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?

 

[Rockhound]

Ok here is how I see it.

You are not registered for VAT.
You deliver a service for a company that is registered for VAT.
You get paid a commission for referrals (The service)
There for you supply the company with an invoice (not a tax invoice) for services rendered (the full amount) and they pay you.

No where should VAT be involved.

If you invoice them the amount less VAT it implies you have to declare the VAT amount as an output on your own VAT return and the company can claim an input for the VAT amount.

As you are not registered for VAT you are not able to declare the output and the company can not legitimately claim an input.
If you do invoice with VAT you are going to get in to deep sh*t with SARS as you are not registered for VAT.
You should just invoice them the full amount end of story.

I am a tax professional but I would advice you to speak to your accountant if you need further advice.

 

[JNG]

@Rockhound

Ok, great, I agree and this is how I see it too. But my accountant did not know for sure when I asked them - in fact they agree with you, but asked me to contact a tax professional. I see you are one - is there a website (somewhere on SARS?) or a document I can take to them to prove it? They are not convinced and even went as far as to say that I should get my accountant to call them so they can explain it.

I'm contemplating ending the relationship anyway, but I want to sort this out before doing so.

 

[Rockhound]

It is difficult to find a document stating it explicitly because it should be self evident.
You are not registered for VAT (a vendor) ergo you may not charge VAT.

The closest I could find with a quick search is this.
http://www.sars.gov.za/LNB/MyLNB.asp (click on VAT act then part II number 7)

7. Imposition of value-added tax.—(1) Subject to the exemptions, exceptions, deductions and adjustments provided for in this Act, there shall be levied and paid for the benefit of the National Revenue Fund a tax, to be known as the value-added tax—

(a) on the supply by any vendor of goods or services supplied by him on or after the commencement date in the course or furtherance of any enterprise carried on by him;

You are not a registered vendor there for you can not charge anybody VAT in any way.

I personally think you are dealing with a dodgy company that don't know your ass from a hole in the ground when it comes to VAT or they are trying a fast one and want to
a) pay you invoice amount less VAT (i.e. a lesser amount and costing them less)
b) pay you full amount but claim a VAT input on the amount (i.e. costing them less)

If they do b) and SARS queries the VAT input they will just say but you charged them VAT.
And as I said previously then you are in deep sh*t.

Maybe it's because this is my field of knowledge but it really feels self evident to me that what they are asking for is completely wrong and plain crazy.

If you are not a registered VAT vendor you may not charge VAT. Full stop.
A couple of final thoughts.
Are they under the impression that you are registered for VAT?
Is the commission amounts you are receiving more than a million rand a year? Then you should be registered for VAT.
Does the company you are dealing with perhaps have a policy of only dealing with registered vendors? And because you are not they don't now know how to deal with it.

Just wondering.
Hope you get it sorted out.

 

[DJ...]

Quite simply, you cannot charge them VAT. That would constitute fraud on your part...

 

[borga]

If you are not registered for vat you should not charge them vat and they can't claim back any VAT.

VAT is charged according to a7 of the VAT law at 14% of the value of the supply concerned.

So in a transaction where the seller is not vat registered the price would be the value of the supply and where the seller is vat registered the price would be value of the supply + any vat.

So you should not need to exclude vat from the price you normally charge.

However where both parties are vat registered: the seller would sell R100 worth of goods for R114 (100+ 100x0.14) and the buyer would be able to claim a input tax of R14 which would make the effective price R100 for the buyer.

So the issue here is the value of the supply (services).

So I would say it depends on who determined the % of commission, if you determine it and just invoice them, then you charge them the amount (and not amount less VAT). If they were the ones who determined the % then I would suggest having a look at the agreement again to see if the amount is vat inclusive or not, if VAT is not included then you can invoice them that amount (and not amount less VAT). If that amount is including VAT then you are not allowed to charge the vat part (since you are not a vat vendor) and as such you should charge the VAT inclusive price less VAT.

 

[JNG]

Everyone - thank you - this is very good information and at least I know I'm not going crazy.

Basically I know I can't charge VAT and no, I won't get more than R1million in a year. I always charge them the amount according to our contract (which by the way has NOTHING about VAT in it at all.)

I think the issue is what Rockhound said:

Does the company you are dealing with perhaps have a policy of only dealing with registered vendors? And because you are not they don't now know how to deal with it.

They say they apparently have to pay VAT to SARS from the amount I invoice them from, and that is why they take it off. In fact, they don't pay me until I invoice them the calculated commission amount less VAT.

Just by the way, here is the link for the terms for Skyrove, which have the same strange conditions:

https://auth.skyrove.com/provider_tandc.html
(See point 8 on VAT)

Are they also wrong? It seems another case of what Rockhound calls:

I personally think you are dealing with a dodgy company that don't know your ass from a hole in the ground when it comes to VAT or they are trying a fast one and want to
a) pay you invoice amount less VAT (i.e. a lesser amount and costing them less)

Also, how can I approach this? Seems without legal intervention, I won't get my previous "VAT deductions" and was just cheated...

