PART B – OUTPUT VAT
RECONCILIATION yes / no
Reconcile output VAT account as per financial system with SARS VAT201-returns
Reconcile 100%
Investigate reasons for not reconciling
Print summary of reconciliation
AUDIT
Perform audit
Obtain copies of Annual Financial Statements for period of review (COMPULSORY)
If possible, do a reconciliation from annual final statements for income and compared to VAT 201 (This will be possible at smaller companies where there is a detailed breakdown of all the income Streams in the AFS)
Investigate Types of Supplies
Standard Rated Supplies (14%)
Zero Rated Supplies
Exempt Supplies
Out of Scope Supplies
Investigate STANDARD RATED SUPPLIES
Pull out all income streams from general ledger, investigate for non- vatable income where Output VAT was declared.
Look at big variances on the Output Vat account, investigate
Keep in mind section 1 definition of enterprise for income to be vatable.
Certain deemed supplies
Supply of fringe benefits: 18(3)
Look at the calculation of the fringe benefits. Ensure that vendors with a VAT ratio, have pro- rata this calculation accordingly
Disposal of a going concern: 8(7)
Auditors must keep in mind with disposals of mixed use going concerns, there are possible section 16(3)(h) deductions what the seller can claim back on input tax previously denied. (Refer to example 3 of Draft Note 57)
Insurance proceeds: 8(8)
Look for possible insurance payouts where Output VAT do not need to be declared For example where Input VAT was denied like with passenger vehicles or canteen equipment. Be aware of third party payments.
Supply of goods where input tax was denied: 8(14)
The supply of goods where the input tax was denied for example with entertainment, Passenger vehicles, subscriptions are supplies deemed to be made otherwise in the course of an enterprise and no Output Vat must be accounted for on such supplies.
Be aware however where VAT was incorrectly raised on these supplies.
Supply of goods and services for mixed use: 8(16)
With these supplies Output Vat must be charged on the full consideration
However the vendor will be allowed an Input Vat deduction on the Input VAT previously not claimed fully on acquisition.(Section 16(3)(h) deduction.
Proceeds on the expropriation of land: 8(21)
Check if the vendor possible has accounted for Output Vat here where the fixed property formed no part of the vendor’s assets used for the purpose of an enterprise.
Excess consideration received: 8(27)
Check if the vendor has received excess consideration and if Output VAT has been declared after 4 months. If so, vendor will be entitled to an input tax deduction once he refunds the excess.
Imported services – S1, S14(3)
This will be applicable at vendors with VAT apportionment. Look at the calculation of Imported Services. Look for possible expenses which qualify for exclusions from the definition of imported services. Ensure that with the VAT ratio adjustment annually that imported services are also adjusted accordingly.
Deposits received
Look at the client’s policy regarding deposits received. A deposit (other than a deposit on a returnable container), whether refundable or not is not considered as payment made for a supply unless and until the supplier applies the deposit as consideration for the supply or such deposit is
forfeited. Keep in mind the most corporates will be on invoice basis where the general time of supply rule will be earlier of invoice or payment received.
Bad debts recovered
Ensure vendor has not declared Output VAT on bad debts recovered where the initial sale did not attract VAT for example with export sales, sales where the VAT value is deemed to be NIL. Beware however for transactions where VAT was incorrectly raised.
Interdepartmental charges
Investigate if there are any interdepartmental charges within the same VAT entity and if Output VAT has been declared. Be aware that Input VAT has not been claimed back on this, as it then will not result in a saving.
Retensions
Investigate how the client is treating retentions for VAT purposes. Practice note 4 issued by SARS confirms that where retention monies are withheld in relation to a particular progress payment, the contractor is not required to account for Output VAT on the monies withheld, only when the monies become due or are paid by the client is there an Output Vat implication.
Gift vouchers
Investigate if the client sells gift vouchers or if gift vouchers are redeemed at the client and how the VAT is treated. The sale of a monetary gift voucher does not give rise to a VAT event, unless the consideration charge for the vouches exceeds the value of it, then the excess is vatable.
However, where a vendor sells a gift voucher which can only be exchange for a specific product, the vendor must account for Output Tax when the voucher is issued and there are no further VAT implications when the voucher is redeemed.
Agent/Principal transactions
Check if there are any agent/principal transactions at the client and if Output VAT was possibly incorrectly declared by the agent. Beware of cases where there is a foreign principal involved.
Change in use adjustments (Applicable with VAT Apportionment)
Check if there the vendor has declared any Output VAT due to change in use adjustments. Check the correctness of the calculation. Be aware that where the VAT ratio has not decreased with more than 10% no adjustment is required on capital goods. This also applies to capital goods with a value of less than R40000.
Connected party transactions
Check if there are any connected party transactions applicable at the vendor. See how the vendor accounted for these. Be aware where the consideration > market value and the recipient of the supply would not be entitled to a full input deduction, the value of the supply is deemed to
be the market value.
Investigate ZERO RATED SUPPLIES
Check that the vendor is no longer declaring Output Vat on Seta Grants
Investigate all other grants received, check where Output Vat was declared
Check for other income what the vendor has standard rated which should be zero-rated Beware however where Output VAT was charged incorrectly.
Investigate EXEMPT SUPPLIES
Investigate if the vendor has incorrectly classified certain supplies as exempt while they should be zero rated as this will result in savings where there is VAT apportionment and also in savings where expenses directly attributed to this income can be claimed at 100%. The application of section 11(zero-rating) takes precedent over section 12(exempt) for example foreign interest earned are zero rated not exempt, public passenger transport by bus or train from the Republic to outside the Republic will also be zero rated and not exempt.
Investigate OUT OF SCOPE SUPPLIES
These are supplies which are neither exempt nor taxable, example fines, donations grants received for making exempt supplies. Ensure Output VAT is not declared on this income.
REPORT
Create claim sheets specifying claim numbers and indicating audit findings.
Write the Reconciliation and Reducing of the Value Added Tax Liability Report
Reference numbers on the report MUST refer back to the claim schedules
Send report to Deidre for proof reading and formatting
Sign off report
Arrange meeting with Financial director to discuss findings
Confirm that claim has been submitted by Client – must include copy of VAT201-return
Obtain SoA to determine if captured on SARS system
ADDITIONAL COMMENTS
Team Leader
Signature
Date
Audit Analyst
Signature
Date