Updated on July 19, 2022
From April 1, 2018, the VAT rate will rise from 14% to 15%, according to the Minister of Finance’s most recent Budget Speech.
There are a few things to keep in mind if you want the transfer to go smoothly.
Before a supply of goods or services is determined to have occurred, a “tax invoice” is often generated and a payment is collected by the seller. If the vendor has “sent” the invoice then they are responsible for the old 14% rate.
For any supplies made after April 1, 2018, VAT will be charged at a rate of 15% on every “invoice” or payment relating to that supply that the vendor “issues.” An invoice or payment made before 1 April 2018 will be subject to VAT at a rate of 14 percent.
According to the VAT Act, Section 67A establishes an interim VAT rate that applies to goods and services offered when the VAT rate is fluctuating.
Prior to the 1st of April, 2018
Regardless of when an invoice is issued or payment is received, a 14 percent tax rate will apply to supplies made before April 1st (excluding fixed property supplied through a sale), regardless of when the products or services are delivered (excluding those provided by way of a sale).
As soon as a product is delivered to its intended recipient, it is considered to have been furnished. If the goods are furnished under a rental arrangement, the recipient is regarded to have received them when they take possession or occupation of them. To be viewed as having been performed, a service must be carried out or physically executed.
Supply dates prior to and following 1 April 2018
Beginning and terminating on or after 1 April 2018 are covered by the provisions of s67A(1)(ii) and include the following supplies:
Agreements or laws requiring periodic payments for goods and services; goods and services provided in the course of construction, repair, improvement, erection, manufacture, assembly, and alteration of goods; and goods or services provided directly to the customer for the purpose of construction, repair, improvement, erection, manufacture, assembly, and alteration of goods.
After 1 April 2018, if these goods or services are delivered or performed during a period that begins before that date and concludes after that date, they must be apportioned on a fair and reasonable basis between the supplies made before that date and the supplies made after that date. Value-added tax (VAT) is paid at a rate of 14 percent for supplies made before 1 April 2018, and at a rate of 15 percent for supplies made on or after this date.
As far as the foundation of allocation is concerned, there are no rules to follow. Seller must show that the apportionment used is reasonable and fair.
Merchandise received after April 1st, 2018
On or after April 1, 2018, these supplies will be subject to VAT at a rate of 15 percent.
To prevent vendors from taking advantage of a lower rate by triggering the time of supply rules in s9 between 21 February 2018 and 1 April 2018, where actual supplies are only made after this date, s67A(2) contains certain anti-avoidance rules that override provisions of s9 in the case of s67A(2).
To be exempt from the anti-avoidance rules, a transaction must take place between 21 February 2018 and 31 March 2018 if the time for supply was triggered by s9, but the goods or services are not provided until at least 21 days after 1 April 2018 (that is, no later than 22 April 2018) or on 1 April 2018. As of April 1, 2018, these transactions are subject to VAT at a rate of 15%. Regardless of when the goods or services are delivered or performed, the VAT must be accounted for in the April 2018 tax period. As a result, if the items are delivered before 22 April 2018, VAT will still be owed at the rate of 14.5%.
Real estate business
When it comes to commercial real estate, there are no particular transitional regulations. The typical time of supply rule so determines the applicable VAT rate. Since 1 April 2018 will be the date of the registration of transfer in the name of the buyer, VAT at 15% will be owed by the seller regardless of when the sale agreement was finalized.
Sales on credit terms
As long as the deposit is paid before to 1 April 2018, VAT at the rate of 14 percent will be charged on the supply of goods under a lay-by arrangement. VAT must be paid on any payment kept by a provider if a supply arrangement is terminated before it is made.
Lay-by arrangements signed after April 1st, 2018, are subject to VAT at a rate of 15%, and any sums retained under such canceled agreements are liable to VAT at the tax fraction applying the rate of 15%.
Right to modify a contract’s price because of a rise in the VAT rate
It’s important to note that Section 67 of the VAT Act deals with agreements made prior to April 1, 2018. VAT rate increase on 1 April 2018 means that suppliers can recover from customers the additional VAT that they would be liable for, unless the agreement clearly states otherwise, unless the agreement specifically states otherwise. Regardless of whether the supplier is able to recoup the additional payment from the recipient, the provider must nevertheless pay VAT at a rate of 15% on these deliveries.
When a “irrecoverable” debt relating to a taxable supply is treated as such by the vendor, the seller might claim VAT relief.
In regards to a delivery made before April 1, 2018, the vendor may have now accounted for VAT at a rate of 14%, yet the consideration for the sale is now considered “irrecoverable.” Is there a certain tax rate that should be used? In accordance with Section 22(1) of the VAT Act, the vendor can only claim relief based on the VAT rate that applied to the supply in question. If an amount of money is considered “irrecoverable,” taxpayers must be able to specify the tax rate that must be applied in order to determine the relief available under Section 22.
Invoicing and bookkeeping software
Your accounting software must be updated to reflect the new 15% VAT rate as of 1 April 2018.
Please don’t hesitate to get in touch with one of our managers if you have any questions.
Despite its title, this is merely a piece of general information and should not be considered professional advice. Liability for any loss or damage that may result from using this information has been disclaimed because of the possibility of human error. Except for mistakes and omissions (E&OE).