VAT – your key to unlocking the COVID-19 cashflow crunch!

The impact of COVID-19 and the lockdown has severely squeezed business cash flows.

Surviving the shock is challenging the resilience of enterprises and executives alike. How management adapts will test their agility and resourcefulness. If not enough is done, the very survival of the business will be at stake.

The ‘new normal’

The ‘new normal’ – the vision of what post-COVID-19 world will look like is a question yet to be answered.

Some businesses may become irrelevant, and others may be fatally harmed, doomed to suffer a slow lingering death, as DVD rendered to VHS, and movie streaming obliterated film-hire.

Management needs to assess their strategic positioning as the ‘new normal’ unfolds, so that they will be able to adjust to the changing circumstances.

Critical to this is ensuring that there are sufficient resources, especially cash, to do so.

Impact assessment

The pressing challenge of today is to survive lockdown cashflow constraints until normal trading resumes and revenues return to pre-COVID-19 levels.

Most companies have been using the lockdown period as an opportune time to rework their budgets. The more enlightened have been re-evaluating their mission, vision, values and business model’s to fit into a post COVID-19 world.

PODCAST

An interview with Kevin Black, Director, VAT Claims International, and Dr Ivor Blumenthal, CEO, ArkKonsult, discussing how COVID-19 and the lockdown has severely impacted business cash flows. Surviving the shock is challenging the resilience of enterprises and executives.

Practically organisations are evaluating the efficiency and effectiveness of their operational processes and procedures, and more importantly, how this can translate into improved cashflow.

VAT – unlocking hidden cashflow

Value Added Tax (VAT) – unlike Income Tax, is neither electrifying nor exciting and is often overlooked. In our 20 years’ experience, corporates are re-active rather than pro-active concerning VAT.

There are common misconceptions around Income Tax and VAT, which results in VAT not receiving the respect it deserves.

Vendors are, in effect, the involuntary tax collectors of the South African Revenue Services (SARS). They bear the on-going obligation to keep the requisite records, make the periodic calculations of the output and input tax, and pay these amounts over to SARS.

VAT administration is repetitious by nature, dull, tedious, tiresome and monotonous, and is usually delegated down the line. Existing calculation procedures are seldom revisited, revised and updated as the company grows, or as accounting systems are changed and updated.

While the calculation complexity for VAT is lower than Income Tax, more significant amounts are paid and claimed from SARS, than Income Tax.

VAT is a transactional tax calculated at the time of the sale, purchase or journal, by making an entry to the VAT control account. Should this entry not take place, then a tax claim will be omitted from the reports used to prepare the VAT201 submission.

VAT201 misconceptions

In our 20 years’ experience we see that corporates place reliance on the accuracy of their VAT processing in the wrong areas for example:

1. Balancing financial accounts is not evidence that the VAT return is correct since the VAT has merely been expensed.
2. Internal audit & tax departments are primarily concerned with statutory return compliance procedures. Consequently their resource and scope limitations preclude a macro review of VAT transactional processing systems.
3. Undue reliance is placed upon the statutory audit extending the “audit expectation GAP” from financial statements to VAT accuracy.
4. An audit from SARS is designed to detect underpayment and cannot be relied upon to ascertain overpayment.

Time to claim

SARS recognises the difficulties faced by Vendors by allowing up to 5 years too make a prior period claim in their next VAT201 return.

Given the unprecedented cashflow challenges facing corporate South Africa, vendors would be well advised to consider the effectiveness and appropriateness of their VAT systems processes and procedures. Undertaking a VAT Efficiency Review will determine whether they have lawfully claimed all the input tax deductions available under the VAT Act No. 89 of 1991.

Insight from this exercise can be used to correct your systems going forward.

VAT recovery is an appropriate method to get unclaimed cash.

Act now

Specialist analysis and interrogation of an organisation’s VAT records and submissions is bound to identify understated claims, which will unlock and have an immediate positive impact on cashflow.

Kevin Black | Director | VAT Claims International | Cashflownow |
mail me | 
Cell: +27 (0)83 651 4655 |
Tel: +27 (0)11 485 5438 |