Value Added Tax Change – Things to Consider

VAT will be levied at the standard rate of 15% on the supply of goods and services by registered vendors post the April 2018 (The tax rate was 14% until 31 March 2018).

A vendor making taxable supplies of more than R1 million per annum must register for VAT. A vendor making taxable supplies of more than R50 000 but not more than R1 million per annum may apply for voluntary registration. Certain supplies are subject to a zero rate or are exempt from VAT.

The following are important considerations for the change of VAT rate:

Transaction Date – the VAT rate to apply depends on the time of supply rules. In simple terms, this is the date on which the transaction is deemed to occur according to the VAT Act. The general time of supply rule is the earlier of when:
an invoice is issued; or
payment is received.

For most transactions the general time of supply rule will apply. However, some transactions have special time of supply rules. Some examples include supplies between connected persons, fixed property transactions and supplies made under instalment credit agreements. In addition, some rate specific rules could apply when there is a change in the VAT rate. Most transactions which occur on or after 1 April 2018 will be subject to VAT at the new rate of 15% unless a special time of supply rule or a rate specific rule applies.

Prices Quoted or Advertised
All prices advertised or quoted by vendors for taxable supplies must include VAT at the standard rate (unless the supply is zero-rated). Post 1/4/2018 advertised prices must show 15% VAT although the Commissioner for SARS has granted permission under proviso (iii) in section 65 of the VAT Act for a vendor to display a notice that the price does not include VAT at the new rate of 15% and prices will be adjusted at the point of payment.

Check agreements you have with suppliers/customers to see whether the agreements contain clauses restricting any change in VAT or impacting the timing of supply of goods and/or services.

Sales and Billing, Debit and Credit Notes
You need to make sure any invoices, receipts, bills reflect VAT at the correct rate of 15% after the 1/4/18 to avoid any disputes with customers or suppliers. Similarly debit/credit notes issues should reflect the VAT rate of the underlying sale or purchase.

Importation of Goods
Registered importers or clearing agents must take care that the customs declarations reflect the new VAT rate of 15% in respect of goods entered for home consumption on or after 1 April 2018.

VAT201 Returns
Care must be taken to make sure the correct rate of VAT is reflected for each period of the VAT201 return which straddles the 1/4/2018.

Rate Specific Rules

There are some specific rules for supplies straddling the 1/4/2018. For example:

Supplies starting before and ending on or after 1 April 2018:
Where goods are delivered or services are performed during a period commencing before 1 April 2018 and ending on or after 1 April 2018, the VAT-exclusive price of the supply must be apportioned on a fair and reasonable basis and allocated to the respective periods. The VAT rate is then applied accordingly. That is, the rate of 14% is applied to the value of supplies before 1 April 2018 and the rate of 15% is applied to the value of supplies from 1 April 2018 onwards. This rule does not apply if the time of supply is triggered before 1 April 2018.

This rate specific rule applies to:

  • goods supplied under rental agreements
  • goods supplied progressively or periodically
  • goods or services supplied in construction activities; and
  • services rendered over the period concerned,
    but does not apply to supplies of fixed property (including residential fixed property).

Goods delivered or services actually performed on or after 1 April 2018 where the time of supply is triggered between 21 February 2018 and 31 March 2018:
Rate specific rules also apply where the time of supply occurs between 21 February and 31 March 2018 (that is, on or after the date of the announcement of the increased VAT rate, but before the effective date of the increased rate). Under this rule, when goods are delivered on or after 23 April 2018, or services are performed on or after 1 April 2018, but the time of supply is triggered between 21 February and 31 March 2018 as a result of any invoicing or payment in relation to the supply, then VAT at the rate of 15% applies. However, if the goods are delivered before 23 April 2018 (that is, within 21 days after 1 April 2018), or the services are rendered before 1 April 2018, then the supplies concerned will be subject to VAT at 14%.

Further information is available here.

Travelling Allowance 2018/19

Rates per kilometre, which may be used in determining the allowable deduction for business travel against an allowance or advance where actual costs are not claimed, are determined by using the following table:

Value of Vehicle
(inc. VAT) (R)
Fixed Cost
(R p.a.)
0 – 85 000 28 352 95.7 34.4
85 001 – 170 000 50 631 106.8 43.1
170 001 – 255 000 72 983 116.0 47.5
255 001 – 340 000 92 683 124.8 51.9
340 001 – 425 000 112 443 133.5 60.9
425 001 – 510 000 133 147 153.2 71.6
510 001 – 595 000 153 850 158.4 88.9
Exceeding 595 000 153 850 158.4 88.9


80% of the travelling allowance must be included in the employee’s remuneration for the purposes of calculating PAYE. The percentage is reduced to 20% if the employer is satisfied that at least 80% of the use of the motor vehicle for the tax year will be for business purposes.

No fuel cost may be claimed if the employee has not borne the full cost of fuel used in the vehicle and no maintenance cost may be claimed if the employee has not borne the full cost of maintaining the vehicle (e.g. if the vehicle is covered by a maintenance plan).

The fixed cost must be reduced on a pro-rata basis if the vehicle is used for business purposes for less than a full year.

