Recording VAT on Sales and Purchases

Recording VAT on Sales and Purchases is an essential skill for anyone working as a Finance Administrator. It ensures your business complies with South African tax laws and helps you avoid penalties. VAT (Value Added Tax) is a tax added to the price of most goods and services you sell or buy.

How to Record VAT on Sales and Purchases Correctly

When your business is VAT registered, you must keep accurate records of all sales and purchases that include VAT. This helps to calculate how much VAT you owe to SARS or can claim back.

Sales (Output VAT)
When you sell a product or service, you add VAT at 15% on top of the selling price. This VAT is called output VAT. You record the total amount received, including VAT, in your sales records.

Example: You sell a product for R1,000. The VAT is 15% of R1,000, which is R150. The total amount the customer pays is R1,150. You record R1,000 as sales and R150 as output VAT.

Purchases (Input VAT)
When your business buys goods or services, you usually pay VAT included in the invoice price. This VAT is called input VAT. You can claim input VAT back from SARS if the purchase was for business use.

Example: You buy office supplies for R920, including VAT. To find the VAT, you calculate 15/115 of R920, which is R120. You record R800 as the purchase amount excluding VAT and R120 as input VAT.

Steps to Record VAT on Sales and Purchases

1. Separate the VAT amount from the total price on every sales and purchase invoice.
2. Record the sales amount excluding VAT under sales income.
3. Record the purchase amount excluding VAT under expenses or asset accounts.
4. Record output VAT from sales under VAT control account (liability).
5. Record input VAT from purchases under VAT control account (asset).
6. At the end of the VAT period, calculate net VAT payable or refundable (output VAT – input VAT).
7. Submit the VAT return to SARS and pay or claim the difference.

Keeping your VAT records updated and organised is very important. Use an accounting system or spreadsheet to track sales, purchases, output VAT, and input VAT. Always keep original VAT invoices, as SARS may request them during audits.

If you fail to record VAT properly on sales and purchases, it can lead to wrong VAT returns, unpaid tax, or penalties. Understanding the difference between output VAT and input VAT keeps your business tax compliant and helps your cash flow.

Remember, VAT is a tax on the value added at each stage of the business process. You collect VAT from your customers and pay VAT on your purchases. The difference is settled with SARS.

By mastering recording VAT on sales and purchases, you support correct financial reporting, smooth VAT submissions, and legal compliance for your business.