VAT implications Re: Zappon Vouchers

[ld13]

In short:

A Business I am dealing with (not VAT registered) are currently dealing with Zappon/Groupon/etc (seemingly VAT registered). They are eg. selling a R1000 'service' for R500 on their website(s).

How Zappon etc work:
Zappon states that they take 3% of the R500 towards credit card fees. The remaining amount then gets split 50-50 between Zappon and the Business.

80% Of the Business amount then gets paid over directly after the promotion ends on the website. The remaining 20% of the Business amount only gets paid out after the coupon expires, pro-rated to the amount of vouchers that was actually redeemed.

Zappon claims on their website that:
"VAT: Currently the sale of Vouchers by us is not subject to VAT. If South Africa VAT law changes we reserve the right to charge you VAT in addition to the price for the Vouchers."

Question:
What would the VAT implications be for Zappon or the Business in this situation? Would Zappon be allowed to subtract VAT from the amount paid over to the Business, even though Zappon themselves never charged the client VAT on the voucher they bought on their website?



Any insights into this matter would be highly appreciated.

 

[Anony-mousse]

I can't see the logic.

The customer buys a R500 voucher - no VAT
Groupon puts R250 in their pocket - no VAT
Groupon pays R250 - 14% VAT to the business? Are they creating their own VAT or am I missing something here?

AFAIK deducting VAT before they pay out to the client is not ok because they don't have to pay those 14% elsewhere. So how do they explain it?

 

[Ianf1]

@OP
I would issue a VAT invoice for the amount received from Zappon, it is sales and you will be taking off this and more with the added discount. Then Zappon's VAT problems are theirs as you have accounted for VAT properly. If they have to pay VAT then they can use the VAT invoice as a deduction.

What is the feedback wrt it being worthwhile it from a marketing/advertising angle?

 

[ld13]

I can't see the logic.
...
Are they creating their own VAT or am I missing something here?
AFAIK deducting VAT before they pay out to the client is not ok because they don't have to pay those 14% elsewhere. So how do they explain it?

I don't see the logic either.

How would a normal VAT registered business handle VAT with regards to a NON VAT registered supplier?
As far as my thoughts go... if they are contracted to pay R250 for Service X to the supplier, they receive a normal invoice for R250, and need to pay R250, and not R250-14%.

They never informed us beforehand that they will be subtracting VAT from 'our' 50% share of the $$$....

@OP
I would issue a VAT invoice for the amount received from Zappon, What is the feedback wrt it being worthwhile it from a marketing/advertising angle?

We are not VAT registered, so we cannot invoice a VAT Invoice. Zappon is asking that we send them an invoice for the amount of ...
R500 - 3% (R15) Credit Card Fee
R485 Remains
- 50% (R242.50) Zappon's share
R242.50 Remains
- 14% (R33.95) VAT
R208.55 Amount to be invoiced

According to me we need to get the whole R242.50, as we are not VAT registered.

@OP
What is the feedback wrt it being worthwhile it from a marketing/advertising angle?

We had mixed reaction. From a financial perspective it does not sound so hot.
You would normally get 100% of the income.

Now you need to give at least a ~50% discount to get listed on these sites. Of the remaining 50% you stand off about 1.5% towards the credit card processor. Of the remaining 48.50% you give half to Zappon. You end up with 24.25%.

To compound that, you only get 19.40% once the deal closes, and the remaining 4.85% round about when the vouchers expire.

If they are serious about subtracting VAT on the 24.25%, it looks even worse. You end up with 20.855%, getting 16.684% once the deal closes, and the remaining 4.171% round about when the vouchers expire.

So you get about 20.855% - 24.25% of the original 100% income. Pathetic if you think about it.

If you structure your 'deal/voucher' correctly it could do wonders for your business, especially if your profits are geared towards volume - eg. service companies. It does bring in extra feet though. I cannot see how selling products directly through these sites could turn profitable, unless your product is already heavily marked up or you are hoping to upsell the client.

 

[muzee]

they act as "Agents" according to VAt act

 

[Anony-mousse]

I can't see it making a difference whether the business that supplies the service is VAT registered or not. They don't charge VAT when they sell the voucher. Why do they charge the supplier VAT?

VAT is a self balancing item, but in this case I am confused because they are not paying the VAT on any other side, do they? Are they just keeping the VAT they charge you?

 

[Anony-mousse]

Besides, they have a RIDICULOUS turnover share, no wonder they make so much profit. 50% turnover share of a discounted product/service? Would never be possible with our products because the markup would never allow such a deal, I wouldn't even break even, WTF?

 

[Anony-mousse]

I can't see it making a difference whether the business that supplies the service is VAT registered or not. They don't charge VAT when they sell the voucher. Why do they charge the supplier VAT?

VAT is a self balancing item, but in this case I am confused because they are not paying the VAT on any other side, do they? Are they just keeping the VAT they charge you?

No, that was an error in my reasoning now, it does make a difference. You are not VAT registered, .... oh man, now I'm confused too

 

[Ianf1]

We are not VAT registered, so we cannot invoice a VAT Invoice. Zappon is asking that we send them an invoice for the amount of ...
R500 - 3% (R15) Credit Card Fee
R485 Remains
- 50% (R242.50) Zappon's share
R242.50 Remains
- 14% (R33.95) VAT
R208.55 Amount to be invoiced

According to me we need to get the whole R242.50, as we are not VAT registered.

That sounds like the correct handling of the VAT, I am sure some tax consultant will either confirm this or correct it. But they should of told you about this upfront as you don't get relief on VAT you pay to your suppliers.

We had mixed reaction. From a financial perspective it does not sound so hot.
You would normally get 100% of the income.

I thought the motivation for this for a business is advertising in that the customers return to do more business with you. So you get your name out there at a small margin or small loss but cheaper than advertising.

Also this keeping back some of the money doesn't make sense unless they have to refund their customers.

 

[MagicDude4Eva]

80% Of the Business amount then gets paid over directly after the promotion ends on the website. The remaining 20% of the Business amount only gets paid out after the coupon expires, pro-rated to the amount of vouchers that was actually redeemed.

What's the reasoning for withholding 20%? You made the sale so it should be irrelevant if a voucher is redeemed or not?

 

[Ianf1]

What's the reasoning for withholding 20%? You made the sale so it should be irrelevant if a voucher is redeemed or not?

What are the other sites in SA doing with this 20%. It sounds like Zapon are just being greedy with this and the credit card charge.

 

[MagicDude4Eva]

UbuntuDeal pays over the full vendor-share once the deal closes, regardless of validity/expiry of vouchers. Agree, that Zappon is greedy - vendors already drop in most cases to zero-margin and then still suffer deferred cash flow.

 

[JNG]

What are the other sites in SA doing with this 20%. It sounds like Zapon are just being greedy with this and the credit card charge.

From what I hear from various sources, Groupon and others give far less than 80% (if any %) and pay only once you (as a business) redeem the vouchers. So, should no-one arrive, they keep the money. This also doesn't bode well for cash flow for the business.

 

[bekdik]

A VAT Enterprise needs to reconcile VAT to SARS as follows:

It sells goods at Rx and this amount includes VAT, the output tax due to SARS is 14/1400 * x = T

From T it can deduct the VAT portion of its purchases, called Input Tax.

If it buys from a non VAT registered enterprise, then Input Tax = zero.