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Are you claiming input tax on expenses you shouldn't be?

by , 06 May 2014
Many companies think if they get a tax invoice, they can automatically claim the Vat they pay as input tax.

What they don't always remember is, they have to group their expenses into three main categories to determine the correct Vat treatment for input tax purposes because each one has different Vat requirements.

Let's look at the three categories you must use, or risk a costly SARS assessment.

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Input tax 101 e-Report
 
Tips, tools and practical advice to claim every input tax credit available to you and get the maximum from the Vat system.
 
 
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You must categorise your expenses into one of these three categories
 
These are:
 
Category 1: Expenses you incur to make taxable supplies. For example, trading stock bought from your supplier to sell to your customers;
 
Category 2: Expenses you incur for non-taxable purposes. For example, entertainment expenses where you aren't in the entertainment business; and
 
Category 3: Expenses you partially incur for taxable and non-taxable purposes. For example, if you have a home office and you allocate part of the electricity bill to your private use and part to business use.
 
Here's how to determine the Vat for each category…
 
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Are there any inaccuracies in your Vat invoices? You may be charged a very high penalty!
 
The truth is brutal! Even if it wasn't you who made the mistake, it may be you who will bear the consequences. If SARS has found inaccuracies, you will be assessed, held liable to penalties and interest and possibly even additional tax! You may even be prosecuted! 
 
 
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How to determine Vat for each category 
 
Category 1: You can claim a full input tax deduction on expenses you incur in full for taxable purposes;
 
Category 2: You can't claim input tax on expenses you incur in full for non-taxable purposes; and
 
Category 3: You must apportion input tax you pay on expenses you incur for a dual purpose.
 
These requirements seem pretty straightforward and even obvious at first glance. Now you'll never overlook or misinterpret them again. 
 
Until next time


Natalie Cousens
 
PS. In the Practical Vat Loose Leaf we show you ALL the expenses you can and can't claim input tax on. Click here to get your copy if you don't have one yet. 
 

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