Vat laws allow you to claim input tax on the supplies you buy for the purpose of running your business. But you can't claim input tax on everything.
If fact, there are 11 items you can't claim input tax on. If you do, SARS will do a Vat audit on your business and that could results in serious penalties.
To help you avoid this, we're revealing what these 11 items are so you don't pay the price...
Never claim input tax on these 11 items
1. Car purchase
If you don't run a car dealership or operate a car rental enterprise, you can't claim an input tax deduction when buying or renting car.
You can't claim input tax deductions on entertainment, including refreshments for your staff such as coffee, tea, cookies, boardroom lunches, customer entertainment, year-end parties and other functions.
3. Municipal rates
Unfortunately, you can't claim Vat back on municipal rates because they're zero-rated!
You can't claim input tax on renting a place as a private home.
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All it takes is putting a zero in the wrong place on your VAT return to get in trouble with SARS – and even trigger an audit!
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5. Transport by road and rail
You can't claim Vat back on local public road or rail transport. They're exempt supplies.
6. Petrol and diesel expenses
Petrol and diesel are zero-rated supplies so unfortunately, if you're not a farmer or otherwise registered for the Diesel Refund Scheme, you won't be deducting these pocket burners!
7. Any supplies you can't substantiate with a tax invoice
Don't claim the Vat on any supply that's, worth more than R50 that you can't substantiate by means of a valid tax invoice.
8. Salaries and wages
Salaries, wages and allowances don't contain Vat, so you can't claim an input tax deduction when you pay your employees.
9. Insurance premiums
Section 2 of the Act states the provision or transfer of ownership of a long-term (life) insurance policy (or provision of re-insurance) is a deemed financial service. You can't claim input tax on any financial services as they're an exempt supply.
10. Donations received
If you run an 'association not for gain', you may not claim an input tax deduction on 'donated goods or services' supplied to you. These are an exempt supply.
11. Change in use of supplied goods and services
If you acquired or imported goods for use, consumption or supply in the course of making taxable supplies and claimed the input tax deduction, but at a later stage decide to apply them for your personal use, you'll have to pay output tax on the open market value of the goods as valued at that stage.
Now that you know the 11 items you can't claim input tax on ensure you don't so you can avoid SARS penalties.
To find out everything you need to know about the supplies you CAN claim input tax on, check out Input Tax 101