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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 valid reason Chuckles decided to register for VAT is that he will be able to claim VAT input from SARS on his purchases. This allows him to recover part of the tax paid on items necessary for his business operations, effectively reducing his overall costs.
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 to SARS, we need to first determine the total output VAT and then the total input VAT:
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Total Output VAT:
- Cash and credit sales (including VAT): R87 400
- To find the VAT included in this amount, use:
- VAT on returns from debtors: R2,820
- Total Output VAT = R11,400 + R2,820 = R14,220
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Total Input VAT:
- Purchases of trading stock (excluding VAT): R59,000
- To find the VAT:
- VAT on drawings of trading stock by Chuckles: R2,000
- VAT on discount received from suppliers: R3,360
- Total Input VAT = R7,700 + R2,000 + R3,360 = R13,060
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VAT Payable to SARS:
- VAT Payable = Total Output VAT - Total Input VAT
- VAT Payable = R14,220 - R13,060 = R1,160
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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Using the VAT funds to pay for business expenses is illegal and can lead to serious consequences such as legal action or penalties imposed by SARS if they find out.
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Chuckles should consider budgeting his expenses better and managing his cash flow effectively to ensure he has enough funds to make the VAT payment on time, avoiding late penalties and maintaining compliance with tax regulations.