The three basic rules for input tax deductions
When you produce goods, you pay Vat on the raw materials by the manufacturer. Then, when you sell the finished goods, you need to charge Vat. So SARS put a system in place to avoid double taxing, a situation where you'd pay 'Vat on Vat'.
SARS will let you claim the Vat back that you paid on your purchases or on services, in the course of your Vat registered enterprise.
But in true SARS fashion, there are rules to what you can claim on and how.
Read on as I explain the three rules of input tax.
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· Claiming less money than you should; or
· Claiming more money than you should, and getting a black mark from SARS plus penalties and interest!
Make sure you're 100% sure. Here's how…
Rule #1: You must hold a tax invoice
The tax invoice is the most important document in your input tax claim. The Vat Law also lays down the details your tax invoice must contain. These are:
The words 'tax invoice';
A serial number on the invoice;
The name, address and Vat number of the supplier;
The name, address and Vat number of the recipient where the amount of the tax invoice (including the Vat) is more than R5 000. (If the invoice is for less than R5 000, then the invoice could be made out to 'cash');
A description of the goods;
The amount of the goods, the Vat and the total, or, the total price, with a statement on the tax invoice to say that vat at 14% is included in the price; and
The tax invoice must be in Rands.
Rule #2: SARS out rightly denies some deductions
SARS won't let you claim on:
So don't even try it!
Motor-cars (unless you're a car dealer);
Entertainment (unless you're in the entertainment industry); and
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SARS will delay your Vat refund as long as possible
Don't Be Fooled! Make Sure you Get your Vat Refund When it's Due to you.
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Rule #3: You can claim national input tax on second-hand goods
You can claim notional input tax on second-hand goods you buy from anyone who isn't Vat registered. But, this is only on goods you're going to use in your Vat registered business.
Any previously owned or used good qualifies for notional input tax, but NOT:
· Animals or livestock; and
· Prospecting or mining rights.
And if you don't have a tax invoice, get the following documents:
· A VAT264 form;
· A copy of the seller's ID; and
· Proof of payment.
So how do you claim it? Here's an example:
SS Construction, buy a second hand bulldozer, for R100 000 from Mr X, who isn't Vat registered.
As SS Construction will use the bulldozer in their business, they can claim notional input tax, calculated as follows: R100 00 x 14/114 = R12 280.00.
Remember, they won't have a tax invoice from Mr X, because he isn't Vat registered. This is why the input tax deduction is known as notional.
Well there you have it. If you never want to miss out on another input tax deduction again, click here to find out 34 input tax savings you could be missing out on…
Until next time,
P.S. I've just completed an update on chapter I01: Input tax in the Practical Vat Loose Leaf, which has checklists, practical tips and advice you can use to minimse Vat. Get your copy here…
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