Debit Note

1. When a buyer returns goods to the seller, he sends a debit note as an intimation to the seller
of the amount and quantity being returned and requesting return of money.

2. A debit note is sent to inform about the debit made in the account of the seller along with the
reasons mentioned in it.

3. The purchase returns book is updated on the basis of the debit note. (In case of return of
goods)

4. It is often used to return goods on credit.

5. A debit note is generally prepared like a regular invoice and shows a positive amount.

6. A journal entry to record a debit note is

Sales Returns A/C Debit

To Debtor’s A/C Credit

Credit Note
1. When a Seller receives goods (returned) from the buyer, he prepares and sends a credit note
as an intimation to the buyer showing that the money for the related goods is being returned in
the form of a credit note.

2. A credit note is sent to inform about the credit made in the account of the buyer along with the
reasons mentioned in it.

3. The sales return book is updated on the basis of the credit note. (In case of return of goods)

4. It is generally sent by the seller if the goods are found incomplete, damaged or incorrect.

5. A credit note generally shows a negative amount.

6. A journal entry to record a credit note is

Creditor’s A/C Debit

To Goods Returned A/C Credit

Conditions Surrounding Issuance of a Credit Note or Debit Note for VAT Purposes
Did you know that Value Added Tax (VAT) is calculated on the value of supply? This occurs in
circumstances when a sale which is made in good faith does not materialise, or when its
conditions change. For Value Added Tax purposes such a sale should be cancelled or altered
through a credit note or debit note. The law sets out the conditions when a credit note or debit
note may be issued and when tax arising from the reversed or altered sale is claimed.

When is a credit note and a debit note issued?

A credit note or a debit note is issued by a registered operator when:

 a supply has been cancelled for instance, when the conditions of contract have been
violated,
 there are changes to the nature of a supply resulting in some alterations in the supply
contract,
 discounts or other concessions offered result in alteration of the previously agreed
consideration for that supply by agreement with the recipient
 the goods or services or part of the goods or services supplied have been returned to the
supplier, including the return to a registered operator of a returnable container, the
registered operator in such case being deemed for the purposes of the VAT Act to have
made the supply of the container in respect of which the deposit was charged.

Conditions:

There are two conditions which must be fulfilled for a credit note or debit note to be issued and
accepted for VAT purposes. The supplier should have;

 provided a tax invoice in relation to that supply and the amount shown therein as tax
charged has become incorrect due to the occurrence of any of the above;
 furnished a return in relation to the tax period in respect of which output tax on that
supply is attributable, where such output tax becomes incorrect due to the occurrence of
any reason for which a credit or debit note is issued as described earlier.

Adjustment Required:

Where a supply takes place in one period and the alteration or cancellation of that supply takes
place in another period, the supplier shall make an adjustment in calculating the tax payable in
the return for the tax period during which the credit note or debit note is issued.

Features of a “credit note” or “debit note”

A credit note or debit note is issued when tax charged is higher than the proper tax which should
have been charged. This document should show the following:

 the words “credit note” or “debit note” in a prominent place,

 the name, address and registration number of the registered operator,
 the name and address of the recipient, except where the credit note/debit relates to a
supply in respect of which a tax invoice was issued,
 the date on which the credit note/debit note was issued
 the amount by which the value of the said supply shown on the tax invoice has been
reduced (in the case of a credit note) or increased (in the case of a debit note) and the
amount of the excess tax (in the case of a credit note) or additional tax (in the case of a
debit note) , or where the tax charged in respect of the supply is calculated by applying
the tax fraction to the consideration, the amount by which the consideration has been
reduced or increased and either the amount of the excess tax or additional tax or a
statement that the reduction/increase includes an amount of tax and the rate of the tax
included,
 a brief explanation of the circumstances giving rise to the issuing of the credit note or
debit note
 Information sufficient to identify the transaction to which the credit note or debit note
refers.

Controls:

Not more than one credit note or debit note shall be issued for the same transaction. In the event
that there is need to replace a credit note or debit note, the copy must clearly be inscribed ‘copy’.
A credit note should not be issued where a recipient takes a discount which is specifically stated
in the sale contract.

It should be noted that in terms of the VAT Act, a credit note reduces tax payable by way of
claiming tax thereon as input tax while a debit note increases the tax payable.

Taxation of benefits

Did you know that some benefits from employment are liable to Income Tax whilst other
benefits are exempt?

Most benefits from employment that are provided by employers, in addition to one’s salary, are
subject to Income Tax in terms of Section 8 (1) (f) of the Income Tax Act [Chapter 23:06]. The
following is a summary of the main benefits that an employee may get and the taxation rules that
will apply.

Generally, there are two types of benefits that an employee may get in addition to a salary:
  Benefits-in-kind. These are benefits that an employee receives that cannot be converted
into cash but have an ascertainable cash value. Examples include provision of a company
car, loans given at a special rate or provision of accommodation.
 Benefits (other than benefits-in-kind). Examples include vouchers, holidays, payment of
an employee's bills and various cash incentives.

