The South African Revenue Service Value Added Tax (VAT) invoice requirements
South Africa operates a VAT system whereby businesses (vendors) are allowed to deduct the VAT incurred on business expenses (input tax) and needs to declare the VAT collected on the supplies made by the business (output tax). The most important document in such a system is the tax invoice.
Without a proper tax invoice, a business cannot deduct input tax on business expenses. The VAT Act No 89 of 1991 (hereafter referred to as “the VAT Act”) prescribes that a tax invoice must contain certain details about the taxable supply made by the business as well as the parties to the transaction.
The VAT Act also prescribes the timeframe within which a tax invoice must be issued (i.e. 21 days from the time the supply was made). A business is required to issue a full tax invoice when the price is more than R5 000 (including VAT – referred to as consideration for the supply) and may issue an abridged tax invoice when the consideration for the supply is greater than R50 and less than R5 000 (including VAT). If the consideration for the supply is R50 or less, a tax invoice is not required. However, a document such as a till slip or sales docket indicating the VAT charged by the supplier will be required to verify the input tax deducted.
What constitutes a valid VAT invoice according to SARS
In South Africa, a tax compliant VAT invoice is an invoice that contains all the necessary information to comply with the Value Added Tax (VAT) Act No 89 of 1991. If any of the required information is left off a tax invoice, VAT can’t be collected on it.
As from 8 January 2016, the following information must be reflected on a tax invoice for it to be considered valid where the supply exceeds R5 000:
- Contains the words “Tax Invoice”, “VAT Invoice” or “Invoice”
- Name, physical address and VAT registration number of the supplier
- Name, physical address and where the recipient is a vendor, the recipient’s VAT registration number
- Serial number and date of issue of invoice
- Accurate description of goods and /or services (indicating where applicable that the goods are second hand goods)
- Quantity or volume of goods or services supplied
- Value of the supply, the amount of tax charged and the consideration of the supply (value and the tax)
Please note that all seven criteria must be met for the invoice to meet the requirements of a Tax Invoice. If one of the criteria is missing as per above, SARS will disallow the VAT input.
Where the supply (including VAT) is greater than R50 and less than R5000, the following criteria needs to be met:
- Contains the words “Tax Invoice”, “VAT Invoice” or “Invoice”
- Name, physical address and VAT registration number of the supplier
- Serial number and date of issue of invoice
- Accurate description of goods and /or services
- Value of the supply, the amount of tax charged and the consideration of the supply (value and the tax)
Please note all five criteria must be met for the invoice to meet the requirements of an abridged Tax Invoice.
Due to the increase in VAT fraud, SARS have become extremely strict in adhering to these valid VAT invoice requirements as set out in section 20 (4) of the VAT act. All invoices submitted to SARS are checked against the above criteria and if 1 single criteria is missing, the entire invoice is disallowed.
In a situation where SARS disallows a VAT invoice, the VAT input is disallowed, and a 10% penalty is levied by SARS on the amount of VAT payable after the disallowed input VAT as well as interest. Objecting to the penalty and interest due to a non-valid VAT invoice submitted is not seen by SARS as a valid reason to write back the penalty or interest. Ignorance is not bliss in SARS case. SARS can also impose an understatement penalty in addition to the 10% penalty and state “negligence” on the taxpayers part for the reason the understatement penalty is levied. According to SARS, if you are dealing with VAT, you must be familiar with the VAT legislation, requirements and procedures.
The understatement penalty is a percentage based penalty determined with reference to the taxpayer’s behaviour. In this regard a table in section 223 of the Tax Administration Act no 28 of 2011 assigns a specific percentage to the relevant behaviour. In standard cases, the percentage ranges from a minimum of 25% to a maximum of 200%. Similarly, SARS has no discretion to reduce the applicable percentage where it has been determined that a taxpayer falls within a particular behavioural category.
It is therefore extremely important that you familiarise yourself with what constitutes a valid VAT invoice as per legislative requirements if we are to successfully navigate VAT audits together.
By Laverne Geswint | GTP – (SA) | SAIT
General Tax Practitioner South Africa
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