Assignment Background:

VAT Audits and Supporting Documentation

What is a VAT audit?

A VAT audit is a type of inspection of a company's financial records and activities by SARS officials to ensure that companies are complying with VAT laws and regulations. The audit typically involves a review of a company's sales and purchase records, invoices, receipts, and other financial documents to verify that the VAT has been properly accounted for and paid.

The purpose of a VAT audit is to ensure that companies are accurately reporting and paying their VAT obligations and to identify any potential areas of non-compliance or fraud.

What is Supporting Documentation and why is it so important?

Supporting documentation is any documentation or evidence that supports the transactions recorded in a company's financial records. This can include invoices, receipts, bank statements, purchase orders, and any other relevant documents.

Supporting documentation is important for VAT audits because it provides evidence to verify the accuracy and validity of the transactions recorded in a company's financial records. During a VAT audit, SARS will review a company's financial records and compare them with the supporting documentation to ensure that the transactions have been properly recorded and VAT has been correctly calculated and paid.

If a company does not have adequate supporting documentation to back up its financial records, it can be difficult to verify the accuracy of the information presented. This can lead to additional tax assessments, penalties, and fines. For instance, if SARS disputes input VAT claimed due to the audit outcome being evident that there was a lack of supporting documentation or the tax invoices were not valid, SARS may

102 HTAX331-1-Jul-Dec2023-SA2-V3-AP-04072023

ANNEXURE J: SUMMATIVE ASSESSMENT 2

not allow the expenses and add it back resulting in additional VAT payable by the company.

Therefore, it is important for companies to maintain accurate and complete records of all their financial transactions and ensure that they have appropriate supporting documentation to back up their records. This will not only help to ensure compliance with VAT regulations but also make the VAT audit process smoother and more efficient.

Will SARS allow any VAT claims without a valid tax invoice?

SARS will require valid tax invoices as proof of purchases in order for companies to claim input VAT. Without a valid tax invoice, SARS will reject the input VAT claim.

A valid tax invoice typically includes information such as the supplier's name and address, the buyer's name and address, the date of the invoice, VAT number, a description of the goods or services purchased, the quantity of the goods or services purchased, the price, and the amount of VAT charged.

103 HTAX331-1-Jul-Dec2023-SA2-V3-AP-04072023

ANNEXURE J: SUMMATIVE ASSESSMENT 2

REQUIRED: (25 marks)

By using the Excel template provided, you are required to complete the following two (2) Excel sheets:

1.) Quiz question sheet (PART 1):

10 short questions to be answered.

For each of the 10 questions, populate your answers (a,b,c, etc) in the respective

yellow cells in column B.

2.) Sales Tax invoice sheet (PART 2):

(10 marks)

Background:

You are a business owner running a stationery shop called "Creative Supplies. One

of your loyal customers, Paper Paradise has requested a tax invoice for their recent purchase. As the manager, you have gathered all the necessary information to create a valid tax invoice. Both parties are registered VAT Vendors.

Information of the sale made to Paper Paradise:

Address of Creative Supplies: 123 Main Street, Anytown.

Address of Paper Paradise: 456 Elm Avenue, Anytown.

VAT registration number of Creative Supplies: 1234567890

VAT registration number of Paper Paradise: 9876543210

Date of sale: 28 February 2023.

Invoice number: 1112023

Description, quantity, and unit price of goods supplied: 200 pencils @ R2.00

each, 100 erasers @ R23.50 each, and 50 notebooks @ R40 each.

REQUIRED:

Draft a valid sales tax invoice as requested by Paper Paradise with the above information provided.

Please ensure that the tax invoice contains all the required information for the invoice to qualify as a valid invoice.

(15 marks)