# Regulatory Compliance Category > Tax Forum > [Question] how to calculate interest and penalties/interest on vat

## radeonman

hi folks ,

would anybody be kind enough to give a few detailed steps on how to calculate penalties on late submission on vat ? obviously the 10 % penalty is a basic but from what i can ascertain interest is calculated monthly on vat and not daily from what i heard like on p.a.y.e. ?

also , is all the info inputted on the return page just like paying penaty / interest on late submission of p.a.y.e. ?  i remember having a major brain drain not realising that the one and only time paying vat past the 25th of the month would incur penaties etc but also did not realize that being a easy filer i had till the last day of the month to get the submission in and the payment  :Embarrassment:  what proceeded from then was a comedy of errors as a help desk lady tried to explain how to get the job done correctly ! :Stick Out Tongue:  remembering back i can recall having to navigate to a different page to input the penalty and interest ?

in a nut shell :

a) the formula on how to calculate interest on vat per month
b) are the amounts of the penalty / interest entered on a separate return / page from the original vat return page ?

oh how i wish there are pills for being dense in such matters ! :Stick Out Tongue:

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## dellatjie

Hi,

I have tried to calculate the interest to determine how they calculate, in the end I worked on the declared amount, and differed with 2cents or so, so that should be it. Therefore, at the end of each month you will say AMOUNT DECLARED x INTEREST RATE / 12 (MONTHLY).

On the last page of the VAT 201 there is a block for penalties and interest. I don't think there is a place to declare penalties and interest after you have submitted your return.

An important thing to note, is that you may only pay on the last working day of the month if you SUBMIT and PAY via e-filing. If you pay via internet banking, it is still payable on the 25th or the last working day before that. And by working day I mean Monday to Friday, excl public holidays. So be careful!

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## radeonman

many thanks dellatjie i managed to get it in on time so no penaltys there  :EEK!:  i must say an even bigger thanks for the further info about the internet payment times i did not realise that at all ! luckily i work through the e-filing so that has saved me as well from further disasters !!  :Stick Out Tongue:

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## Tom

> Hi,
> 
> I have tried to calculate the interest to determine how they calculate, in the end I worked on the declared amount, and differed with 2cents or so, so that should be it. Therefore, at the end of each month you will say AMOUNT DECLARED x INTEREST RATE / 12 (MONTHLY).
> 
> On the last page of the VAT 201 there is a block for penalties and interest. I don't think there is a place to declare penalties and interest after you have submitted your return.
> 
> An important thing to note, is that you may only pay on the last working day of the month if you SUBMIT and PAY via e-filing. If you pay via internet banking, it is still payable on the 25th or the last working day before that. And by working day I mean Monday to Friday, excl public holidays. So be careful!


Hi there I have just contacted the S.A.R.S "help desk" and I received 4 different explanations for the calculation. I just requested clarification on whether interest is payable on outstanding amount or whether its payable on penalties and interest.
They all seem to say that your outstanding VAT at end of period has to have the penalty added to it before calculating the interest. This is how their system does it. However I ran into a post on SAICA site that contradicts this systems calculation with reference to the VAT at namely S39 read in conjunction with S45A.

"a)        If any person who is liable for the payment of tax and is required to make such payment in the manner prescribed in section 28(1), fails to pay any amount of such tax within the period for the payment of such tax specified in the said provision, he shall, in addition to such amount of tax, pay-
i)          a penalty equal to 10 per cent of the said amount of tax; and
ii)         where payment of the said amount of tax is made on or after the first day of the month following the month during which the period allowed for payment of the tax ended, interest on the said amount of tax, calculated at the prescribed rate (but subject to the provisions of section 45A) for each month or part of a month in the period reckoned from the said first day."

I interpret the above as the interest should be calculated on only the outstanding amount, excl the penalty and interest.

The following reponse by a SAICA rep seems to share same view on interpretation of S39. "The interest is payable only on unpaid VAT and not on any amount of interest or penalty which is due under section 39. " 
link to entire thread: 
http://www.saica.co.za/faqs/showAnsw...ubSectionId=34 

If there is someone with more insight on subject at hand please could you share your views and provide clarification. Should the above be correct S.A.R.S is effectively over charging on their interest charge as outstanding balance includes the penalty amount and interest is calculated on an inflated amount.

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## Dave A

> I interpret the above as the interest should be calculated on only the outstanding amount, excl the penalty and interest.


That is correct.




> Should the above be correct S.A.R.S is effectively over charging on their interest charge as outstanding balance includes the penalty amount and interest is calculated on an inflated amount.


It has been some time since I've last had an outstanding amount with SARS attracting interest, but I can confirm at the time the interest was definitely raised on the capital portion, and not on the outstanding interest and penalties.

Based on my experience at the time, the interest was calculated on the end of month balance of the capital - which meant paying on or before the end of the month was much better than paying a couple of days later in the first few days of the next month. It certainly wasn't a daily balance calculation...

The other thing to take note of is that any payment made will be applied against interest and penalties first, and then only will the balance be applied against the capital portion attracting interest.

One concern I do have is whether this method has changed since the introduction of the Tax Administration Act.

It would be interesting to see a statement that supports your claim that SARS is overcharging the interest - with all personal/identifiable information blacked out, of course.

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## Tom

I will post a follow up post once I've filed all outstanding returns and their system has allocated all necessary costs...

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## dellatjie

Morning,

Yes, the Tax Admin Act will definitely change this, I am just not sure as to the effective date thereof, hope someone can help us there.

If I am not mistaken, it is already effective, as the current Tax Administration Act, 2011, specifies this in Section 187(2):

_"Interest payable under a tax Act is calculated on the daily balance owing and compounded monthly, and the Commissioner may prescribe by public notice from which date this method of determining interest will apply to a tax type."_

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Dave A (06-Mar-13)

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## CLIVE-TRIANGLE

A factor that you need to take account of also is that when you pay VAT late, the penalty and interest gets first bite at the payment. That means an amount of VAT remains unpaid and accrues interest until that is settled also.

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## Tom

Thread is not dead, still waiting for client to pay outstanding VAT, interest and penalties. Will give update as promised.

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## radeonman

hi there folks thanks for keeping the thread alive , this might be slightly off topic but would anybody know if one could claim vat on building industry bargaining council returns ? i only have 1 chap who is a member but have been contributing for many years already on his behalf , also if it is legit what portion would be claimable and if so will the 5 year rule still apply for back claiming ?

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## Dave A

Bargaining council levies, pension fund contributions etc. do not have VAT on them.

If VAT is raised on anything, it will be clearly marked as such in the invoice raised by the bargaining council.
As example, the only levy or contribution that attracts VAT with what I have to pay over to the NBCEI is the ECA levy.

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