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Jeremy donated his office computers to the local primary school, and SARS penalised him

by , 04 July 2013
Jeremy runs a successful retail shop in Melville. Business is picking up, and he's realised there's a need for him to upgrade all of his computers. He decides to give his old computers to the local primary school to teach computer literacy to the children.

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 return. 

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

Philip Rosenberg

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?

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