[Question] Tax Type Codes

[Audrey H]

Good morning,

I need clarification on the tax type codes in Pastel Xpress.

INPUT:
If a supplier is not VAT registered then 00 (type 0) should be used.
If a supplier is VAT registered then 01 (VAT standard tax rated 14%) is used.
If a supplier is VAT registered but has non-VAT items on the tax invoice (sometimes we encounter this with flight tickets, etc) then should the amount which doesn't attract VAT be processed under 03 (Exempt 0%)?

OUTPUT:
As we are registered for VAT we bill all our clients at 01 (VAT standard tax rated 14%).
However, how does it work when recovering travel expenses from clients (flights, car hire, accommodation)? These costs do not form part of our core business offering and we merely wish to have them covered by the client. Should we invoice them exactly the same way that the supplier invoices us? Currently, if we charge clients a rate per km travelled we add VAT @ 14% onto that.

Any assistance, please.

[Mike C]

Hi Audrey - there is a difference between Zero-rated Supplies and Exempt Supplies.

Certain basic foodstuffs are zero-rated, provided it is not supplied for immediate consumption (that is, as a meal or refreshment) or added to a standard-rated supply.
Certain specified “fuel levy goods” - these include crude oil and certain petrol and diesel based products.
The sale of a business or part of a business which is capable of separate operation as a going concern qualifies for the zero rate if all of the requirement set down are met.
Certain farming goods ... etc

Exempt supplies are supplies of goods or services where VAT is not chargeable at either the standard rate or the zero rate and will not form part of taxable turnover.
Some examples of exempt supplies include –
• financial services (such as, interest earned for the provision of credit, life insurance, the services of benefit funds such as medical schemes, provident, pension and retirement annuity funds);
• donated goods or services sold by non-profit bodies (such as, religious and welfare organisations);
• residential accommodation in a dwelling (but not holiday accommodation);
• passenger transport in South Africa by taxi, bus, or train;
• educational services provided by recognised educational institutions
• childcare services provided at crèches and after-school care centres.

---

I would like to hear others on your Output question, as I am not completely sure myself. For example I think that you can include VAT as rate per km ... but cannot charge VAT on petrol used when filling up a car that has been returned.

[Dave A]

My view is there are two possible ways of dealing with reimbursable expenses.

Tax invoices for the expenses are made out directly to the client:
In this situation, you would submit these invoices and be refunded for monies you have paid out on behalf of the client.

Tax invoices are made out to the company:
The company will treat these expenses as costs incurred in the generation of income, and in turn invoice the client. While the value of the invoice line item for reimbursable expenses might be based on the value of, and supported by copies of the invoices upon which the claim is made, the invoice is essentially for a taxable supply and would attract VAT on the full value of the supply if the company is a registered VAT vendor.

[Mike C]

Good point about the entity to whom the Tax Invoice is made out.

In the situation of where a company hires out a car ... If the company fills up the car with petrol for the client, would they then invoice the client for the petrol plus VAT?

[Audrey H]

Thanks guys. Please bear with me...my apologies.

Our clients are corporates and, in this case, our supplier is a travel agency. So, for example, we book a flight through our supplier and receive a Tax invoice for R 115 (R 100 for the airfare, R 14 VAT and R 1 Airport tax). When processing the supplier invoice in Pastel Xpress is it best to put the R 100 to the expense and use tax type code 01 (VAT 14%) and then the remaining R 1 to the same expense but against tax type code 03 (Exempt)? I cannot put the R 101 total against code 01 otherwise we would be claiming too much VAT. The additional R 1 needs to be processed at 0%.

Then, if we need to charge a company for this flight should I charge them R 115 and add VAT on top or should I extract the R 100, levy 14% VAT on it and charge the R 1 as an Exempt supply?
What if we needed to be reimbursed for a shuttle transfer, which had no VAT attached? What would be the correct way to invoice our corporate client to recover this cost?

[CLIVE-TRIANGLE]

Our clients are corporates and, in this case, our supplier is a travel agency. So, for example, we book a flight through our supplier and receive a Tax invoice for R 115 (R 100 for the airfare, R 14 VAT and R 1 Airport tax). When processing the supplier invoice in Pastel Xpress is it best to put the R 100 to the expense and use tax type code 01 (VAT 14%) and then the remaining R 1 to the same expense but against tax type code 03 (Exempt)? I cannot put the R 101 total against code 01 otherwise we would be claiming too much VAT. The additional R 1 needs to be processed at 0%.

