There are a few instances where VAT is not charged at the standard rate of 15%. In the following newsletter, we distinguished between the different supplies that attract VAT but does not necessarily have the impact of a standard rate supply.
The VAT Act provides for certain expenses where input VAT is denied, even if the expense is incurred in the course of conducting an enterprise and if there are no input VAT consequences there will ultimately be no output VAT consequences. The following circumstances are common instances where input VAT will be denied:
- Acquisitions of a motor vehicle:
When a motor vehicle is purchased by a vendor, who is not a motor car dealer or car rental enterprise, the input VAT on the purchase will be considered a denied supply.
The definition of “motor vehicle” includes all vehicles designed primarily for the purposes of carrying passengers. This definition covers ordinary sedans, hatchbacks, multi-purpose vehicles and double cab bakkies. A single cab bakkie or a bus designed to carry more than 16 persons will qualify for input VAT purposes. Any repairs and maintenance to vehicles, irrespective of the type of vehicle, will also qualify for the claiming of input VAT, as long as the cost is separately identified and invoiced.
- Fees and Club Subscriptions:
Input tax in terms of subscriptions/membership fees to sport, social, recreational and private clubs are denied supplies. Input VAT may, however, be deducted on subscriptions to magazines and trade journals which are related in a direct manner to the nature of the enterprise carried on by the vendor.
However, fees for membership of professional bodies and trade organisations paid on behalf of employees are not denied supplies and SARS allows an input VAT to be claimed. Trade unions are exempt in this regard.
In the case of denied supplies, no VAT may be claimed, and no output VAT needs to be declared, thus these supplies don’t need to be declared on your VAT return.
A zero-rated supply is a taxable supply, but VAT is levied at 0%. Vendors who make zero-rated supplies are still able to deduct input tax on goods or services acquired in making of the zero-rated supplies.
Zero-rated supplies include certain basic foodstuffs such as brown bread and maize meal, certain services supplied to non-residents, international transport services, municipal property rates and more.
Although a zero-rate supply is levied at 0%, it is still a taxable supply and should be declared separately on the VAT return.
A vendor may be required to declare an amount of output tax even though they have not actually supplied any goods or services. Deemed supplies will generally attract VAT at either standard rate or zero rate.
Two common examples of deemed supplies at standard rate are trading stock taken out of the business for private use and certain fringe benefits received provided to employees.
The deemed supply will be declared on the VAT return under either your standard rate or zero-rate codes.
Notional input VAT
A VAT vendor may in certain circumstances deduct a notional input VAT credit in respect of secondhand goods acquired from non-vendors where no VAT is actually payable to the supplier. Second-hand goods exclude animals, certain mineral rights and goods containing gold or consisting solely of gold.
The following requirements must all be met for a notional input credit to be deductible in respect of secondhand goods:
- Goods must be previously owned and used (as per the second-hand good definition in section 1 of the Act) and
- Goods must be used to generate taxable supplies and
- The seller must be a resident non-vendor and
- Goods must be located in South Africa and
- There must be no actual VAT levied on the transaction.
It is important to keep all the documentation for all types of supplies for VAT purposes and to have it available as SARS may require it to confirm VAT transactions.
This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE)