Author: Seelan Muthayan, Director of VAT at BDO South Africa
Taxpayers are often unaware of their VAT registration liabilities, which can result in a retrospective VAT registration. This regularly leads to a liability for output tax on supplies made as amounts charged are generally deemed to be VAT inclusive. On the other hand, taxpayers may have incurred expenses during this period and may not be in a position to claim input tax deductions as they would not be in possession of valid tax invoices. This is as a result of them being registered for VAT when they incurred the expenses, with the tax invoices being rendered invalid as they would not contain the taxpayer’s VAT registration number.
In practice, taxpayers often request their suppliers for new tax invoices that reflect the VAT registration number of the taxpayer, which can also require the issuing of credit notes followed by valid tax invoices. However, the VAT Act prohibits a VAT vendor from issuing more than one original tax invoice for a specific supply. The VAT Act is also very specific on when a VAT vendor may issue credit notes. A registered VAT vendor may only issue credit or debit notes when:
- The supply has been cancelled; or
- The nature of the supply has been varied or altered fundamentally; or
- The previously agreed consideration for the supply has been altered by agreement, whether due to a discount or another reason; or
- The goods or services or part thereof supplied have been returned to the supplier, including the return of a returnable container, in which case the vendor is deemed to have made a supply of the container for which the deposit was charged, whether the supply was made by him or another person; or
- The amount of consideration agreed on for that supply has been stipulated incorrectly.
As can be seen, the VAT Act does not cater for the scenarios described above. How would the taxpayer then find relief? The VAT Act defines the term ‘vendor’ as any person who is or is required to be registered for VAT purposes. The VAT Act stipulates the requirements of a valid tax invoice (for supplies above and below R5 000). For supplies exceeding R5 000, a tax invoice should contain, amongst others, the name, address and, where the recipient is a registered vendor, the VAT registration number of the recipient.
As a result, it seems arguable that the VAT registration number of the recipient is only a requirement if the recipient was registered when the tax invoice was issued. Looking at the above scenario, the taxpayer would have had a registration liability but would not have been registered as a vendor. The tax invoices would therefore still be valid tax invoices and the taxpayer would be entitled to use the tax invoices to claim an input tax deduction