The actual distance travelled during a tax year and the distance travelled for business purposes substantiated by a log book are used to determine the costs which may be claimed against a travelling allowance.

Alternative simplified method:

Where an allowance or advance is based on the actual distance travelled by the employee for business purposes, no tax is payable on an allowance paid by an employer to an employee up to the rate of 361 cents per kilometre, regardless of the value of the vehicle. However, this alternative is not available if other compensation in the form of an allowance or reimbursement (other than for parking or toll fees) is received from the employer in respect of the vehicle.

Income Tax Rates and Thresholds 2018/19

Tax rates for the period 1 March 2018 to 28 February 2019 for individuals and special trusts:

Taxable Income (R) Rate of Tax (R)
0 – 195 850 18% of taxable income
195 851 – 305 850 35 253 + 26% of taxable income above 195 850
305 851 – 423 300 63 853 + 31% of taxable income above 305 850
423 301 – 555 600 100 263 + 36% of taxable income above 423 300
555 601 – 708 310 147 891 + 39% of taxable income above 555 600
708 311 – 1 500 000 207 448 + 41% of taxable income above 708 310
1 500 001 and above 532 041 + 45% of taxable income above 1 500 000

Trusts other than special trusts: rate of tax 45%


Primary R14,067
Secondary (Persons 65 and older) R7,713
Tertiary (Persons 75 and older) R2,574

Age Tax Threshold

Below age 65 R78,150
Age 65 to below 75 R121,000
Age 75 and over R135,300

March 2018 Budget Highlights for Payroll

Employment Tax Incentive Act and Special Economic Zones (SEZ’s)

In the budget speech, the Minister of Finance stated that he has Gazetted a notice creating six Special Economic Zones. The link between ETI and SEZ’s is created within Section 6 of the Employment Tax Incentive Act which provides the criteria that must be satisfied before an employee can qualify to generate the tax incentive for the employer. One of those conditions is that of the age of the employee.

The portion of section 6 that is relevant to SEZ’s is section 6(a)(ii) which states:

Qualifying employees. An employee is a qualifying employee if the employee- (a)

  • is not less than 18 years old and not more than 29 years old at the end of any month in respect of which the employment tax incentive is claimed;
  • is employed by an employer operating through a fixed place of business located within a special economic zone designated by notice by the Minister of Finance in the Gazette and that employee renders services to that employer mainly within that special economic zone; or

The Gazette published by the Minister of Finance now links the six SEZ’s to section 6(a)(ii).

This means that there is no age qualification test for employees who render services mainly within one of the six designated SEZ’s to an employer whose business is located within that SEZ.

Note that the Special Economic Zones that have been in existence for quite some time were created by the Minister of Trade and Industries, not by the Minister of Finance, and therefore were not linked to the requirements of section 6(a)(ii) of the ETI Act.

It is not yet clear when the effective date of the SEZ’s being incorporated into the Employment Tax Incentive Act.

Subsistence Allowance Limits (effective 1 March 2018)

For South Africa, the daily limits are as follows:
Incidental expenses: R128 per day
Meals and incidentals: R416 per day

For any country outside of the borders of South Africa, there is a daily limit per country. The list of these countries with their limits is available on the SARS website.

Medical Tax Credits (effective 1 March 2018)

The monthly values per person are:

2017/18 2018/19
Principal member R303.00 R310.00
First dependent R303.00 R310.00
Per subsequent dependent R204.00 R209.00

COIDA – Maximum Earnings Increase

The maximum amount of earnings for which COIDA applies has been increased to R430,944 effective 1 March 2018. It is noticeable that this is from 1 March 2018 (the start of the tax year) as opposed to the usual 1 April 2018 which makes things easier practically for employers.

Labour Brokers and the “Assign Services Case”

The Assign Services case on the “deeming” provision in the Labour Relations Act is apparently due to be heard in February by the Constitutional Court with a judgement expected in April 2018. This ruling has a material impact on all employers who use employees through a labour broker.

As a reminder, the original ruling in the Labour Appeal Court (now being appealed in the Constitutional Court) held that employees deemed to be employees of the employer under the Labour Relations Act were solely the employers of the end client and not employers of the Labour Broker (or other party) with whom they were contracted. This ruling created an odd situation where employees held a contract with one party and were managed by that party, but were actually employers only of another party with whom they had no contract of employment.

When are loans a fringe benefit for an employee?

The legislation in this regard remains unchanged.

Loans in aggregate of less than R 3 000 at any one stage do not attract any fringe benefit tax. If the loan exceeds this value though, SARS will raise a fringe benefit based on the SARS interest rate applied to the loan balance. This fringe benefit will be added to the employee’s taxable remuneration that month. Generally payroll systems will do this calculation for you provided you notify the payroll administrator of the loan balance, the agreed monthly repayments and whether an interest rate is applied to the loan. If this interest rate is equal to or higher than the SARS official rate (currently 7.75%) no fringe benefit will be applicable. If it is lower the payroll will tax the difference monthly.

