Can you “vat “the VAT?........
I am not going to debate the merits of the 1% VAT increase in this article, but rather want to clear up certain misunderstandings which are doing the rounds in Family Practitioner circles on VAT, how, what when and why?
Currently you must register for VAT if your turnover is 1 million rands or more. You can register for VAT if your turnover is less than that, and I will explain why you may elect to do so, further in the article.
Suffice it to say that most FPs in solo practice have in the past been below this threshold, which has not seen an increase for some while now, thereby, via inflation, and tariff increases it has ensured that more and more persons must register for the broad based tax.
There are advantages as well as disadvantages in registering for VAT, but there is no room for deciding IF you will register once your turnover is over 1bar, you MUST.
The advantages are that you can now claim back all of the input costs for the legitimate running of your practice. VAT on consumables, medicines, equipment, services rendered to your practice etc, all qualify for refunds of the VAT %, when you do your 2 monthly returns.
The disadvantage is it’s a huge amount of new paperwork, compliance, and effort to set it all up, and the fines for late submission and errors, are onerous.
Since the proposed 1% hike in VAT, we have received countless queries from doctors registered for VAT, as to how they pass this increase on to their patients?
For those using PMA software, the vendors of the product should, in my opinion, at no fee, adjust the VAT to come in to line with the new VAT increase. This will then find its way into your Billings to the funders.
But here is the big query?........... Funders derive their income from subs of members, and these subs cannot be arbitrarily changed until they have been OKed by the Council of Medical Schemes which usually happens in January of each year. The funders will almost certainly not be happy to absorb this new and unbudgeted 1% increase without being able to recoup it from the patients, and so, the jury is out as to who will pay the extra tax. Will the patient have to pay you the extra 1%, because YOU will certainly have to pay over the extra 1% to the VAT Receiver.
Some of our colleagues have called in objecting to having to register for VAT as they have now moved into the 1 million rand bracket, since the latest tariff increases. They feel that it is not fair to them as all they can recoup is their input taxes, which in a solid practice are frequently not material.
Prior to this , they would (legally) keep the 14% (now 15%),and be happy with this windfall which is built into the tax laws, but forfeit their ability to recoup input taxes, which, as I mentioned were insignificantly low.
So now a double whammy, so to speak, which hits the solus practitioner, and understandably, is causing huge discontent.
We will report back as soon as there is more clarity on the matter.
In closing, one thing is however clear. The funders pay inclusive of VAT, whether you are registered or not. You are not expected to charge them a price free if VAT if you are not registered. Their rate is VAT inclusive. Should you not be registered you keep the VAT. Recently certain funders have been asking for your VAT number and short paying you if you are not VAT registered by withholding the VAT. We believe that this is irregular and invite members to report this to us for investigation.