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VALUE-ADDED TAX (VAT) Chuckle Traders is registered for VAT, although the annual turnover is less than R1 000 000 - NSC Accounting - Question 1 - 2022 - Paper 2
Question 1
VALUE-ADDED TAX (VAT) Chuckle Traders is registered for VAT, although the annual turnover is less than R1 000 000. The standard VAT rate is 15%. The business is own... show full transcript
Worked Solution & Example Answer:VALUE-ADDED TAX (VAT) Chuckle Traders is registered for VAT, although the annual turnover is less than R1 000 000 - NSC Accounting - Question 1 - 2022 - Paper 2
Step 1
Give ONE reason why Chuckles decided to register for VAT.
Answer
One reason Chuckles decided to register for VAT is to claim VAT input from SARS. By doing so, he can benefit from VAT on his purchases and potentially lower his business expenses, leading to enhanced profitability. This registration also indicates his compliance with tax regulations.
Step 2
Calculate the amount of VAT that is payable to SARS for the two-month period ended 30 April 2022.
Answer
To calculate the VAT payable:
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Start with the balance due by SARS from the previous period: R2,600.
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Calculate the total input VAT (from purchases and other transactions):
- Cash and credit sales (including VAT): R87,400
The VAT on this amount can be calculated as:
ext{VAT on sales} = rac{R87,400}{1+0.15} imes 0.15 = R11,400
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Total input VAT:
R2,600 + R11,400 – R59,000 (purchases) – R2,000 (drawings) + R2,820 (returns) – R3,360 (discounts) = R1,690.
Thus, the VAT payable to SARS is R1,690.
Step 3
Chuckles uses the money collected for VAT to pay business expenses. He does not have sufficient cash to make the VAT payments on the due dates. What would you say to Chuckles? State TWO different/separate points.
Answer
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Chuckles should be advised to budget appropriately for his VAT payments. He needs to set aside the VAT collected separately from his operating funds to ensure that he has enough cash to meet his tax obligations on due dates.
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He should reconsider his cash management practices. Using VAT funds for business expenses is not advisable and can lead to legal issues with SARS. It is important that he prioritizes making VAT payments to avoid potential penalties and legal consequences.