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Let’s talk about tracking value-added tax (VAT) – a consumption tax levied on most goods and services during each stage of the supply chain. Most countries have their own type of consumption tax. In some countries, VAT is referred to as Goods and Services Tax. 

For most South African businesses, though, VAT should be a familiar concept – especially when charging and collecting VAT and maintaining compliance with local VAT regulations. For companies operating in VAT-regulated jurisdictions, effectively tracking and managing VAT is a legal requirement and a critical aspect of financial management. This article explores the importance of effectively tracking your VAT and its benefits to your business.

Fortunately, you don’t have to panic at words like ‘VAT’ and ‘compliance’. Here’s everything you need to know about effectively tracking and managing your VAT without the administrative burden. But first, let’s do a quick recap.

How does VAT work?

In brief, the VAT system is set in place as an additional source of revenue for governments. This tax is levied on most goods and services classified as ‘taxable supplies’; for most consumers, VAT is already included in the final purchase price. However, South African businesses must be more educated on the intricacies of the VAT system, as they often stand as the connecting link between consumers and government. 

Naturally, the intricacies of the VAT system can be complex and challenging to navigate, so we’ll merely touch base on some of the fundamentals. 

The VAT rate: The standard VAT rate in South Africa is currently 15%. This means that 15% of the final price of most goods and services is collected as VAT.

Registration: Depending on specific eligibility criteria, South African businesses are required to register for VAT. These criteria are determined by the South African Revenue Service (SARS).

VAT-Registered Businesses: Businesses must charge VAT on their goods and services once registered. They then become responsible for collecting this VAT from customers and passing it on to the government.

The benefits of efficiently tracking your business’ VAT

Naturally, keeping track of your VAT obligations requires an in-depth financial analysis. Therefore, businesses must prioritise effectively tracking their income to accurately account for the VAT collected while staying compliant with VAT legislation. Here are a few ways financial management software can help efficiently manage and track your VAT. 

Consistent legal compliance

Compliance is the make-or-break of any business, and no business can slip under the radar regarding VAT compliance. Effectively tracking your VAT through an expense management system allows companies to stay ahead of their regulatory requirements. Compliance features can track your regulatory status and block out allocation for non-compliant items, i.e., they can only be allocated (and paid out) when compliance is obtained. 

Facilitating VAT reclaims

Regarding the VAT system, it’s important to note that as a business, you’re entitled to reclaim the VAT portion on various business expenses, ultimately providing you with a significant additional source of revenue. This entails tracking and calculating all business expenses paid where VAT was incurred. Then, if eligible, businesses can submit a VAT reclaim to request a VAT refund. However, in the world of VAT, nothing is as simple as it seems. 

For successful VAT reclaims, error-free and immaculate financial tracking is quintessential. Businesses must maintain and submit all related documentation and invoices while ensuring they align with the local legislation for domestic VAT reclaim processes. Without the right software providing flawless tracking and reporting tools, this process can be labour-intensive and incapacitating. 

Audit preparedness

When the tax authorities come knocking, there’s a minimal grace period to go on a scavenger hunt for financial esports, revenue data, analytics, and invoices. The right financial management software will allow you to prove due diligence and stay prepared in case of a financial audit and will ensure that you’re meeting all the necessary record-keeping requirements. 

Reduce the administrative burden with Commspace

Tracking VAT is more than just a tedious accounting task. It is a vital part of financial management that affects a company’s compliance, finances, and overall operations. When businesses implement robust processes for tracking VAT and use technology, they can reduce risks, improve cash flow, and gain an advantage in the complex and constantly changing global business world. Reap the benefits of your due diligence without compromising your time, money or people. Manage your commission and fees beautifully with one solution for all your revenue management needs.