SMALL VAT TAXPAYERS

WHAT PROVISIONS HAVE BEEN MADE TO ASSIST THE SMALL TAXPAYER TO ACCOUNT FOR VAT?

A number of measures have been introduced to simplify VAT accounting for taxpayers with a turnover of less than Ushs. 200 million per year. These measures include: -

(a) you may account for VAT on a cash basis,

(b) you may issue simplified tax invoices to your VAT registered customers subject to certain conditions.

(c) There are special schemes to help you account for VAT.

ACCOUNTING FOR VAT: ON CASH BASIS Vs INVOICE BASIS
With cash accounting you can only claim a credit on your purchases when you have paid for them and you only account for VAT when your customer has paid you. In the normal VAT system you claim a credit for the VAT you have incurred on purchases related to making taxable business sales at the time you receive either a certified customs Bill of Entry or an original tax invoice from your Ugandan supplier. At the same time you have to account for VAT on your sales at the earliest of the receipt of payment; completion of services or making goods available for delivery; or the issue of a tax invoice. This means that you may claim a credit for VAT on your purchases without having paid for them and you must account for VAT to the URA on your sales without necessarily receiving payment from your customer.

WHAT ARE THE ADVANTAGES AND DISADVANTAGES OF CASH BASED ACCOUNTING?
The main advantage is that you do not have to account for VAT due to the URA until your customer has paid you. This means that you are never owed VAT which you have had to pay from your own resources to the URA.

The disadvantage is that if you are principally making cash sales and you adopt cash accounting, you gain no advantage related to your sales while you cannot claim a VAT credit on purchases until you have paid for them. Whereas if you remain on the basis of invoice accounting and you make cash sales your sales will not be affected but you will be able to claim input tax on receipt of an invoice from your supplier
regardless of whether you have paid for your supplies or not.

WHAT DO I DO IF I DECIDE TO USE THE CASH ACCOUNTING METHOD?
You must apply in writing to the Commissioner General of the URA at the VAT office where you are registered. You must provide full details regarding your business including the gross value of your sales without tax and advise the date from which you wish to effectively use the method.

The VAT office will advise you what to do to make the changes. PLEASE DO NOT USE THE METHOD UNTIL YOU HAVE RECEIVED NOTIFICATION FROM THE VAT OFFICE.

WHAT ARE THE CONDITIONS FOR USING SIMPLIFIED TAX INVOICES?

• Your taxable turnover must not exceed 200 million Shillings.
• A simplified invoice can only be used for the supply of goods if:
  (i) no Individual item on the invoice does not exceeds Shs.50,000/=
  (ii) the total value of the invoice does not exceed Shs.100,000/=.

NOTE:You should not include Zero-rated or exempt supplies on a simplified tax invoice. You should
account for VAT in the normal way in the case of services.
There are two schemes, one for use if all your sales are standard rated, and the other if your sales are a mixture of standard rated and and zero rated and/or exempt sales.


IF ALL MY SALES ARE STANDARD RATED, HOW DOES THIS SCHEME WORK?
You should maintain full purchases and sales records as required by section 51 of the VAT Statute 1996 and the provisions of the VAT Regulations. (SEE LEAFLET - 'VAT ACCOUNTS AND RECORDS).

You need not, however, issue full tax invoices to your VAT registered customers if the conditions for the use of simplified tax invoices are met. You also need not issue invoices to your customers who are not VAT registered.

You should record all your takings for your sales in a cash register, or a cashbook record with a cash box, taking care to record any cash removed from the register or cash box. At the end of the day you total your takings and this is your daily gross takings. You add up the daily gross taking for the month and calculate your VAT due to URA for the month by applying the VAT fraction to the total gross takings figure for the month.

The VAT fraction is calculated by using the following formula
___R__ where R is the tax rate
R + 100

For example: -

With a VAT rate of 18% the VAT fraction will be
18 + 18/100 = 18/118

The application of the VAT fraction to your gross sales figure will enable you to determine your output tax. The output tax you calculate in this way goes in Box 13 of your VAT return and the gross takings minus the output tax is the value you enter in Box 12 of the return.

You calculate the VAT credit due on your purchases in the normal way. Also deduct input tax from output tax to calculate the VAT due to URA, or output tax from input tax to calculate the refund you may be entitled to.

IF I MAKE MIXED SALES (STANDARD RATED, ZERO RATED AND EXEMPT SALES) HOW DO I ACCOUNT FOR VAT?

Again you must maintain full purchases and sales records as required by section 51 of the VAT Statute 1996 and the provisions of the VAT Regulations.

You need not, however, issue full tax invoices to your VAT registered customers if the conditions for the use of simplified tax invoices are met, and you need not issue invoices to your customers who are not VAT registered.

You should make arrangements to identify the VAT rate for all the goods you buy or have in stock. You can do this by referring to your purchase invoices or customs import entry, or if these documents are not available by reference to the See VAT 4 and No. 5.

You must be able to identify the VAT rate for the goods at the time they are sold. You can do this by marking the goods in your shop with a different colours e.g red for zero rated goods black for exempt goods, OR alternatively you can have a listing of - zero rated and exempt goods at the point where the goods are sold. You should then separately record, either by means of a cash register, or in an account book, the value of each sale you make at each rate.

At the end of the month you total your gross takings for each category and calculate the VAT due by applying the VAT fraction explained in the previous section to the monthly gross takings of goods at the standard rate of tax. The tax figure calculated goes in box 13 of your VAT return and the gross takings total minus the VAT calculated is the value, which you enter in box 12 of the return.

The gross takings which you have calculated for exempt sales is entered in box 10 of the VAT return and the gross takings calculated for zero rated sales are entered in box 11 of the VAT return.

REMEMBER IF YOU MAKE EXEMPT SALES YOU MAY NOT BE ABLE TO RECLAIM A PORTION OF YOUR INPUT TAX.

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