Tax Treatment of Severance Benefits

For years, payroll administrators, tax consultants, accountants and human resource consultants have battled to get their heads around the tax treatment of tax directives pertaining to ‘voluntary’ retrenchments. There was a generally prevailing opinion that a ‘voluntary’ retrenchment did not qualify for the favourable tax treatment given to ‘involuntary’ retrenchments. The logic of this was that the employee had chosen to leave employment and that the termination was akin to a ‘mutual termination’. In reality though the concepts are far removed from each other from a tax treatment perspective. This article will focus on the concept of ‘retrenchment’ as a means of reducing the number of employees due to the closing of the business or for economic or restructuring reasons.

In a recent development the South African Institute of Tax Professionals (SAIT) made a submission to SARS stating that the concept of ‘voluntary retrenchment’, as opposed to forced retrenchment, exists in employment law. The courts have held that voluntary retrenchment agreements are valid and enforceable contracts.

Erika de Villiers, head of tax policy at SAIT, says that in the latest guide relating to tax directive forms SARS clearly makes a distinction between voluntary retrenchment and involuntary retrenchment. This new classification appears to reflect an interpretation that in the case of a voluntary severance package, the employee does not qualify for the more favourable tax treatment applicable to a severance benefit.

In terms of the tax tables for severance benefits, the first R 500 000 is tax free and the remaining amounts are taxed at a sliding rate, with 36% being the top rate. It is interesting to note that the voluntary retrenchment option is processed by SARS in the same way as normal taxable income, with the normal tax tables applicable to individuals being used. In such cases the IRP 5 source code used to report such income would be 3601 (normal taxable income).

The SAIT submission states that the Income Tax Act does not differentiate between voluntary and involuntary retrenchment packages. The definition of ‘severance benefit’ deals with amounts paid on retrenchment for an employee, and does not refer to the terms ‘voluntary’ or ‘involuntary’. Erika de Villiers says that SAIT is of the view that the SARS Completion Guide for the forms should be updated in order not to differentiate between ‘voluntary’ and ‘involuntary’ retrenchment.

SARS has been receptive to these comments and have stated that they will be amending their guides and forms in due course to reflect the change in policy. De Villiers says that in the interim SARS accepts that the voluntary retrenchment packages should be disclosed under the ‘involuntary’ retrenchment field on the application form, to ensure that the payment is treated correctly.

It is also important to note that should an employer negotiate a more favourable voluntary retrenchment package payable due to the operational reduction of staff, this payment will still fall within the definition of ‘severance benefits’ and qualify for the favourable severance benefit tables.

This certainly creates a complication for employers who have followed the policy currently in practice at SARS. Tax directives may need to be cancelled and new applications made. There is unfortunately only a small window of opportunity to do this before the 2018 tax year closes.

When and how can one recover a debt from an employee?

It often happens that employees borrow and owe money to employers. While the recovery can often be done amicably there are occasions when it becomes more difficult.

Section 34(1) of the Basic Conditions of Employment Act allows an employer to deduct an amount from an employee’s remuneration only if the employee has consented thereto in writing or the deduction is permitted in terms of a law, collective agreement, court order or arbitration award.

Section 34(2) of the BCEA allows for deductions from remuneration where the employer has suffered losses or damage on account of the employee and a specific process is provided for prior to the deduction of monies:

  • The loss/damage occurred due to the employee’s fault during the course of his/her employment;
  • A fair procedure has been followed, including giving the employee an opportunity to give reasons why the loss/damage should not be deducted;
  • The deduction does not exceed the cost of the loss/damage;
  • The deductions do not exceed a quarter of an employee’s monthly salary.

As employees are required to consent in writing to the deduction of monies from their remuneration it is advisable to obtain such consent from all employees prior to any damages or losses being suffered. This may be done through the incorporation of a clause to such effect in their contracts of employment. Thereafter should the position arise where monies need to be recovered they should only be recovered after a fair process has been followed. Deductions must be made within the prescribed limit of a quarter of an employee’s monthly remuneration.

Essential Services Ruling

Essential Services Ruling – Social Work, ResCare, Protective Workshops and Day Care

All Social Work Services and services to ResCare, Protective Workshops and Day Care have been legislated as essential services. This means individuals employed in these industries are not permitted to strike!

Section 23(2) of the Constitution of the Republic of South Africa, 1996 (“the Constitution”) states that… “Every worker has the right… (c) to strike.”

Section 65 (1) (d) (i) of the LRA states that… “No person may take part in a strike… if that person is engaged… in an essential service”.

An ‘essential service’ is defined in section 213 of the Act as:
I. a service the interruption of which endangers the life, personal safety or health of the whole or any part of the population; the Parliamentary service; the South African Police Service.

Having considered the written and oral submissions of the parties, as well as the applicable law referred to above, the Panel were of the view that the following services should be designated as essential:

  • Mental health care
  • Diagnostic assessments of new referrals in respect of people with intellectual and psychiatric disabilities
  • Psychological assessments
  • Therapeutic counselling services or any other counselling services
  • Mental health crisis management
  • Court preparation and assistance for victims who fall within the category of “users”
  • Rehabilitation services
  • Treatment (including assistance with adherence to medication)
  • Training (only to the extent that it is offered to the mental health users)