[Question] VAT on affiliate commissions - anyone know the answer?

[JNG]

Here is a situation I would like to know the answer to. I have found numerous contradicting answers on the web.

1. I run an affiliate website which sends leads to a company that handles money transfers in and out of South Africa.
2. To cut a long story short, I get paid on how much is transfered, which is a variable amount every month.
3. This amount is therefore an affiliate commission.
4. I invoice them for the amount.
5. I am not VAT registered.
6. They are VAT registered.

I have heard that if I am VAT registered, I charge them VAT on top of the amount. But I am not, so I presume I charge them just the amount. They tell me it is the amount less VAT. Various financial professionals tell me they are wrong. Yet on various online affiliate agreements on public websites I find that they charge in the same way. I can't find what SARS says.

Are they supposed to charge me VAT within the amount or just the amount?

[Dave A]

I suggest the contract between yourself and the company should be clear on how VAT vs non-VAT vendors' commissions are calculated.

[bammer]

4. I invoice them for the amount.[/B]

Does the recipient issue the "tax invoice" on your behalf?

[Blurock]

You may not charge VAT if you are not registered. If your turnover is below R1million, you are exempt from vat and may even show on your invoice that you are below the threshold. You will therefore only invoice them for your commission or fee excluding VAT. They may not deduct VAT from the amount that they are paying you, as you have not invoiced them for VAT.

Under no circumstances may you charge VAT and not pay it to the Receiver. They may also not claim VAT that they have not paid. That is fraud.

[BusFact]

I have heard that if I am VAT registered, I charge them VAT on top of the amount. But I am not, so I presume I charge them just the amount. They tell me it is the amount less VAT. Various financial professionals tell me they are wrong. Yet on various online affiliate agreements on public websites I find that they charge in the same way. I can't find what SARS says.

Are they supposed to charge me VAT within the amount or just the amount?

Dave answers it best when he says that this should be clearly agreed upon in your agreement. However I guess that wasn't done. So here follows my take:

Unless specifically mentioned otherwise, a selling price should generally be assumed to include VAT. So if you are due 1% commission on R114'000, then you are due to invoice them R1'140 including VAT. If you are not VAT registered then you can only invoice them R1'000, otherwise you are essentially handing them a 14% cost increase. Remember that VAT is never theirs, they are simply collecting it on behalf of SARS. So I'm probably siding with them on this one although its plain silly not to have that clearly down in writing.

There is of course the other side. I work in an industrial environment, where its common place to price excluding VAT. This is because in this scenario it represents the most common true cost as both vendors are alomst always VAT registered (and of course it sounds cheaper). But a quote always mentions that the amount is exclusive of VAT.

So it can be argued both ways but I think they have the stronger case, although tell them to clear up their contract. If however, you drew up the contract you may have a better case, if it was clear that you were a non-registered vendor. Then it should have been obvious that the amount did not include VAT and was the actual cost.

SARS do have a view - in their very first point of their 404 guide. They say goods must be priced inclusive of VAT. However this document is directed at a VAT vendor, so if they drew up the contract this would be another point in their favour. I would not imagine that SARS has a view on disputes between vendors and non-vendors. That is an issue between the two companies.