terms of section 45(1) of the Act, the South African Revenue Service (“SARS”) must, within 21 business days after the date on which the vendor’s return in respect of a tax period is received, refund the vendor. This is provided that the VAT return is complete and not defective in any material respect.  

The Tax Court recently considered the concept of “materiality” in such cases in the case of ABC Trading CC v the Commissioner for the South African Revenue Service (VAT case no 1712). SARS was liable to refund the vendor an amount of R71 229 183. ABC instituted legal proceedings against SARS in the Johannesburg High Court, applying for an order compelling SARS to pay the refund relating to the second period as well as interest on the outstanding capital refund amount. The interest component came to R3 570115. Judgement was granted in favour of ABC. 

However, SARS continued with an audit relating to the relevant VAT period and issued a finding that ABC failed to declare deemed output tax on the use of a motor vehicle by its member. The VAT amounted to R200.36 per month, for three months. Based on this deficiency, SARS tried to recall the interest refunded to the taxpayer. ABC objected and appealed SARS’s decision to recall the interest on the basis that the quantum of the output tax relating to fringe benefits (R601,09 in total) was “trifling and clearly immaterial”, and did not constitute “material incompleteness or defectiveness. 

The question before the court was whether ABC’s failure to declare the output tax on the fringe benefit rendered the returns that ABC had provided “incomplete or defective in any material respect” as provided for in section 45(1)(i) of the Act, and whether SARS’s decision to “write back” the interest by affecting an “adjustment” was justified. To put it differently: Were the jurisdictional factors, i.e. that ABC’s returns were “incomplete or defective in any material aspect”, present for SARS to invoke the provisions of section 45(1)(i)?  

The court found that section 45 is a pragmatic provision not concerned with principle but with materiality. It recognises the fact that vendors may render returns that are incomplete or defective. If it were a matter of principle, then any defective or incomplete return would carry the consequence of SARS not having to pay interest. However, the Legislature, in its wisdom, determined that expedience trumps principle insofar as the payment of interest by SARS is concerned. The court further noted that in relation to one another, the “defect” and the amount owed by SARS is immaterial and the attempt by SARS to rely on the fringe benefit errors is a transparent attempt for SARS to ex post facto wriggle out of its obligations vis-à-vis ABC.  

The important takeaway from the judgement is that SARS is liable for interest on delayed VAT refunds where there are no material deficiencies, and taxpayers should exercise their rights in this regard. 

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

SARS helping businesses lessen the tax load

The last few months have been extremely tough for small business owners as a result of the global COVID-19 pandemic, and various lockdown measures that have created a challenging trading environment. The South African Revenue Service (“SARS”) has identified this hardship, and as a result, the National Treasury recently tabled the Disaster Management Tax Relief Administration Bill, which would assist micro, small and medium businesses should they seek to utilise this relief.

Although many of these measures have applied in practise, they have not officially been included in a tax bill and will soon have the necessary legislative effect (once promulgated).

To be a candidate to claim relief, a small business must:

  • Have a tax compliant status;
  • Conduct a trade during the year of assessment ending after 1 April 2020 to 31 March 2021, and earn gross income of R100 million or less; and
  • Not more than 20% in aggregate of the gross income can come from interest, dividends, royalties, rental payments, annuities, or remuneration received from an employer (generally aimed at passive income).

The relief offered by the Bill covers the following:

Pay-As-You-Earn (“PAYE”) deferral

Employers can claim a four-month deferral relief from 1 April 2020. To claim, two options are available;

  • Employers are still required to submit full PAYE returns (EMP201). SARS will issue a statement of account reflecting the relief; or
  • Calculate the total payable at 65% of the total.

After 7 August 2020, SARS will determine an amount payable in six equal payments to cover the outstanding (deferred) liability.

Employment Tax Incentive (“ETI”)

This programme runs from April 2020 to July 2020 and is claimed in the monthly EMP201. To claim, an employer is required to calculate the total ETI and 65% of the PAYE. The employer then utilises the lessor of the total ETI, or 65% of the PAYE liability to claim relief.

Provisional tax deferral

The period runs from 1 April 2020 to 30 September 2020 for the first payment period, and from 1 April 2020 to 31 March 2021 for the second provisional payment period. The gist of this assistance is that companies are required to pay only 15% of the first provisional payments and 65% (after deducting the first 15%) of the second payment. The remaining 35% will be payable on the third provisional payment date to avoid interest charges on late payment.

Accelerated value-added tax (“VAT”) refunds

From 1 May 2020, VAT vendors can file monthly VAT claims as opposed to every 2 months. Category A vendors can claim this relief from April 2020 to July 2020, and vendors registered under category B from May 2020 to August 2020.

