VAT vs Commission

[Theresa B]

We are a small VAT registered company. Our clients usually pay us directly (inclusive of VAT) but sometimes their clients pay us for the full amount and they invoice us for their commission (exclusive of VAT). This means we pay VAT on a higher value plus the comm. What is the best way to deal with this so that we don't lose out?

 

[Praemon]

Perhaps provide an example to make it more clear what the issue is? Commission should always attract VAT since it's a taxable activity, unless they're not VAT registered.

 

[IndigoIdentity]

I may be missing something here but you are paying VAT on the amounts that you invoice your clients, unless you have VAT inclusive expenses then it will not affect that bottom line?

Without getting too technical and involving IT and other factors, here is a simple example:

Client pays you R1150 as per your invoice. You owe SARS the VAT portion of R150, included is the referral fee that you need to pay to a non-vendor so you cannot claim that VAT portion of this fee back as an expense?

1150 Income received
- 250 Referral fee
- 150 VAT portion
= 750

You made R750, it really does not matter whether this R250 was included in the invoiced amount or if you had to pay it out separately.

This said, if you had to pay the R250 out separately to a VAT vendor, you could claim the VAT portion of that expense back which means you would actually come out with R32.61 more.

 

[Theresa B]

I may be missing something here but you are paying VAT on the amounts that you invoice your clients, unless you have VAT inclusive expenses then it will not affect that bottom line?

Without getting too technical and involving IT and other factors, here is a simple example:

Client pays you R1150 as per your invoice. You owe SARS the VAT portion of R150, included is the referral fee that you need to pay to a non-vendor so you cannot claim that VAT portion of this fee back as an expense?

1150 Income received
- 250 Referral fee
- 150 VAT portion
= 750

You made R750, it really does not matter whether this R250 was included in the invoiced amount or if you had to pay it out separately.

This said, if you had to pay the R250 out separately to a VAT vendor, you could claim the VAT portion of that expense back which means you would actually come out with R32.61 more.

Thank you for taking the trouble to reply.
So even though our client is not VAT registered, it does not make a difference.

 

[Theresa B]

Perhaps provide an example to make it more clear what the issue is? Commission should always attract VAT since it's a taxable activity, unless they're not VAT registered.

They are not VAT registered.

 

[IndigoIdentity]

Thank you for taking the trouble to reply.
So even though our client is not VAT registered, it does not make a difference.

Well, it's not going to matter if your client is VAT registered or not no. You as a VAT vendor are liable for paying over to SARS the VAT portion of your income (any invoices that you create).

This said, if any of your suppliers are VAT registered you can deduct the VAT from those expenses (or be entitled to a refund if no VAT payment is due).

As you have said that the business/person that you are paying commission to is not VAT registered then it only means that you have no VAT deductions on those expenses as the supplier is not part of the VAT system and has not provided you with a "Tax Invoice" but rather an "Invoice", the latter includes no VAT.