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Some businesses are more likely to claim notional input tax than others! Do you know where yours fits?

by , 27 May 2014
Notional input tax is Vat that you can claim on second-hand goods you buy for your business, from a person who isn't a Vat vendor.

So what type of business would normally claim notional input tax?

While any business can, it's mostly for those that deal in second-hand goods, for example, scrap-metal traders, motor vehicle dealers, second-hand dealers (pawnshops).

Take a look at three examples below that show the types of businesses that are more likely to claim notional input tax.

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If you're not certain about the type of businesses that would normally claim notional input tax, these examples will help

The Practical Vat Loose Leaf Service gives you examples of the types of businesses that would normally claim notional input tax:

Example 1: Prime Scrap Metals (Vat vendor) buys copper wire from Mr Beaner for R5 500. Prime Scrap Metals may include R675.44 in its input tax claim for the relevant tax period (R5 500 x 14/114 = R675.44).

Example 2: Honest Al's Used Vehicles trades Mr Black's double-cab vehicle for a Mercedes. Honest Al gives Mr Black R100 000 for the trade-in and sells the Mercedes for R250 000 (Vat inclusive).

Honest Al will calculate his Vat as follows:

  • Notional input tax to claim: R100 000 x 14/114 = R12 280
  • Output tax to charge: R250 000 x 14/114 = R30 702
  • Vat payable to SARS: R30 702 – R12 280 = R18 422

That's not all. We have one more example for you…

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Here's one more example of a business that can claim notional input tax

Example 3: On 1 July 2011, Mr Eager buys a private house that he'll use as an office for his business. On 1 August 2011, he pays R80 000 transfer duty on the purchase price of R1 million.

As Mr Eager will use the offices for his admin section, he's entitled to claim a notional input tax deduction for the purchase of the building. But his claim is limited to the R80 000 transfer duty he paid.

If the house was transferred to him on 21 January 2012, he'd have been able to claim the tax fraction of the purchase price as notional input tax (i.e. R1 000 000 X 14/114 = R122 807).

Note: If Mr Eager bought the house to provide his staff with accommodation, he won't be entitled to any input tax claim – notional or otherwise. The reason for this is because accommodation in a dwelling is an exempt supply.

There you have it. If your business is similar to the one outlined in these examples, you can claim notional input tax.



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