Don't make the same mistake.
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.
So make sure you get your input tax claims right now that you know how to group your expenses.
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