The rules applying to benefits-in-kind vary. Generally, the value of the benefit-in-kind is the cost
to the employer of providing the benefit less any contribution made by the employee. Special
rules apply to the following benefits-in-kind:

 Motoring benefit
 Loan benefit
 Provision of accommodation

All employees who earn more than US$225.00 per month pay tax on the value of any benefits
they receive unless if the benefit is exempt from tax.

The taxation of benefits is made literally on the value of the benefit to the employee or on the
cost of providing the benefit to the employee. For example, if an employer provides an employee
with a cash incentive of US$1,200.00, this is treated as income for tax purposes and is taxed
using the monthly Pay As You Earn (PAYE) rates after adding the cash incentive to the monthly
salary and making the necessary adjustments for allowable deductions and exemptions.

Benefits exempt from tax

There are some benefits that an employee can receive that are not subject to tax. These include:

 Allowances or value of any benefit, which is granted to any person in full time
employment of the State as specified in a Statutory Instrument e.g. housing and transport
allowances to civil servants.
 The value of an allowance in respect of accommodation and transport, or the value of the
grant of quarters or a residence to any member of staff of a mission hospital or rural
clinic operated or sponsored by any religious body.
 An amount accruing by way of a benefit in respect of the injury, sickness or death of a
person which is paid to the person or his dependants or deceased estate:-

 by a trade union; or
 from a benefit fund; or
 in terms of a policy of insurance covering accident, sickness or death; or
 by a medical aid society.
 The value of medical treatment and transport to obtain the same and Medical Aid Society
subscriptions, paid by an employer on behalf of his employee or their dependants
 The portion of entertainment allowance paid to an employee which is expended on the
business of the employer.
This is not an exhaustive list and conditions often apply to exemptions and should therefore be
checked with the Zimbabwe Revenue Authority.

Accounting for vat on fringe benefits.

Did you know that the taxation of fringe benefits under the VAT Act (Chapter 23:12) derives its
basis from Section 8 (1) (f) of the Income Tax Act Chapter (23:06). This section defines the
terms “advantage” or benefit and also provides the various forms of benefits and how they are
valued for tax purposes.

Section 17(3) of the VAT Act then provides that where a registered operator has or is deemed to
have granted a benefit to an employee or a holder of any office as contemplated in Section 8 (1)
(f) of the Income Tax Act as read with the 13th schedule, and such benefit or advantage consist of
a supply of goods or services the granting of that benefit or advantage shall be deemed to be a
supply of goods or services made in the course of trade. The registered operator must therefore
account for output tax on such goods or services.

In order to identify which goods or services referred to in Section 8 (1) (f) of the Income Tax Act
which constitute a supply made in the course of trade in terms of Section 17(3) of the VAT Act,
we need to start by looking at what may be considered “the general rule”. The “rule” is that all
fringe benefits that can be granted by an employer to an employee or a holder of any office as
contemplated in Section 8 (1) (f) constitute a supply made in the course of trade by a registered
operator.

The proviso to section 17(3) then provides us with the exceptions to the general rule which are;

 The supply of goods or services which are zero rated in terms of section 10.
 The supply of goods or services which are exempt in terms of section 11
 The supply of entertainment.
 The supplies made by the registered operator in the course of making exempt supplies.

What this means is that if a registered operator supplies goods or services to an employee or any
holder of an office and these goods or services are not excluded from tax by any one of the above
provisos, then the registered operator must account for output tax on those goods or services.

Below are a few examples of the fringe benefits which are commonly offered by employers to
their employees as envisaged in Section 8 (1) (f) as read with the 13th schedule to the Income Tax
Act and how these are treated under Section 17(3) of the VAT Act.

Examples of supplies on which output tax must be accounted includes

 The supply of a motor vehicle.

 The supply directly or in directly of security benefit.
 Parking fees
Examples of supplies of fringe benefits which are zero rated in terms of Section 10 of the VAT
Act

 Provision of fuel or fuel coupons.

Examples of supplies of fringe benefits which are exempt in terms of Section 11 of the VAT
ACT

 The supply of any accommodation in a dwelling

 The supply of any educational services

Examples of supplies which are entertainment.

 The provision of canteen services.

 Subscriptions for DSTV
 Subscriptions to golf clubs.

Examples of supplies made by registered operator in the course of making exempt supplies.

 Motor vehicle supplied to an employee by an educational institution which is not

registered for VAT.

Disposals made to an employee or any holder of an office:

There are however certain circumstances which may arise where a registered operator is not
required to account for output tax on the supply of certain goods which are otherwise taxable.
For example section 8 (1) (f) paragraph II subparagraph (x) provides for the taxation of an
advantage or benefit which arises where an employer disposes a motor vehicle to an employee at
below the market value. While this constitute a deemed supply in terms of section 17(3) the
taxation of such a supply is exempted in the proviso to Section 6 (a) of the VAT Act, and instead
5% special excise duty arises on the transaction in terms of Section 172B of the Customs and
Excise Act.

