Section 23(1) of the VAT Act No. 89 of 1991 (“the VAT Act”) requires any business with a taxable turnover exceeding R1 million in a twelve month period to register as a VAT vendor. Only registered vendors may charge VAT on their goods or services. VAT becomes payable at the time the goods are delivered, or the service is provided, and must be clearly reflected on the issued tax invoice. While credit notes can be issued to correct mistakes made on an invoice, a vendor cannot retroactively add VAT to a transaction.
Section 64(1) of the VAT Act further states that even if VAT is not reflected on the invoice, the price will be treated as VAT-inclusive. An obligation can thus not be placed on a consumer to pay additional VAT beyond the agreed price.
In the case of Working on Fire v The Minister of the Department of Forestry, Fisheries and Environment and Another, the applicant had entered a seven-year, VAT-inclusive service agreement with the respondents. After failing to include VAT on invoices for wage and salary payments, the applicant issued revised VAT-inclusive invoices. SARS held the applicant liable for the unpaid VAT, and in turn, the applicant sought to recover this amount from the respondents, who refused to pay the additional VAT.
The Court had to decide whether a service provider that failed to include VAT on its original invoices could, after the fact, issue revised VAT-inclusive invoices and charge its customer the additional tax. The Court emphasised that a supplier cannot retroactively charge VAT where it was not originally included in the invoice. If a supplier fails to charge VAT at the time of supply, this does not entitle them to later amend the invoice and recover the correct amount from the customer.
The judgment also stressed that the obligation to pay VAT is placed on the vendor and arises at the time the goods or services are supplied. It is a statutory obligation that exists independently of any contractual relationship between the supplier and the customer. Consequently, the supplier bears the risk of any failure to charge VAT correctly and cannot shift that burden to the customer after the fact.
Businesses should register for VAT as soon as they meet the required turnover threshold and ensure that their tax invoices accurately reflect VAT at the time their goods or services are supplied.
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