Strategy and requirements to be VAT compliant in 2013

One of my first assignments at Paperight was to meet with our accountants, Wolfsohn and Associates, to establish whether we needed to register for VAT and whether our grant income received from the Shuttleworth Foundation would be zero-rated or not.

After many discussions and meetings we confirmed that Paperight should in fact be registered for VAT as the grant income from the Shuttleworth Foundation should be recorded as income, but that the income would be VATable at zero percent. We also established that we could claim 14% of input on VAT charged. We needed to be registered for VAT for 1 January 2013, and we agreed that the best method for Paperight was to act as an agency and not a principal.

The grant from the Shuttleworth Foundation comes from an overseas base and is received for specific projects which are monitored.  All grant income received from within South Africa would attract VAT at 14%.

This meant that our website needed to be updated to take VAT into consideration on all documentation, sales calculations and reporting.

Our Paperight VAT strategy for updating our website was  as follows:

Paperight as an agency: the financial accounts perspective

  • Acting as an agency, only our 20% commission received is recorded as income in our books.  The top-up and publisher earnings will be monitored with control accounts.
  • The turnover will then be 20% of the sales made inclusive of VAT as per our agreements with publishers/rightsholders.
  • The suspense accounts will be reconciled on an ongoing basis.
  • The suspense accounts must agree with rightsholder statements.
  • Output VAT will only be applicable on Paperight’s 20% commission.
  • All commission is VAT inclusive and 14/114ths must be paid to SARS.
  • All invoices will be automatically generated on paperight.com based on the information received from rightsholders and outlets.
  • Statements will be drawn which reflect the all invoices and commission earned in one month.  The commission income earned from each rightsholder, and the licence fees earned by each rightsholder is captured in the accounting system at the end of the month.

Paperight’s relationship with publishers

  • As the agent we prepare all invoices on behalf of the publisher.
  • The invoices are created from the publisher (the principal) to the outlet (the customer) for 100% of the value of the licence payment in rands.
  • The currency will reflect in Rands and USD.
Scenario 1.: Local publisher invoices local outlet
  • Paperight issues an Agent Sales/Tax Invoice on the rightsholder’s behalf.
  • If the publisher is VAT registered then the invoice includes 14% VAT on the total licence fee. If no then it doesn’t include VAT.
  • Our rightsholders need to give us their details in order to reflect this correctly.
  • Paperight attracts 14% VAT on commission earned from the licence sales.
Scenario 2:  Local publisher invoices overseas outlet
  • Paperight issues an Agent Sales/Tax Invoice on the rightsholder’s behalf.
  • If the publisher is VAT registered then the invoice includes 14% VAT on the total licence fee. If no then it doesn’t include VAT.
  • Note: the same situation applies to this case as it does when Paperight invoices overseas Publishers.
  • Paperight attracts 14% VAT on commission earned from the licence sales.
Option 3:  Overseas publisher invoices local outlet
  • Paperight issues a Agent Sales/Tax Invoice on the rightsholders  behalf
  • No VAT is charged unless the rightsholder requests it. This information must be according to their tax and advised within their agreement
  • Paperight attracts 14% VAT on commission earned from the licence sales.
Option 4:  Overseas Publisher invoices Overseas Outlet
  • No VAT is charged. This information must be according to their tax and advised within their agreement.
  • Paperight attracts 14% VAT on commission earned from the licence sales.

Overall

  • All Invoices made to outlets are done in the name of the Rightsholder/Principal.
  • Invoices include or exclude VAT dependent on publishers’ VAT registration details being supplied.
  • Paperight will provide the rightsholder with an Agency Sales Statement/Tax Invoice for sales made during the month and the corresponding commission earned by Paperight at 20% inclusive of VAT.
  • The invoices clearly state Tax Invoice as well as Agent Sales Statement.
  • We act as an agent on behalf of all publishers/rightsholders.
  • Our contract includes a clause that says that the publisher gives Paperight a non-exclusive license to deliver the PDF to the copy shop and to collect the rights fee in return. Separately it says that Paperight will pay 80% of that rights fee to the publisher. It also notes that we are VAT registered and that the commission invoice is inclusive of VAT.
  • Rightsholder earnings are held until the publisher requests that they be paid out. This is done through the paperight.com website.
  • The length of time that that money is held does not change the value in Rands.
  • The exchange rate is calculated and recorded at the time of purchase and not at the time of withdrawal of credits. Important where the outlet and the publisher’s working currencies differ.
  • Existing publishers are updated on the changes and information received.
  • The commission invoice to the publishers includes Rand values, inclusive of VAT.

