Including and excluding VAT in a software price

South African VAT is 15 percent. A price including VAT is the net price multiplied by 1.15. A price excluding VAT needs 15 percent added before it is comparable with one that already includes it.

A worked example

Take a product at R100 a month excluding VAT and another at R110 a month including VAT. The second looks dearer. Put them on one footing and the first is R115 including VAT while the second is about R95.65 excluding it. The cheaper product is the second one, by a wider margin than the headline suggests.

Which column matters to you

Which column matters to you depends on whether you are registered for VAT. A registered vendor claims the VAT back as an input, so the excluding figure is the real cost. A business that is not registered pays the including figure and cannot recover it. The R1 million registration threshold is explained in VAT and the VAT201 return.

Where it goes wrong

• A per user price multiplies. Eight users at a price excluding VAT is eight times the figure, then 15 percent on top.
• A yearly price may be quoted as a monthly figure. Check whether the amount shown is per month when paid yearly, or per month when paid monthly.
• Add ons and modules are often priced without VAT even when the plan is priced with it.
• A price in dollars is converted to rand at the day's rate, and the VAT is added to the rand amount you are invoiced.

Paying yearly or monthly

Many vendors show two prices: one when you pay each month and a lower monthly figure when you pay for a year at once. Both are usually per month, so a yearly plan is quoted as a monthly price but charged as a single yearly payment. Put the yearly figure on the same footing as the monthly one before you compare, and remember that the yearly payment leaves your bank account in one go. The calculator on each product's review shows both.

Vendors outside South Africa

Many of the products on the register are made by companies abroad and priced in dollars, pounds or euros. A vendor outside South Africa may or may not charge South African VAT on your invoice, depending on how it is registered. The register converts the vendor's price to rand and does not add VAT it has not been told about. Ask the vendor whether the invoice you will receive carries South African VAT and shows its VAT number, because a VAT registered business can only claim what is on a proper tax invoice.

When the vendor does not say

Where a vendor does not say whether VAT is in its price, the register shows the plain monthly figure and does not guess. Ask the vendor before you compare it with one that does, and ask for it in writing, since the answer changes the bill by 15 percent.

A checklist before you sign

1. Write down the listed price, the basis it is on and whether it is per month, per user or per employee.
2. Convert it to the footing you pay: the price excluding VAT if you are registered, the price including VAT if you are not.
3. Multiply by the users or employees you will actually have, and add the extras you need.
4. Ask whether the yearly price is charged once or monthly, and when the first payment leaves your account.
5. Ask in writing whether the invoice will carry South African VAT and the vendor's VAT number.

The reviews on the register do this sum for you. Each has a calculator that adds a plan, a team size and any extras, and shows the month and the year with VAT in and out where the vendor states its basis.

Check the first invoice

When the first invoice arrives, check that it is a proper tax invoice with the vendor's VAT number, and that the amount you pay is the amount you were quoted. A registered business needs that invoice to claim the VAT back. See what a valid tax invoice needs.