That's correct as you have it

The other issues are all vatable. Your are not the vendor of those services, you are recouping costs incurred and a recoupment is always vatable.

[Dave A]

In the situation of where a company hires out a car ... If the company fills up the car with petrol for the client, would they then invoice the client for the petrol plus VAT?

As in a car hire company?

Based on Clive's post (which certainly makes sense), it seems that would depend on whether the car hire company is also registered as a vendor for the supply of fuel.

[Audrey H]

That's correct as you have it

The other issues are all vatable. Your are not the vendor of those services, you are recouping costs incurred and a recoupment is always vatable.

The full amount? In other words, VAT on top of the R 115?
So even if charging for a shuttle or car hire the full, VAT inclusive amount (even if VAT is 0%) should be processed as an income and 14% VAT added on top?

[Dave A]

The full amount? In other words, VAT on top of the R 115?

Based on your example, I would have thought R101 + VAT.

R101 is the expense you are recouping from the client. The R14 VAT portion you'll "recover from SARS" as an input VAT claim.

[Audrey H]

That makes sense, yes. Then the VAT amount on our Tax Invoice to clients will then be slightly more than the VAT amount on the supplier invoice.
As we are not the vendor/we do not supply the service we cannot process any amounts at 0% VAT (as they do).
Great help! Thanks everyone.

[CLIVE-TRIANGLE]

The full amount? In other words, VAT on top of the R 115?
So even if charging for a shuttle or car hire the full, VAT inclusive amount (even if VAT is 0%) should be processed as an income and 14% VAT added on top?

Yes. You do not sell fuel or air fares; you recoup costs.

There is nothing too mysterious about this , just review the "products" that you supply.

[Dave A]

There is nothing too mysterious about this

Chuffed to hear that. But you have blown my theory and got me scratching my head nonetheless.

As the original inclusive amount was R115 (which included R14 in VAT), it seems to me if the company bills the client R115 + VAT, they'll nett R14 over and above their costs that they seek to recoup.

[Justloadit]

Just another curved ball here.
If you are acting as an agent, and collecting the funds on the behalf of your customers supplier, why do you have you raise an invoice with VAT from your customer, and claim from your suppliers invoice?
If you are not charging for the service then in effect you have not provided for a service and are therefor not entitled to collect the VAT on the service that you are acting as the agent. You can however raise an invoice with VAT for the services provided.

I have a situation in which I vend prepaid electricity. When the client purchases the electricity, I make a request from ESKOMs server, they raise an invoice and provide a pin number for the purchase. ESKOM then sends me an a VAT exempt invoice for the value which I purchased for. The story here with ESKOM is that they made the sale between ESKOM and the final customer, and that I only acted as the agent in facilitating the financial transaction. I only raise VAT on the commission made on the sale.

I suggest that you contact SARS and see what they say about this, rather than getting involved in the whole debacle of VAT raised and so forth.
If it is a private person dealing with you in this manner, it simply would raise the cost of the transaction when you start adding VAT on the zero rated amounts.

[CLIVE-TRIANGLE]

Chuffed to hear that. But you have blown my theory and got me scratching my head nonetheless.

As the original inclusive amount was R115 (which included R14 in VAT), it seems to me if the company bills the client R115 + VAT, they'll nett R14 over and above their costs that they seek to recoup.

Cost to Audrey was R101 + R14 VAT
For a recoupment she should charge the same.

If it was an overseas flight, Cost would be say R2000 + Zero VAT + 100 airport tax

Her recoupment invoice would be cost R2100, VAT R294

Another scenario

Car hire R1000 + R140
Fuel R750
Her invoice should be cost R1750 + VAT R245

So really, in the absence of any markup, all she should be doing is invoicing the actual cost to company, plus VAT.

[Dave A]

Another scenario

Car hire R1000 + R140
Fuel R750
Her invoice should be cost R1750 + VAT R245

So really, in the absence of any markup, all she should be doing is invoicing the actual cost to company, plus VAT.

Phew! We're back on the same track now

You had me worried for a moment there.

Justloadit, I think your scenario is covered under the "bill direct to client" possibility mentioned in post 3.