 

[DJ...]

What socks are they smoking? They do not pay VAT over to SARS when they pay your invoice, even if you submitted a VAT invoice. The VAT payment is your responsibility. They can claim the VAT back though and it seems they're trying to fraudulently claim VAT back from a transaction that is due no VAT on account of you not being VAT registered.

Many companies will only work with VAT registered businesses but once it reaches invoice stage that principle is thrown right out of the window. If they do not know how to process an invoice without VAT then their financial controller needs to be fired. It really is as simple as that.

Explain to them that you cannot submit a VAT invoice as this would constitute fraud on your part. Also explain to them that you will not be deducting any VAT portion from your invoicable amount as the VAT liability is not theirs. They are paying an invoice, not submitting it.

One of a few things are happening here:

1)I've completely misunderstood you.
2)They haven't got a cooking clue what is going on.
3)They are trying to score a discount from you by you building in the VAT to your existing price and them claiming it back. And in doing so you commit fraud.

 

[DJ...]

The fact that your contract does not stipulate VAT is 'case closed' so to speak. They cannot force you to deduct VAT from your invoicable amount. You need to make this clear to them. But you should also be sure to read your entire contract to ensure that there is no standard clause relating to how VAT is handled.

Rockhound's last post was 100% correct in that they can only demand that you deduct VAT if your contract pricing states that the quoted prices are VAT inclusive.

If this is business that you wish to continue, then I'd suggest that you be adamant that up until this point they pay the full amount, but that you are happy and willing to clear up the confusion by mutually agreeing to amend the contract to stipulate how the VAT portion is dealt with.

Really all that needs to be done here is that you add either 'inclusive' or 'exclusive' of VAT to the pricing addendum. However this might result in another price negotiation which could land up being a costly lesson on why this aspect is important to address from the outset. I know that if my suppliers hiked prices 14% I'd start looking elsewhere. You need to entrench yourself there with value and be sure that they are aware of it...

 

[Rockhound]

Just by the way, here is the link for the terms for Skyrove, which have the same strange conditions:

https://auth.skyrove.com/provider_tandc.html
(See point 8 on VAT)

Ok.
From this example you gave of Skyrove I understand it like this.
They will pay a amount of R0.08 per credit VAT inclusive.
Thus they will pay R0.07(commission amount) + R0.01(VAT amount) = R0.08 (Amount as per contract)
This is if you are registered for VAT.
You get R0.07 and R0.01 is money that has to be declared as an output VAT to SARS.

If you are not registered for VAT then you only get R0.07. Nothing else about VAT.
Like in above example you are effectively getting same amount if you are registered for VAT or not.

I hope I did not misunderstand you in previous post.
If the contract is like example given then it is quite simple as above.

If all depends on the wording of the contract.

8. Providers residing in the Republic of South Africa will receive payment based on a VAT inclusive price per credit of R0.08.

Providers that are not VAT registered, will not receive a VAT payment

.

In example given it states VAT inclusive price and Providers that are not VAT registered, will not receive a VAT payment. Thus R0.07. This is deliberate to avoid any confusion.
I would have to see the wording of your current contract to give an informed opinion if not the same as example.
If it is same as example then case closed.
If is not stipulated then I agree 100% with DJ

The fact that your contract does not stipulate VAT is 'case closed' so to speak. They cannot force you to deduct VAT from your invoicable amount. You need to make this clear to them. But you should also be sure to read your entire contract to ensure that there is no standard clause relating to how VAT is handled.

Rockhound's last post was 100% correct in that they can only demand that you deduct VAT if your contract pricing states that the quoted prices are VAT inclusive.

If this is business that you wish to continue, then I'd suggest that you be adamant that up until this point they pay the full amount, but that you are happy and willing to clear up the confusion by mutually agreeing to amend the contract to stipulate how the VAT portion is dealt with.

Really all that needs to be done here is that you add either 'inclusive' or 'exclusive' of VAT to the pricing addendum. However this might result in another price negotiation which could land up being a costly lesson on why this aspect is important to address from the outset. I know that if my suppliers hiked prices 14% I'd start looking elsewhere. You need to entrench yourself there with value and be sure that they are aware of it...

 

[bekdik]

Shouldn't you be invoicing R0.07 and not R0.08?

 

[borga]

The R0.08 is vat inclusive price, since you can't charge vat you have to invoice the the vat exclusive price of R 0.07.

 

[JNG]

Thanks again RockHound, I now know the whole story inside out. Nothing about VAT in my contract and will be taking them to task, hope I get my full commission back...

 

[JNG]

Rockhound - please contact me as soon as you can, I've PM'ed you.