Know these 6 rules when it comes to input tax
It takes just one little mistake for SARS to deny your input tax claim and hit you hard with penalties, fines and interest.
And with all the changes to the VAT Act, a mistake is easy to make if you're not fully aware.
So follow these 6 general rules when it comes to input tax and avoid making any unnecessary mistakes.
The formula to follow when you work out your VAT liability or refund is: VAT charged on supplies made (i.e. your output tax) less VAT paid to your suppliers (i.e. your input tax) = the amount of VAT payable/refundable.
If you only make exempt supplies, you can't register as a VAT vendor or claim any input tax
on those supplies.
If you claim input tax, your SARS VAT audit is impending
And when the SARS auditor comes knocking or sends a query, he'll check if:
· Your books and records comply with the requirements of Section 55 of the VAT Act;
· You didn't claim on exempt supplies;
· Any of your claims were for non-taxable supplies;
· You apportioned inputs correctly and at the right tax rate (Sections 16, 17 and 20
of the VAT Act);
· And more!
But the truth is, even if you're entitled to your claim, but don't have the valid documentation, he'll still reverse your deduction!
Here's everything you need to secure every input tax claim you submit.
The way to win in the input tax stakes is very simple. Just remember the importance on tax invoices and know what you can claim input tax on.
Don't claim input tax on the purchase or rental of motor cars – not even on car hire when you're away on business or entertainment expenses. This is a common mistake that just isn't allowed.
If the input tax exceeds the output tax on your VAT201 return, then SARS owes you a refund. If the output tax exceeds the input tax, then you'll have to pay over the difference to SARS.
Never claim any amount of input tax if you can't prove it with a valid tax invoice, Customs release documents and receipts or VAT264 second-hand declarations.
Those were 6 rules to keep in mind when it comes to input tax. To learn more though, subscribe to the Practical VAT Loose Leaf Service
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