Written by André van Wyk, MaxProf Audit Manager
Background
A taxpayer began selling computers on 15 April 2024. VAT registration was effective from 1 July 2024, which is also when VAT charges on sales commenced.
Pre-VAT Registration Purchases
Between 15 April 2024 and 30 June 2024, the taxpayer purchased furniture for the shop and stock for resale.
Key Question
Can the taxpayer claim input tax on stock expenses and furniture bought before the VAT registration date of 1 July 2024, without paying output tax on sales made during that period?
The VAT Act
General Charging Section
According to section 7(1)(a) of the VAT Act, a vendor’s supply of goods or services produced in the course of their VAT Activity is subject to VAT unless exempt under section 11. The standard VAT rate is currently 15%.
Definition of a Vendor
Section 1(1) of the VAT Act defines a “vendor” as any individual who is or ought to be registered under the VAT Act. A person is considered a VAT vendor from the day the Commissioner for SARS establishes them as such, in accordance with section 23.
Input Tax Deductions
A vendor may deduct input tax for supplies of goods and services received during a tax period under section 16(3)(a)(i) of the VAT Act.
Pre-Registration Input Tax Deductions
Section 18(4)(b)(i) states that goods or services imported or supplied on or after 30 September 1991, for which VAT has been charged without an input tax deduction, are considered supplied to the vendor in the tax period when the goods or services are first used in a taxable activity.
The formula A x B x C x D is used to calculate the deduction amount, where:
- A: Tax fraction (currently 15/115)
- B: Lower of the adjusted cost or open market value of the goods/services at the time of supply
- C: Percentage taxable use of goods/services
- Extent to which the purchase price of second-hand goods has been settled.
Documentary Requirements
To claim a deduction under section 16(3)(f), Interpretation Note 92 of the VAT Act requires the original tax invoice and proof of the open market value of the goods. The recipient’s VAT registration number is not required on the invoice if it was not a requirement before VAT registration.
Application of Principles
From 1 July 2024, the taxpayer was registered as a vendor. Stock purchased and sold before this date has no VAT implications, no output VAT is declared, and no input VAT is claimed.
For stock purchased before VAT registration and sold after, as well as fixed assets like furniture, the vendor can claim a deduction under section 16(3)(f) read with section 18(4) using the formula A x B x C x D. This deduction must be claimed within five years of VAT registration, regardless of the initial purchase date.
To ensure you are compliant with VAT regulations and to maximise your input tax deductions, make sure to gather all necessary documentation, including original tax invoices and proof of the open market value of goods. If you have any questions or need further assistance, don’t hesitate to contact us for guidance.
