Jeremy didn't realise that this charitable act would have Vat
implications and ended up with unpaid Vat
and penalties when SARS gave him an adjustment audit.
Read on to find out how to avoid this happening to you….
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If you buy equipment for 100% business use you must pay Vat on it when it changes use
When Jeremy bought the computers in 2008, he paid R114 000 and claimed input tax
of R14 000. He didn't realise that because the use of the computers changed, he had to 'pay back' some of the input tax
he benefitted from in 2008.
It may be too late for Jeremy, but how do you calculate the Vat
payable on this item? Let's have a look.
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How to calculate the Vat for adjustments
If you find yourself in a situation where your business equipment's now changing use i.e.: you give your computers to your staff once they've become obsolete, you must determine their value so you can calculate the Vat
you're liable for.
This is how you do it…
Calculate the Vat
by applying 14/114 to the lowest
of cost or open market value of the computers. So Jeremy's calculation would've looked like this:
He determines the open market value of the computers is the lesser amount. The computers are valued at R10 000. So his Vat
calculation is R10 000*14/114= R1 288 output tax
. He fills this in at block 12 of his Vat
Want to know more about adjustments? Turn to chapter A01 in your Practical Vat Loose Leaf
. Don't have one? Click here
for your copy.
Until next time
P.S. Do you have Vat
questions to ask? Check out our Accounting and Tax Club
site where 1 300 people have already been asking for free. Have you?