The above relief measures contained in the Disaster Management Tax Relief Administration Bill are bound to bring some welcome cash flow and liquidity relief to struggling SMMEs in South Africa.

For more information on these relief measures, visit www.sars.gov.za/media/pages/tax-relief-measures.

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

Extending Export Regulations

Interpretation Note 30 (“IN 30”) by the South African Revenue Service (“SARS”) explains the requirements that need to be adhered to and prescribes the documentary proof, acceptable to the Commissioner, that must be obtained and retained by a vendor in order to levy value-added tax (“VAT”) at zero rate on a supply of movable goods, where those goods are consigned or delivered to a recipient at an address in an export country. Should these requirements not be adhered to, exports could potentially be accounted for at the standard VAT rate of 15%, which will result in adverse tax (and commercial) consequences for vendors.

Binding General Ruling 52 (“the BGR”) extends the periods to export movables, apply for a VAT refund and obtain relevant documentary proof of export as per the Export Regulations and IN 30.

The default position

The Export Regulations and IN 30 prescribe specific periods for exportation of goods, applications for VAT refunds and obtaining the relevant documentary proof of export for the process. The Export Regulations and IN 30 allow for an extension of the periods where they cannot be met due to circumstances beyond the control of the vendor. These circumstances include, amongst others, natural or human-made disasters and serious illness of a vendor, a qualifying purchaser, or a person duly authorised to represent these parties.

In light of the global Covid-19 pandemic, many vendors will have difficulty in meeting the timeframes as required. This is a situation that is considered to be beyond the control of the vendor, or qualifying purchaser or duly authorised representative as per the Export Regulations and IN 30.

The BGR

The BGR only applies to supplies of movable goods in respect of which the original timeframes in the Export Regulations and IN 30 have not been exceeded and prescribe for extended periods as follows:

  • Indirect exports

The time periods prescribed under regulation 3(a) of the Export Regulations have been extended by an additional three months.

The time period to apply for a refund as prescribed in regulation 3 of the Export Regulations is extended by 6 months from the date of export.

  • Direct exports

The time period to export movable goods is extended by an additional 3 months.

Period for which ruling is valid

The ruling applies from the date of issue on 26 March 2020, and is valid until it is withdrawn, amended or the relevant legislation is amended.

If the BGR does not provide for a specific scenario in respect of exporting movable goods, vendors or qualifying purchasers may apply for a VAT ruling.

This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your adviser for specific and detailed advice. Errors and omissions excepted (E&OE).

Rescission of judgments by SARS: Barnard Labuschagne Inc v SARS

The judgment deals with an application for rescission of a judgment by Barnard Labuschagne (Applicant), where SARS took judgment under the provisions of chapter 11 of the Tax Administration Act (TAA).

SARS filed a certified statement in terms of Section 172 of the TAA with the Registrar of the Court, setting out an amount of liquid debt due by the Applicant in respect of PAYE, VAT, UIF and SDL, and payable to SARS.

The Applicant is a law practice in the Western Cape and brought an application to rescind, based on various contentions. Over an extended time, the Applicant had various issues with incorrect allocations of taxes paid to the correct accounts. The dispute occurred over the years, and it was evident that the Applicant left this dispute unresolved. This occurred various times between 2009 and 2017. SARS had issued penalties and raised interest, and threatened judgment on various occasions. SARS even went as far as to make employees available to the Applicant, to allocate funds correctly. SARS eventually applied for judgment, based on a tax debt owed by the Applicant from the Applicant’s self-assessment.

The Applicant refused to object to the assessment, as it contended that SARS had not issued an objectionable assessment, and stressed that it was entitled to bring these proceedings, in terms of section 105 of the TAA, for a rescission of the judgment granted in terms of section 172 and 174 of the TAA. The Applicant further tested the constitutionality of the sections, if the Court did not find agreement with the Applicant, as these sections would then infringe his Constitutional rights to approach a court for relief when a judgment is granted. SARS countered this, stating that the judgment in terms of these sections was not judicially granted, as it lacks determining characters of judicially issued judgments.

In its judgment, the Court refuted the Applicant’s constitutionality arguments, stating that they held no weight. The High Court further confirmed that there must be a civil judgment in existence and that sections 172 and 174 constitute law enforcement mechanisms. These statements can be filed irrespective of whether an objection or appeal is in play, or an amount has been suspended. The benefit to the Applicant. Though. is that it is not a formal civil judgment and cannot be accorded the status of such.

In finality, the Court found that as this is not a civil judgment ordered by a court, one could not follow this route to have the judgment rescinded and as a result dismissed the application for rescission of judgment, and declared that the relevant provisions are not unconstitutional.

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

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