The recent increase in VAT by 0.5% has significant implications for businesses and individuals, particularly for ongoing transactions that have not yet been completed. Understanding the “time of supply” is crucial, as it determines when VAT liability is triggered. The time of supply is the earlier of the invoice or the receipt of the payment.
If an invoice is raised or payment is received before May 1, 2025, the applicable VAT rate remains 15%. However, if the invoice and payment occur on or after May 1, 2025, the new VAT rate of 15.5% will apply.
There are however, certain transitional arrangements or exceptions to this rule which are outlined below.
Commercial and residential property transactions
For property sales, the VAT rate is determined by the date of registration in the Deeds Office or the date of payment, whichever is earlier. A deposit held in trust is not considered a payment and will not generally not trigger the higher VAT rate.
For residential property, if a written, binding legal agreement is concluded before May 1, 2025, the lower VAT rate applies—even if suspensive conditions exist. The contract must state the VAT-inclusive price.
Residential property includes:
- Dwellings with the land on which they are erected.
- Real rights conferring occupation (e.g., usufructs).
- Sectional title units used as dwellings.
- Share block company rights in a dwelling.
- Land intended for erecting a dwelling.
- Construction of new dwellings by a vendor in the construction industry.
A “dwelling” is any building or structure used predominantly as a place of residence by a natural person.
Ongoing Contracts
Contracts such as property rentals, construction, cleaning, insurance, and subscription services often require advance payment at the beginning of the month. The increased VAT rate applies to any payment due or received on or after May 1, 2025.
For these contracts, the time of supply is determined by the contract itself—not by the invoice date. Therefore, invoices issued early for the period from May 1, 2025, should reflect the new VAT rate.
Instalment Sale Agreements and Finance Leases
These are treated differently from ongoing contracts. If goods are delivered before May 1, 2025, the old VAT rate of 15% applies. However, monthly service fees under such agreements will increase accordingly.
Supply of Goods and Services
The old VAT rate (15%) applies if:
- Goods are supplied before the VAT rate change.
- Goods are provided under a rental agreement.
- Goods are paid for in instalments.
- Goods are supplied for construction activities.
- Services are fully performed before May 1, 2025.
For goods and services spanning the rate change (e.g., starting before but ending after May 1, 2025), a fair and reasonable apportionment must be made. However, VAT must still be accounted for in the tax period in which the supply occurs.
- Examples of affected transactions:
- Rental agreements
- Progressive payments or periodic supplies
- Construction activities
- Services spanning the VAT rate change
- Example: A consultant receives a retainer payment of R115,000 (including VAT) in April 2025 for services over the next six months. The VAT must be apportioned accordingly.
Estate Agent Commission
VAT on estate agents’ commissions differs from property VAT rules. Commission is typically due upon registration of the property. If an invoice is issued before registration, VAT is raised at the earlier of invoice date or payment date.
If services span the VAT change, a fair apportionment must be made.
Estate Agent Commission Example:
Assume an estate agent lists a property for sale on the 1st January 2025, the property is sold on the 28th February 2025 but subject to suspensive conditions which are met on the 15th March 2025. The property subsequently transfers on the 20th May 2025 into the purchaser’s name. The agent issues an invoice on the 15th May but only receives payment on registration or the day thereafter.
The normal time of supply rules are that VAT is raised on the earlier of invoice or payment. i.e. 15th May. However, in this case because the service straddles the new rate implementation date, a fair apportionment must be performed over the period that the services are raised. SARS may view this as being between the 1st January 2025 up to the 15th May 2025, however, in reality the services probably cease before this period. Any services rendered after the 1st May will have VAT at the increased rate.
This example also assumes that the offer to purchase is not considered to be the time of supply and would not trigger the VAT liability.
Deposit Payments for Guest House Accommodation
A common concern is how to handle VAT on advance bookings received before May 1, 2025, when the accommodation is provided after the rate increase date. The treatment depends on how the deposit payments are normally classified and documented. Key considerations include whether the payment is a booking deposit or an advance receipt for accommodation and how your system records the transaction.
For commercial accommodation, VAT must be accounted for at the earlier of receipt of payment or invoice.
Importation of Goods and Services
The VAT rate on imported goods is determined by the customs clearance date. If customs clear the goods after May 1, 2025, the new rate applies—even if they arrived earlier.
For imported services, the VAT rate is determined by the earlier of:
- The supplier issuing an invoice.
- The recipient making a payment.
Supply of Goods and Services Between Connected Parties
Different rules apply:
- Goods that are removed: VAT rate applies based on the removal date.
- Goods made available (but not removed): VAT rate applies based on the date they are made available.
- Services rendered: VAT rate applies based on the service date.
Anti-avoidance Rules
To prevent early invoicing or payments from avoiding the new VAT rate, the following transactions will be taxed at 15.5%:
- Goods supplied more than 21 days after May 1, 2025.
- Services performed more than 21 days after May 1, 2025.
These supplies are deemed to occur at the new rate and must be included in that tax return period. However, this does not apply to residential property transactions or to normal business practice which have long lead times.
Pre-printed Notices or Price Lists
For retail and similar environments, businesses may display a notice stating that prices exclude the VAT increase and will be adjusted at checkout. This notice can remain until August 31, 2025.
For pre-printed invoices, businesses may continue using them for six months after May 1, 2025, if they manually adjust the VAT rate.
Other Key Considerations
- No additional input tax can be claimed on trading stock held at the time of the VAT increase.
- Ensure your suppliers correctly apply the VAT rate on invoices.
- Debit or credit notes relating to transactions before May 1, 2025, must use the old VAT rate (15%).
For further guidance on the VAT rate change and its implications for your business, please reach out to us. Our team is ready to assist you with any queries or concerns regarding these changes.
[Author: Jeneen Galbraith]
