SCB VAT SUPPORT SERVICES
The correct treatment and procedures for the accounting and declaration of Value Added Tax (VAT) can significantly enhance the cash flow of any entity in the public sector. We can assist public entities to correct or prevent the incorrect application of the VAT principles, which in many cases can result in entities incurring material financial losses and cash-flow problems as a result of:
Overpayment of excessive VAT;
Under-claimed input tax credits on applicable expenditure.
Apart from the cash-flow and fruitless expenditure perspective, harsh and material penalties may also be raised by South African Revenue Service (SARS) where VAT was under-declared. Overstatement of VAT liabilities may also have a material impact on the AFS and the audit opinion issued thereon by the Auditor-General.
VAT support: Public Sector
Our VAT specialists can assist public sector entities in their focus on VAT responsibilities and considerations, which include optimal application of the VAT legislation for VAT liability and subsequent refunds by SARS. In municipal and public sector application, special attention is given to apportionment ratios, grants, subsidies and the effect of amendments to VAT legislation. SCB’s support includes:
VAT reviews and compilation of amended VAT returns, the required audit files and information. Assisting public entities with difficulties they may encounter as to the delays in the refund of critical cash-flow based on such VAT-refunds from SARS,
Accounting and recording of VAT together with management and control environmentconsiderations and improvements,
Monthly VAT return support,
Training and other technical support.
1 VAT review: Support for Auditor-General & SARS audits
SCB Consulting can assist public sector entities with VAT reviews, reconciliations and return submissions to ensure VAT returns are correctly calculated and supported with monthly audit files and line-by-line analysis of VAT transactions, as to ensure timeous VAT refunds where VAT input exceeds VAT output. Limited to the availability of supporting documentation and information and within the allowed timeframe to submit an amended VAT return for a VAT refund, historic reviews can also be performed on a number of the preceding years. We can also assist entities in their management of invoices received which are invalid for VAT purposes.
From review of the general ledger, all VAT transactions are identified and grouped on a monthly basis, with the following reconciliations performed:
|Payments to invoices||Reconciliation of payments to supporting invoices. This is to ensure that the transactions comply with the valid VAT invoice requirements as per section 20 of the VAT Act no 89 of 1991 (VAT Act).|
|Receipts to services||Reconciliation of receipts to supporting allocation of services, to ensure that the declared output is correctly calculated and the relevant payment for services meets Section 7 of the VAT Act’s criteria. We recommend that the responsible official to be available to ensure sufficient skills transfer.|
|General Ledger & VAT returns||Reconciliation of these findings to the general ledger and VAT returns. Any differences will be communicated to ensure that appropriate journals are formulated.|
|Accounting||Recommendations regarding VAT apportionment and the accounting for transactions will be made.|
The review and reconciliations will be indicative of:
any VAT that has been overpaid and / or under-claimed for the various years under review;
VAT input tax credits have been claimed in respect of all qualifying expenses;
other aspects of VAT savings.
Should the results of our review indicate that VAT has probably been overpaid and/or under-claimed, the appropriate action under these circumstances would be to quantify and claim the overpaid VAT and/or the unclaimed input tax credits on all expenses, as applicable.
Following the review and recalculations, we will be able to assist with the submission of amended VAT returns to SARS, and act as liaison of the entity, based on the entity’s verifiable tax liability position.
Our findings of the review will be formalised in a report. Where applicable, we will also provide you with the amount claimable/declarable and a document setting out our supporting calculations with a follow through of administration and liaison with SARS for VAT recoveries/payments.
As part of the reporting pack, we will also provide appropriate audit evidence for the VAT transactionsunder review through the compilation of the necessary VAT supporting documentation. This evidence will be sufficient and expedite both the Audit-General’s and SARS audit process pertaining to VAT. We will also assist the entity throughout the audit process of SARS in view of the corrections and the recovery of the VAT refund, where applicable.
The report can also be facilitated with management and key individuals as part of a skills transfer, together with a VAT foundation training solution.
2. VAT control environment review
We can also assist with a review and improvement of the VAT control environment and accounting systems. This involves a detailed review of the management control processes and accounting systems pertaining to the processing of VAT transactions, such as:
The accounting for VAT transactions within the entity’s accounting records and accounting system (e.g. the treatment of VAT on recording expenses of VAT);
The procedures used to calculate apportionments as well as the procedures to confirm amendment to the financial systems with regard to apportionment percentages;
Management oversight and review of the VAT processes and calculations;
The procedures for VAT returns and the submissions thereof;
Record keeping of supporting documentation for VAT reviews (general ledgers, bank statements, invoices, VAT returns, previous VAT returns.)
The procedures for consideration of potential VAT recoveries.
Following this review, a report is submitted on the findings and system weaknesses, together with suggestions for system improvement
3. Monthly VAT Return support
Apart from historic and control reviews, we can also pro-actively assist public sector entities in the first time submission and review of the VAT returns.
As part of our support in the review of the monthly VAT returns, we will assist and capacitate public sector staff to do the following:
Considerations for the validity of invoices for the claiming of VAT inputs;
Compile the necessary supporting documentation to enable the claim of inputs, and communicate any shortcomings on the matter;
Ensuring that the accounting for VAT is correct by ensuring the accounting on both the input and outputs are correct and review of journals proposed by staff;
The skills to handle any communications that are needed with SARS;
Creating and documenting a monthly VAT file for the public entity.
A monthly report on our findings will be issued, with technical assistance to correct any errors / shortcomings that were found during the processes. A complete skills transfer will be implemented to ensure that the responsible official will have the necessary skills and knowledge to complete the task successfully at the end of the relevant period.
4. VAT training & technical support
We can also assist in the provision of VAT training, by way of a formalised workshop session or as part of on-the-job training. These can include:
VAT principles and regulations;
VAT timeframes and responsibilities;
Understanding of the accounting transactions and processing of a VAT transaction on the accounting system;
Implementation of controls to ensure the optimal claim of inputs;
Considerations for the validity of invoices for the claiming of VAT inputs;
Preparation and submission of VAT returns;
Roles and responsibilities where errors were incurred in the accounting of VAT;
Supporting document file compilation for VAT audits
AFS considerations such as VAT reasonability calculations
Annual updates as to changes that occurred in the Value Added Tax Act no 89 of 1991 for all responsible officials.
For more information
For more information as to our VAT support or any of these services, give us a call or send us an email.