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How do you allocate Vat when splitting up a company?

by , 15 May 2015
In what follows, we'll advise you on what to do while a client is busy splitting his business into two companies (currently only one) and registering the second one for Vat.

Vat and splitting a company: What now?

In the situation presented, during the interim period before SARS allocates a Vat number for the second company, he still delivers huge invoices to large debtors who wouldn't accept an invoice without a Vat number.

Does he:
a. Still use the old company to invoice;
b. Invoice from the new company without a Vat number (no Vat) and go back after a month and re-issue invoices including Vat; or
c. Issue a tax invoice in new company with the old company's Vat number?

Here's our answer:

You should follow option 'A' if:

• The old company is in fact the vendor making the supplies;
• The consideration charged to the recipients of the supplies forms part of old company's taxable income; and
• The supply isn't attributed to the new company.

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The old company should then issue tax invoices in its name reflecting its Vat number.

If the new company is making the supplies prior to its Vat registration, the new company must do the following:

• Issue invoices in its name; and
• Do not levy Vat on the supplies made.

Note that you'll not be able to go back and reissue tax invoices including Vat for supplies made prior to the effective date of the registration because you can only levy Vat from your effective date of registration as a vendor.

However, if the registration date is backdated to the date the new  company started making supplies, then they'll be able to issue debit notes to its customers for the supplies made from the effective date of registration. This is to recover the Vat charge from their customers. The customers will however have to consent to the issue of the debit notes (Section 21 of the Vat Act).

It wouldn't be permissible for you to issue tax invoices in the new company's name reflecting the old company's Vat number. So you can't use option 'C'.

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