Some Vat Invoice assistance please

[Prote]

Hi Guys n gals

I need some help understanding how VAT works because we have started a small company and landed some consulting work with a client of ours. They have agreed to pay us an advance for the work we will do for 2010 and more later to the tune of R1m. They assisted us by drawing up a proforma invoice with the advance of R1 million VAT included of R140000, less some travel expenses amounting to about R3000.

Our dilema is that this is our first client, i.e. first payment, so we have not been active, save for expenses we covered ourselves out of our own pockets.

We sign with them tomorrow, hence they should pay us from tomorrow (if everything were in order)

We have two companies registered, a pty ltd with a bank account is not registered for tax yet and CC which does not have a bank account but has a tax clearance.

We obviously could not get a VAT No as we were exempt (I stand to be corrected) but now we have a huge order on our books and guess that a VAT No is needed.

We do not want to delay payment as we have a lot of expenses to take care of and need to make some investment in the business. We can certainly look at ensuring we get a VAT no asap but will this delay payment? or is there a way to ensure we are sorted.

We are professionals and unfortuneatly not tax/financial people and will get this side of the business sorted out when we get paid (I guess you can see our dilema)

Any advice?

 

[jem]

You can still apply for voluntary reg, you are just not REQUIRED.

Just tell them you deal with vat vendors and clients and they require you to be VAT registered.

I have heard that registering for vat takes longer now as they are trying to cut down on vat fraud, so it is likely to be a little wait. In my experience as a SME it is definitely worth the hassle, especially if you deal any sort of equipment. You will need to brush up your tax skills or get an bean counter cos it's a headache every 2/3 month cycle.

 

[jem]

Just realise one thing, vat is not your money, it's sars. so if they are offering 1m before you reg, then you should effectively charge them 1.14m if you do register.

 

[Prote]

Thanks bud

Essentially we can ask them to still invoice us for R1.14m and make dead sure we register, give them the details asap, and payment should not be an issue?

So because we did not generate an income before it would be the voluntary registration right?

Would the client have a big issue with us at the moment not having a reg no though?

 

[undesign]

If you are not registered, VAT is irrelevant for now. You should register asap to claim VAT on expenses - with this invoice you make the threshold for registration in any event. But it is not necessary for this invoice as it has no effect on your net cash flow.

What you have to make sure of is what price is negotiated with your client. It is standard business practice to talk ex-VAT. Say the price is R1m ex-VAT than the following scenarios could apply -

1) both registered for VAT

Client pays R1.14m, claims R140k input VAT from SARS, net R1m
You receive R1.14m, pay R140k output VAT to SARS, net R1m

2) client registered, you are not

Client pays R1m, claims R0 input VAT from SARS, net R1m
You receive R1m, pay R0 output VAT to SARS, net R1m

3) neither you, nor the client registered for VAT - then same as 2) applies

Just make sure that the client didn't mean R1m VAT included, because then you will have to invoice them as follows -

- work R877,192.98
- VAT R0

Regardless of VAT registration, if it was meant as R1m VAT included then the net effect for both parties will only be R877,192.98.

These are basic stuff, but easy to screw up if you don't understand it. Speak to an accountant or auditor to advise you.

 

[Prote]

Thanks a mill, we are going with option 2, I was worried that not being registered could have been detrimental to us getting paid. I humbly bow down to jem and SiriS for your advice. Just thought that option 2 may put our client at some sort of risk with the taxman though.