Value-Added Tax (Grade 10 NSC Matric Accounting): Revision Notes
Basic VAT Concepts
Introduction to VAT
Value-Added Tax (VAT) is an indirect tax charged on the supply of goods and services in South Africa. Understanding VAT is essential for accounting students as it affects how businesses record sales and purchases, and how they calculate their tax obligations to the South African Revenue Service (SARS).
VAT rates and types of delivery
In South Africa, VAT law recognises two main categories of delivery when goods or services are sold:
Taxable delivery
This applies when goods or services are charged at either:
- Standard rate: Currently 14% of the selling price
- Zero rate: 0% of the selling price (also called zero-rated goods)
Exempted delivery
These are specific goods and services that are completely outside the VAT system and do not attract any VAT charge.
The key difference between zero-rated and exempted supplies relates to input tax, which is the VAT a business pays when buying goods or services for their business operations.
Input tax treatment
For zero-rated supplies: A business selling zero-rated goods can reclaim all the VAT it paid on purchases (input tax).
For exempted supplies: A business providing exempted services cannot reclaim any input tax.
This distinction affects both consumer prices and business cash flow.
Zero-rated supplies
Zero-rated items are still taxable supplies, but charged at 0%, and input tax can be reclaimed.
Common zero-rated items
- Fuel and oil
- Brown bread
- Graded maize meal
- Agricultural supplies
- International air passenger transport
Zero-rated items are mainly essentials to help consumers.
Exempted supplies
Exempt supplies are outside the VAT system entirely.
Common exempted deliveries
- Financial services
- Residential housing
- Local passenger transport (road/rail)
- Education services
- Trade union fees
Exempt = no VAT charged AND no input VAT claim allowed.
VAT returns and submission requirements
Submission frequency
VAT returns are submitted every second month.
Recording VAT transactions
- VAT-input account: VAT paid on purchases
- VAT-output account: VAT charged on sales
Month-end procedure
End of first month: VAT accounts balanced but left open.
End of second month: Both accounts are closed to VAT-control account.
The VAT-control balance determines if SARS is owed money or must issue a refund.
Determining VAT payable or refundable
Credit balance (output > input): VAT payable → current liability
Debit balance (input > output): VAT refundable → current asset
Practical Example: Determining VAT Payable
If Output VAT = R50 000
and Input VAT = R35 000,
VAT Payable = R15 000
Calculation:
Accounting basis for VAT
Invoice basis
VAT is recorded at the earlier of:
- Invoice issued
- Payment received
Invoice on 15 March, payment on 30 April → VAT in March
Payment basis
VAT is recorded only when payment occurs.
Invoice on 15 March, payment on 30 April → VAT in April
VAT and bad debts
Payment basis
If debtor never pays, no VAT is ever paid to SARS.
This protects cash flow.
Invoice basis
VAT is paid as soon as invoice is issued.
If debt becomes bad: VAT must be reclaimed from SARS in next return.
Invoice basis = upfront VAT payment → recover later if debt is bad.
Case study: Illegal VAT collection
Mr Khumalo charges VAT but is NOT registered.
This is illegal and constitutes tax evasion.
His earnings likely do not reach the compulsory VAT threshold of R1 million per year.
Worked example: Calculating VAT on sales
Prices exclude VAT:
| Item | Price (excluding VAT) | VAT Status | VAT Calculation | VAT Amount |
|---|---|---|---|---|
| Lamb chops | R56 | Standard rate | R56 × 14% | R7.84 |
| Brown bread | R5 | Zero-rated | R5 × 0% | R0.00 |
| Tomatoes | R12 | Standard rate | R12 × 14% | R1.68 |
| Coke | R11 | Standard rate | R11 × 14% | R1.54 |
| Charcoal | R30 | Standard rate | R30 × 14% | R4.20 |
| Cheese | R24 | Standard rate | R24 × 14% | R3.36 |
| Chips | R13 | Standard rate | R13 × 14% | R1.82 |
Total VAT charged:
Total amount payable:
Summary
- VAT = 14% standard rate in South Africa
- Zero-rated = 0% but input VAT can be claimed
- Exempt = no VAT charged AND no input VAT claim
- VAT returns submitted every 2 months
- VAT-control account decides liability/refund
- Invoice basis: VAT recorded at invoice/payment (earlier)
- Payment basis: VAT recorded only when money moves
- Bad debts:
- Payment basis → no VAT paid
- Invoice basis → VAT paid first, then reclaimed