The registered operator will however account for output tax in the normal way on any other
disposals of standard rated goods to their employees.

Taxation of motoring benefits

All benefits or advantages whatsoever (except where specifically exempted), granted in lieu of or
in the nature of “remuneration” are liable to Employees’ Tax (Pay As You Earn) in terms of the
Income Tax Act. An example is that of a motoring benefit which an employer may offer to an
employee for usage of a motor vehicle as part of the employee’s conditions of employment. The
motoring benefit granted in this case constitutes remuneration and should be subjected to PAYE
in terms of the Income Tax Act.
Valuation of motoring benefit

The value of motoring benefit should be determined on the basis of “cost to the employer”. The
cost to the employer in this case is determined on the basis of a deemed cost which is provided
for in the Finance Act.

The deemed cost basis of valuing the motoring benefit is also mandatory in the sense that the
prescribed amounts are not subject to variation in relation to the running costs or the vehicle’s
value. Calculations of the benefit are based on the engine capacity of the vehicle and are not
subject to apportionment between business and private usage of the vehicle allocated to the
employee. The benefit is, however, reduced proportionally if the employee uses the vehicle for
only part of the tax year.

Deemed Values

The following are the deemed benefits for the purposes of calculating PAYE:

Engine capacity of motor Deemed Value Deemed value Deemed value (2014 to
vehicle (2009) (2010-2013) date)
Up to 1500cc $550 $1 800 $3 600
Over 1500cc -2000cc $660 $2 400 $4 800
Over 2000cc -3000cc $880 $3 600 $7 200
Over 3000cc $1 100 $4 800 $9 600

Inclusion of the benefit for VAT purposes

It should be noted that where the employer is registered for Value Added Tax, the motor vehicle
benefit constitutes a taxable supply and should be included on the VAT 7 return for the
respective period.

Taxation of Loan Benefit

A number of fringe benefits granted to an employee under a contract of employment constitute

remuneration and should be subjected to employee tax (PAYE). This article focuses on the
taxation of loan benefits.

What is a loan?

It is any form of credit whatsoever granted directly or indirectly to an employee, his spouse or
child by or on behalf of the employer or a person associated with the employer. This does not
include any credit granted for the purposes of the education or technical training or medical
treatment of such employee. The exclusion is, however, subject to the satisfaction of the
Commissioner General.
How does a loan benefit arise?

A benefit arises where the rate of interest payable on the loan is less than the prescribed rates,
that is less than the London Interbank Offered Rate (LIBOR) rate plus five per cent (5%) per
annum and where the amount of the loan exceeds US$100. Where the employer charges an
interest rate which is more than the prescribed rate of interest, there is no taxable benefit. A
benefit may also arise where all or a portion of the loan is written off by the employer.

How is the loan benefit valued?

The value of the benefit is determined by computing the difference between the interest rate
charged by the employer and the prescribed rate of interest, multiplied by the loan amount and
the number of days in which the loan is enjoyed.

In cases where the employer advances a loan to an employee and writes off all or a portion of
that loan, both the full amount written off and the computed loan benefit is taxed in the hands of
the employee.

Where do you find the LIBOR Rates?

LIBOR rates can be downloaded from the ZIMRA website (www.zimra.co.zw). The table below
shows the LIBOR rates for the period from January - June 2013.

Loan Duration
Month 1-Month 3-Months 6-Months 12-Months
January 0.2051 0.3028 0.489 0.8155
February 0.2013 0.2905 0.4634 0.7619
March 0.2035 0.2819 0.4477 0.735
April 0.1997 0.2774 0.4364 0.7175
May 0.1966 0.2741 0.4214 0.6936
June 0.1932 0.2737 0.414 0.6839

NB: 5% should be added to the rates shown on the schedule above to determine the prescribed
rate of interest chargeable on the loan for each month.

Illustration

Example: A loan of $10,000 was extended to an employee by an employer at an interest rate of

1% per annum on 1st January 2013. The loan was to be repaid over six months in equal
installments with effect from 31st January 2013. Interest accrued on the loan was to be paid on
30th June 2013. The employer, however, decides to write off the final repayment installment of
$1,670 and the interest accrued on the loan.

The loan benefit to be included in the taxable income of the employee is calculated as follows:

Month Computation of the loan benefit Interest Taxable loan benefit

Accrued
January 2013 (5.489-1)/100*10 000*30/365 $8.22 $36.90
February (5. 4634-1)/100*8334*28/365 $6.39 $28.53
March (5. 4477-1)/100*6668*31/365 $5.66 $25.18
April (5. 4364-1)/100*5002*30/365 $4.11 $18.23
May (5.4214-1)/100*3336*31/365 $2.83 $12.53
June (5. 414-1)/100*1670*30/365 $1.37 $6.06
June $28.58 $1670+$28.58+$6.06
$1704.64

NB: In June, the employee is taxed on a total benefit of $1,704.64

Reminder for payment of tax

Our valued clients are reminded that the PAYE for the month of July is due on or before 10 th
August 2013.