The Practical Vat Loose Leaf Service says many vendors wrongly assume that if they receive a tax invoice, they're automatically entitled to claim the Vat paid as input tax.
Don't make the same mistake.
Group expenses into three main categories to determine the appropriate Vat treatment for input tax purposes.
Category 1: These are expenses incurred wholly for purposes of use, supply or consumption in the course of making taxable supplies. For example, the trading stock you bought from your supplier to sell to your customers;
Category 2: Expenses incurred wholly for non-taxable purposes. For instance, entertainment expenses where you aren't in the entertainment business; and
Category 3: Expenses incurred partially for taxable and partially for non-taxable purposes. For example, where you have a home office and you must allocate part of the electricity bill to your private use and part to business use.
Here's how to determine Vat for each category of expenses
Category 1: You're allowed to claim a full input tax deduction on expenses incurred wholly for taxable purposes;
Category 2: You're NOT allowed to claim input tax on expenses incurred wholly for non-taxable purposes; and
Category 3: You must apportion input tax paid on expenses incurred for a dual purpose.
Remember, 'all it takes is just one mistake for SARS to deny your input tax claim and slap you with penalties and interest,' warns the Loose Leaf Service.
So make sure you get your input tax claims right now that you know how to group your expenses.
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