Did you know when you submit a claim to your insurance company and they settle your claim Vat is triggered?
And if you fail to declare output tax on this claim SARS will assess you, with penalties and interest, calculated all the way back to when you received your insurance payment.
An insurance claim is what's called a deemed supply. There are 6 types of deemed supplies which you can learn more about here
Let me show you how your insurance claim can trigger the warning bells for SARS in this example below.
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Mr K owns a factory which manufactures vehicle spares. The factory burns down in 2010, but Mr K isn't worried because he has short-term insurance on the building!
He puts in his claim and his insurance company pays him R10 million.
Mr K is quite happy. He uses the R10 million to rebuild his factory and upgrade all the machines.
In 2012, disaster strikes again. SARS knocks on his door.
The R10 million payout he received two years ago included Vat and he had to pay R1 228 070. 17 (i.e R10m x 14/114) to SARS back in 2010!
Now, not only must he pay R1.2million to SARS but also an additional R122 807 penalty and additional interest for 2 years!
But Mr K was not aware of this!
The SARS auditors tell him that he owes them Vat on the insurance payout because it's a deemed supply!
Avoid this happening to you!
What's a deemed supply?
Well, it's when you must pay Vat over to SARS but you haven't necessarily supplied any goods or services.
It's sometimes seen as if it's a Vat payment you have to make, well, for nothing!
But insurance claims paid out are not the only deemed supply that could trip you up...
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Here are 5 more deemed supplies you might not be aware of
Trading stock taken out of the business for private use;
Certain fringe benefits provided to staff;
Assets retained upon ceasing to carry on an enterprise;
The receipt of payments from government by designated entities for the purposes of taxable supplies;
Instalment credit agreements and financial leases.
But, there are exceptions to the insurance deemed supply rule, for example if the insurance company re-instates the goods – what do you do then?
I will give you the low down on each and every deemed supply there is and how to handle them from a Vat perspective at the Vat Masterclass
Avoid under paying SARS today, 10% late penalties fees and additional interest!
the brochure, complete the booking form at the back and send it back to Lenell ASAP.
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where you can save an additional R1000.00!
Looking forward meeting you at the Vat Masterclass Series 2013
Vat Masterclass Coordinator