Notes

The most relevant regulations that govern this:

the legislation has been clarified further to the effect that services supplied to a non-resident may only be zero-rated if the services are supplied directly to that non-resident, or any other person, AND both the non-resident and the other person are not in South Africa at the time the services are supplied.

Only when your Publisher and your Outlet are both overseas at the time of the transaction can your commission invoice be zero-rated

54(3) The agent must maintain records of sales and purchases he makes on behalf of his principal

Because an agent may not want to disclose to his  principal who he sold to, or who he bought from, (or how much profit he made) he may keep copies of the tax invoices he made out for the sales or the tax invoices he received for purchases on behalf of his principal.

In such case, the agent must send a monthly  statement to his principal giving details of the goods or services sold or bought, the quantity of the goods or services bought or sold, the selling or purchase price and the amount of VAT charged or paid. This statement can also constitute a tax invoice for the agents commission.  In such case, it must state “statement for agency sales/purchases” and “tax invoice”. It must also show the VAT registration numbers of the agent and the principal

Things to keep in mind

  • The exchange rate is not shown but is based on the Yahoo! exchange rate which has been built into the paperight.com website.
  • Our 20% is currently inclusive of VAT for all rightsholders local and international.
  • We are not paying for VAT on the full amount but on 14% of the 20% commission earned. For each R20 rand out of R100, that would equal R2.46.
  • We are making 17.5% on every book purchase that is not Paperight owned.

Paperight’s relationship with outlets

  • The outlet registers, VAT number and address required.
  • The topup is received and voucher value is recorded on their accounts page.
  • No tax invoice or invoice is issued when receiving credits.
  • Only actual downloads are invoiced for the outlets will receive an invoice upon downloading a printable document.
  • The invoice will be downloadable directly from the website.
  • The invoices contain 100% of the sale, include the Publisher’s details.
  • The invoices include VAT based on the VAT status of the Publisher and not Paperight.
  • The credit value and the exchange rate value in rands will be stipulated on the invoice.

Publisher registration page

  • When a publisher registers they must provide their VAT registration number and liability start date if applicable.
  • This information will be pulled through on the the valid tax certificates created for each sale.

The outlet dashboard

  • When the outlet downloads a book, a copy of the invoice is  available on the outlet’s dashboard to download.
  • When an outlet downloads a book they receive an invoice from the Publisher.
  • Outlet invoices are saved on the outlet dashboard and available to download at any stage with applicable VAT, depending on the Publisher’s details, for the full value of the transactions.
  • Paperight has access to all the invoices that have been made.

Administrative access to website data

  • The invoices and statements sent to outlets are accessible to the Paperight accounts team.
  • The accounts team have access to the  server and are able to search by outlet or publisher for the total invoices issued over a month.
  • The data can be exported in csv format.
  • The most significant cells for importing data into accounting programs are the date and currency format.
  • Admins are able to log in and download copies of invoices where necessary.

The publisher dashboard

  • The rightsholders each have access to their own dashboard so that a copy of their monthly statement is available to download. They can also view the  balance of the money due to them.
  • The rightsholders are also able to request a payment for earnings from their dashboard on the website and forwarded through to accounts.
  • Paperight’s accounts administrators are then able to mark a publisher’s request for withdrawal as paid and the balance is updated on the website.

Currency issues and solutions

  • Payment in a foreign currency will always need to be converted into rands for the accounting system. The Yahoo! exchange rate used is recorded for each transaction.
  • The exchange rate is captured on the date of the first time the document is downloaded (the effective date of the final licence payment), to show the ZAR value at the time of sale. This information is reflected on the statement between Paperight and the Publishers to show them how the rate has been calculated. The rate  used in capturing the Publishers commission received and balance off the entries in the accounting program are also reflected.

Leave a Reply

Your email address will not be published. Required fields are marked *