The Minister of Finance announced in his recent Budget Speech that the VAT rate would be increased from 14% to 15% with effect from 1 April 2018. Several important issues need to be considered to ensure a seamless transition.
Generally, supplies of goods or services are deemed to be take place at the earlier of the date upon which an “tax invoice” is issued and any payment is received by the vendor. It follows that to trigger a liability for tax at the “old” 14% rate, the vendor must have “issued” the invoice. VAT at 15% will need to be accounted for on any supplies in respect of which an “invoice” is “issued” by the vendor on or after 1 April 2018, or any payment relating to that supply is received by the vendor on or after that date. Where an invoice is issued, or any payment is made in relation to a supply before 1 April 2018, the relevant supply will be deemed to have been made and VAT at 14% will apply. The VAT Act contains certain specific rules regarding a VAT rate change (s67A) and the rate of VAT which should apply to goods or services supplied during the transitional period.
Where goods (excluding fixed property supplied by way of a sale) are provided before 1 April 2018, or where services are performed during a period commencing and ending before 1 April 2018, the rate of 14% will apply to these supplies, irrespective of the fact that an invoice for such supply may only be issued after 1 April 2018, and payment is received after that date.
Goods are deemed to be provided when they are delivered to the recipient. If the goods are supplied under a rental agreement, such goods are deemed to be provided when the recipient takes possession or occupation thereof. Services must be carried out or physically performed for the services to be considered to have been performed.
The rules regarding the supply of goods or services commencing before and ending on or after 1 April 2018 are contained in s67A(1)(ii) and cover the following supplies:
Where these goods are provided, or services are performed during a period that commences before 1 April 2018 and ends thereafter, then the vendor must apportion the value of the supply (i.e. the VAT exclusive price charged) on a fair and reasonable basis between the supplies made before 1 April 2018, and supplies made on or after that date. VAT is then payable at the rate of 14% on the value attributed to supplies made before 1 April 2018 and is payable at 15% on the value attributed to supplies on or after that date.
There are no guidelines as to the basis of apportionment which must be used. The onus is on the vendor to prove that the apportionment applied is fair and reasonable.
Generally, where supplies are made on or after 1 April 2018, such supplies will be subject to VAT at 15%.
However, to prevent vendors from taking advantage of the lower rate by triggering the time of supply rules in s9 during the period from when the increase in the VAT rate was announced (i.e. 21 February 2018) but before 1 April 2018, where the actual supplies of the goods or services are only made only after this date, s67A(2) contains certain anti-avoidance rules that override the provisions of s9.
The anti-avoidance rules apply where goods (excluding the sale of residential property) or services are supplied where the time for such supply was triggered in terms of s9 between 21 February 2018 and 31 March 2018, but the goods are only provided 21 days after 1 April 2018 (i.e. after 22 April 2018) or the services are performed on or after 1 April 2018. Such supplies are deemed to take place on 1 April 2018 and VAT at the rate of 15% will apply. The VAT must then be accounted for in the April 2018 tax period, irrespective of when the goods are provided, or the services are performed. Therefore, if the goods are provided within the 21-day period, i.e. before 22 April 2018, VAT will still be payable at 14%.
There are no special transitional rules in relation to commercial property. The normal time of supply rule therefore determines the rate of VAT which will be applicable. Consequently, if the date of registration of transfer in the name of the purchaser is effected and payment is made to the seller on or after 1 April 2018, VAT at 15% will be payable by the seller, irrespective of when the sale agreement was concluded.
Where a lay-by agreement is concluded prior to 1 April 2018, VAT at the rate of 14% will be payable on the supply in terms of such an agreement, provided a deposit is paid before 1 April 2018. If such an agreement is cancelled before the supply is made, the supplier must account for VAT on any amount retained at the tax fraction applying the rate of 14%.
Supplies made under any lay-by agreements concluded after 1 April 2018, are subject to VAT at 15%, and any amounts retained under such cancelled agreements will attract VAT at the tax fraction applying the rate of 15%.
Section 67 of the VAT Act deals with the situation where an agreement was entered before 1 April 2018. It entitles the supplier to recover from the recipient, in addition to the amounts payable by the recipient to the vendor as stipulated in the agreement, the additional amount of VAT that becomes payable on supplies on or after 1 April 2018 as a result of the VAT rate increase, unless the agreement specifically stipulates otherwise. The supplier will nevertheless be required to pay VAT at 15% on such supplies, irrespective of whether or not the supplier recovers the additional consideration from the recipient.
A vendor can claim VAT relief where a debt relating to a taxable supply in respect of which the vendor has accounted for output tax is treated as “irrecoverable”. The vendor may have now accounted for VAT at 14% in respect of a supply that was made before 1 April 2018 but the consideration for the supply is now regarded as “irrecoverable”. What rate of tax should be applied? In terms of section 22(1) of the VAT Act the vendor may only claim relief based on the VAT rate that applied to that particular supply. Taxpayers will need to ensure they are able to identify the rate of tax that must be applied in determining the relief available under section 22, where an amount of consideration is treated as “irrecoverable”.
Please ensure that you change the VAT rate to 15% on your accounting software from 1 April 2018.
If you require more information, please contact one of our managers.
This article is a general information sheet and should not be used or relied on 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. Errors and omissions excepted (E&OE).