VAT question for non-executive directors

[Candystore]

Can anyone with knowledge of VAT please assist?

Does this sound fair:

Company A has a number of non-executive directors. They say that the directors' professional (board) fees are inclusive of VAT. What does not make sense to me is that not all directors are necessarily registered as VAT vendors, because not everyone's total board fees exceed the R1M threshold to register as VAT vendor. (Some of them serve on more subcommittees which may push up their total board fee earnings).

Since the basic board fees paid to all the directors include VAT it implies (to me at least) that those directors who are not VAT vendors receive the VAT portion of the fee anyway (because it forms part of the board fee by default) but do not have to pay over that VAT portion to SARS, whereas a non-executive director who is a VAT vendor must deduct and pay over 15% of their board fee to SARS.

It does not sound fair or equitable to me. Surely all directors should be paid a base fee, and those who are VAT vendors should invoice the board an additional 15% which they then pay over to SARS.

 

[Avbob se stoep]

It does not sound fair or equitable to me. Surely all directors should be paid a base fee, and those who are VAT vendors should invoice the board an additional 15% which they then pay over to SARS.

That sounds fine because the company will be able to claim the Input VAT. But also if the other non-exec directors whom are not registered for VAT charges them, the company may not claim back any Input VAT from those transactions. Its the whole point off the VAT System that only registered VAT vendors can claim VAT, as a result of a transaction with another VAT Vendor. For completeness - A VAT vendor will always have to pay over VAT on their income unless its exempt or zero-rated.

So essentially the effect should be be same for the company. They pay the non-vendors R100 and pay you R115 because they can claim back the R15. You pay over your R15 and receive R100.

Hope that makes sense.

 

[Tomtomtom]

It does not sound fair or equitable to me. Surely all directors should be paid a base fee, and those who are VAT vendors should invoice the board an additional 15% which they then pay over to SARS.

Yep that's the way that makes sense.

I'm going to guess this company is not itself registered for VAT? Otherwise it makes no sense to disadvantage the VAT vendors like this, since it makes no difference to the company.

 

[rh1]

Can anyone with knowledge of VAT please assist?

Does this sound fair:

Company A has a number of non-executive directors. They say that the directors' professional (board) fees are inclusive of VAT. What does not make sense to me is that not all directors are necessarily registered as VAT vendors, because not everyone's total board fees exceed the R1M threshold to register as VAT vendor. (Some of them serve on more subcommittees which may push up their total board fee earnings).

Since the basic board fees paid to all the directors include VAT it implies (to me at least) that those directors who are not VAT vendors receive the VAT portion of the fee anyway (because it forms part of the board fee by default) but do not have to pay over that VAT portion to SARS, whereas a non-executive director who is a VAT vendor must deduct and pay over 15% of their board fee to SARS.

It does not sound fair or equitable to me. Surely all directors should be paid a base fee, and those who are VAT vendors should invoice the board an additional 15% which they then pay over to SARS.

So as MyBB expert that does not have anything do with tax is my day to day job, but having done my own efiling for years, which requires me to capture my business km's, I am something of an expert.

The money paid over to the non directors can be taxed, 1 of 2 ways, either as personal income and therefore no VAT, or if they are providing taxable supplies, they can charge VAT. For option 2, they need to invoice the company using a SARS acceptable invoice. Additionally, it must not be scheme to avoid paying Income Tax, i.e. those guys who suddenly become contractors but essentially still employed by the company.

Take above with a massive pinch of salt.

 

[Candystore]

Yep that's the way that makes sense.

I'm going to guess this company is not itself registered for VAT? Otherwise it makes no sense to disadvantage the VAT vendors like this, since it makes no difference to the company.

The company is VAT registered.

Why do you say they VAT vendors are being disadvantaged? I do not follow. to me, it is about the inequitable treatment of directors who are VAT vendors versus those who are not.

 

[Candystore]

So essentially the effect should be be same for the company. They pay the non-vendors R100 and pay you R115 because they can claim back the R15. You pay over your R15 and receive R100.

Hope that makes sense.

See, that is my issue. As I understand it, they pay everyone the same basic fee, which they say includes VAT. They do NOT pay some R100 and others R115.

 

[Tomtomtom]

Why do you say they VAT vendors are being disadvantaged?

Because as you described:

Since the basic board fees paid to all the directors include VAT it implies (to me at least) that those directors who are not VAT vendors receive the VAT portion of the fee anyway (because it forms part of the board fee by default) but do not have to pay over that VAT portion to SARS, whereas a non-executive director who is a VAT vendor must deduct and pay over 15% of their board fee to SARS.

Yet if as you say the company is VAT registered, it makes no difference to the business if both directors charge the same fee but one has to add 15% VAT which he later pays over. The business claims it back.

So I wonder if it's just shortsighted drafting or whatever, unintentional?