Value Added Tax VAT Grade 12 Notes Accounting Study Guide pdf

Value Added Tax (VAT) is the tax charged on goods and services supplied and is charged at the current rate (standard rate) of 14%. VAT is an important part of the income generated by the government to cover government expenditure.
Who has to register as a VAT Vendor?
A person or business that supplies goods or services can register as a vendor (trader).
All businesses with a turnover of more than R1-million must register as a vendor (trader). This is COMPULSORY REGISTRATION.
Businesses with a turnover of less than R1-million can register if they want to. This is VOLUNTARY REGISTRATION.
The benefits of registering as a VAT Vendor
The business is able to claim back the amount of VAT paid on goods and services bought (VAT input).
Items on which VAT is not charged
Zero-rated items: Items charged at 0% VAT, but this can be changed by the government at any time. Examples are fresh fruit and vegetables, brown bread, milk, maize, rice, lentils and cooking oil.
VAT-exempt items: Items on which no VAT is charged. Examples are interest, rates, export services, educational services and childcare services.
VAT input
VAT input is the VAT paid by a business on the purchases of goods and services (which can be claimed back from SARS).
VAT output
VAT output is the VAT collected by the business on the sale of all goods and services (which needs to be paid over to SARS).

7.1 VAT calculations

VAT output – VAT input = amount payable to SARS (see example 2, page 72)
VAT inclusive calculations: When VAT is included in an amount
(see example 1 below)          (VAT inclusive) the calculation for VAT will be the amount × 14
114
VAT exclusive calculations: When VAT is excluded (VAT exclusive)
(see example 1 below)            the calculation for VAT will be the amount × 14
100
Worked example 1: Trendy Suppliers
Trendy Suppliers uses a fixed mark up of 40% on cost. The business is registered as a VAT vendor. The current VAT rate is 14%.
Calculate the following:

1. VAT charged by Trendy Suppliers on one dress. [3]
2. Selling price of one dress exclusive of VAT. [6]
3. VAT charged to the customer on one dress. [3]
4. VAT charged by Trendy Suppliers on one pair of jeans. [3]
5. Selling price of one pair of takkies inclusive of VAT. [9]

Information
The following items were purchased during the month from Trendy Suppliers.
100 dresses @ R285 each (VAT inclusive)
80 pairs of jeans @ R180 each (VAT exclusive)
60 pairs of takkies @ R110 per pair (VAT exclusive)

Answers to worked example 1

1. VAT charged by Trendy Suppliers on one dress. [3]
   R285 ×14  = R35 (Remember: Inclusive is 14 ÷ 114)
   114
2. Selling price of one dress exclusive of VAT.
   Cost price = R285 – R35 (VAT) = R250
   Selling price = R250 × 140 = R350 (Remember: Mark up = 40% on cost price)[6]
   100
3. VAT charged to the customer on one dress:
   Selling price = R350 (as calculated in No 2 above)
   (Remember: Exclusive is 14 ÷ 100)
   VAT charged = R350 × 14 = R49 [3]
   100
4. VAT charged by Trendy Suppliers on one pair of jeans:
   R1803 × 14  = R25,20 [3] (Remember: Exclusive is 14 ÷ 100)
   100
5. Selling price of one pair of takkies inclusive of VAT:
   Cost price = R110
   Selling price = R110 × 140 = R154 (exclusive of VAT)
   100
   VAT = R154 × 14 = R21,56
   100
   VAT inclusive amount = R154 + R21,56 = R175,56 [9]

Worked example 2: Mizi Stores
Mizi Stores, owned by Mia Mizi, is registered for VAT.
Calculate the amount of VAT to be paid over to SARS for the period ending 28 February 2011. [17]

Information for this period ending 28 February 2011

1. Total sales (cash and credit) (VAT inclusive) R60 000
2. New computer bought (for office use) (VAT inclusive) R12 000
3. Trading stock bought (VAT exclusive) R20 000
4. Credit notes issued to customers (VAT inclusive) R 1 500

Answers to worked example 2

[17]

7.2 VAT Control Account

There are different formats of completing the Input and Output VAT accounts however the correct information does end up in the VAT Control account. It is not likely you will be asked to do the Input or Output VAT account in the examination. The VAT Control Account is more likely to be asked.
Learners need to be able to complete the VAT Control account with all the relevant transactions without completing the Input VAT Control and Output VAT Control accounts.

Format of possible entries in the VAT control account

• VAT Control account can have a debit balance or a credit balance.
• A debit balance means that SARS owes the business money and that your Input VAT was more than your Output VAT.
• A credit balance means that the business owes SARS money.

Ensure that you know all the possible transactions and how the transactions are recorded in the VAT Control account.

Below is a list of suggested past examination questions for extra practice: