087 255 8904 info@contadorinc.co.za

Contador Accountants, Neil Murray, Lizbe Murray, Lizbe Hoogenboezem, South Africa, VAT in South Africa, what can you claim vat back on, vat exempt items in south africa, zero rated vat south africa, vat on imports, how does vat work south africa

Do you still remember when VAT was first introduced in South Africa? I vaguely remember standing in front of the sweets section of the local cafe, trying to work out in my head whether I could afford both the apricot balls and Wilson toffees after tax was added, or just the apricot balls. Back then, product prices displayed on the shelves excluded VAT, which was only added at the till. Luckily, that changed later, but so did the tax rate from 10% to 14%, where it stayed for 25 years. The second VAT increase was announced earlier this year, and the VAT rate increased to 15% on 1 April 2018.

Before 1991, South Africa used an indirect taxation system, called GST (General Sales Tax). VAT stands for Value Added Tax, and it is a consumption tax which is collected incrementally, based on the added value of a product or service. In essence, as a VAT vendor, you are an agent for SARS. You collect VAT on their behalf, which you then pay over to SARS.

Although VAT has been with us for more than 27 years, small business owners still don’t know all the ins-and-outs of VAT. But, who can blame them? The rules can sometimes be quite tricky.

How Does VAT Work in South Africa?

If you are registered for VAT, you need to add 15% VAT to your selling price. For instance, if you sell a product of R100, you need to add R15 to the price (100×15%), so the inclusive price, which your customers have to pay, is R115.

VAT on sales, or revenue, is called Output VAT.

You can also claim VAT back from SARS on all the VAT that you have paid for your purchases. So, if you paid R115, including VAT, for a product you bought, you can claim R15 back from SARS.

VAT on purchases is called Input VAT.

To calculate the amount of VAT that you need to pay over to SARS, or claim back, you can deduct Input VAT from Output VAT:

  • If your Output VAT is more than Input VAT, you will need to pay SARS.
  • If your Output VAT is less than Input VAT, you can claim back from SARS.

Contador Accountants, Neil Murray, Lizbe Murray, Lizbe Hoogenboezem, South Africa, VAT in South Africa, what can you claim vat back on, vat exempt items in south africa, zero rated vat south africa, vat on imports, how does vat work south africa

But, it is never that simple. As is the case with most taxes, there are always exceptions. In some cases, you don’t need to charge VAT to a client, and in others, you can’t claim VAT on an expense.

Output VAT: General Rules and Exceptions

VAT is generally split into three categories:

  • Standard-rated: VAT at 15%
  • Zero-rated: VAT at 0%
  • Exempt: No VAT

If you are registered as a VAT vendor, you always have to add 15% to your selling price, except for transactions that can be Zero rated, or that are exempt from VAT.

People are often confused about the difference between zero-rated and exempt supplies:

  • A transaction that is zero-rated is still a taxable supply, but instead of charging the full VAT rate, you only charge 0%.
  • A transaction that is exempt from VAT is not a taxable supply. This means VAT doesn’t apply at all.

This distinction is crucial to understand because it affects whether you can claim Input VAT or not:

  • When you sell products or services under the standard (15%) or zero rate (0%), you can claim Input VAT.
  • If you sell products/services under exempt supplies, you cannot claim Input VAT.

Zero-Rated VAT in South Africa

The following transactions or goods are zero-rated supplies:

  • 19 basic food items, like milk and brown bread
  • Petrol and diesel
  • Paraffin
  • Certain government grants
  • Sale of a going concern (property or business that is still trading)
  • Export of goods
  • International transport of goods and passengers
  • Certain services supplied to non-residents
  • Services physically rendered outside South Africa

If you export goods, you can zero-rate a transaction if the customer is outside of South Africa, and if the supplier (you) pays for the freight and retains the necessary documentation as proof of the export. In other words, it needs to be a direct export. If you sell something to a foreigner, but it is sent to an intermediary to export on behalf of the client, or if the client picks the product up at your premises, you are not allowed to zero rate the transaction. In this case, you must charge 15% VAT on the sale, and the client can then claim the VAT back from customs.

In the case of services rendered to a non-resident, if the client is physically in South Africa or the transaction is in connection with land or movable goods situated in the country, you are not allowed to zero rate the service.

VAT Exempt Items in South Africa

The following transactions are exempt supplies for VAT purposes:

  • Residential rental accommodation
  • Public road and rail transport
  • Educational services provided by an approved educational institute
  • Non-fee related financial services, like interest

As explained above, if you make only exempt supplies, you cannot claim any Input VAT, and you don’t even need to register for VAT, even if your revenue exceeds the registration threshold.

If you make mixed supplies (a mix of standard-rated, zero-rated, and exempt supplies), you can still claim a portion of your Input VAT. For instance, if you rent out properties, of which 90% are commercial properties, and 10% are residential properties, you can only claim 90% of the Input VAT. So let’s say that your total Input VAT for the period was R100,000, you can only claim 90% of this, thus R90,000 (100,000 x 90%).  

Input VAT: General Rules and Exceptions

What can you claim VAT back on? You can claim Input VAT on all expenses that are business related, but there are a few exceptions.

Here are transactions that you cannot claim VAT on, even if there is VAT on the supplier invoice:

  • Entertainment: This includes refreshments for your staff like tea and coffee, a customer lunch, and year-end parties or other events.
  • Petrol and diesel, because these are zero-rated supplies
  • Transport by road and rail, because these are exempt supplies
  • Any purchases that you don’t have a VAT invoice for
  • Salaries and wages, because these are exempt supplies
  • Car purchases: There are exceptions to this exception, though. If you run a car dealership or car rental, you can claim Input VAT on the car purchase. If you buy a delivery vehicle or motorcycle, single-cab bakkie, transport truck, bus, or a special-purpose vehicle like an ambulance or a hearse, you are allowed to claim Input VAT.
  • Long-term or life insurance premiums and interest, as these are financial services
  • Donations

If you import goods, you must pay VAT on imports as well as customs duties. As a vendor, you can claim these back from SARS as Input VAT.

Who Needs to Register as a VAT Vendor?

Not every business has to register for VAT. There are two reasons to register:

  • Compulsory registration: If the total value of your revenue exceeds R1 million, or it is likely to exceed R1 million, in a 12-month period, you MUST register for VAT.
  • Voluntary registration: If your revenue exceeds R50,000 in a 12-month period, you MAY register.

Are Your Invoices Hampering You from Claiming VAT?  

As a VAT vendor, it is vital that you know what you should include on your own invoice, and what your suppliers need to include on their invoice in order for you to claim Input VAT.

Here are the criteria that make a valid invoice:

  • The words “Tax invoice”, “VAT invoice”, or “Invoice”
  • The date and a serialised invoice number
  • The name, address, and VAT registration number of the supplier
  • The name, address, and VAT number of the purchaser, if the amount is more than R5,000
  • The quantity
  • A full description of the goods/services
  • The value/amount
  • The VAT amount or indication that the total includes VAT

Contador Accountants, Neil Murray, Lizbe Murray, Lizbe Hoogenboezem, South Africa, VAT in South Africa, what can you claim vat back on, vat exempt items in south africa, zero rated vat south africa, vat on imports, how does vat work south africa

VAT rules can sometimes be very confusing, so do not hesitate to give us a call if you’re not sure how to handle a specific transaction. Rather be safe than sorry!