ETXN2708

LEARING UNIT 2.4

INPUT VAT
·
 NOTIONAL INPUT VAT

What is input VAT?

It is the VAT component included in the price of the goods and services that is supplied to a
person by a vendor.

Actual input VAT : this is the 15% VAT that is included in the
- price of goods or services.
Two ‘types’ of input
VAT:
Notional input VAT : this is a special type of input VAT(15/115)
that will only apply in certain situations.

Input VAT can only be claimed if the following requirements are all met:
1. The goods or services will be used for the making of taxable supplies (partly or wholly)
2. All documentary requirements have been met
3. VAT at 15% has actually been paid
4. The claiming of the input VAT is not specifically prohibited in terms of section 17(2) of the VAT Act.

Requirements for the claiming of input VAT

 Requirement 1:
Input VAT can only be claimed to the extent of making taxable supplies

We find the first requirement for input VAT in the principle of section 17(1) of the VAT Act:
Input VAT can only be claimed on the acquisition of goods or services IF those goods/
services will be used by the vendor for making taxable supplies.
• This could lead to an apportionment of input VAT if the vendor is not going to use those
goods or services 100% for the making of taxable supplies.

What happens if goods or services are not used 100% for the making of taxable supplies?
• Only a portion of the input tax (that part that relates to the making of taxable supplies) may be claimed.
• This leads to an apportionment calculation and a concept that is known as the ‘de minimis rule’.
• ‘De minimis’ comes from Latin and “it describes something that’s too small or insignificant to be of
importance”

The de minimis rule works as follows for VAT purposes:

+ X
If goods or services acquired are going to be If goods or services acquired are going to be used less
used 95% or more ( not less than 95%) for the than 95% ( 94% and below) for the making of taxable
making of taxable supplies, then no supplies, then apportionment is necessary and only the
apportionment is necessary and 100% of the portion of the input VAT that relates to the making of
input tax may be claimed. taxable supplies may be claimed.
 Determining the apportionment rate of input VAT

• While the percentage taxable supplies that a vendor makes are usually provided in scenarios
and questions, you could be required to determine the apportionment rate of input tax.
• In other words, instead of telling you that the percentage taxable supplies of a vendor is 80%
( non-taxable or exempt supplies are 20%), you are required to calculate the percentages.

The only method that you need to know is the turnover-based method.
• This is also the standard method of apportionment that is approved by SARS.
• If a vendor wants to use an alternative method for calculating the apportionment rate (or ratio)
of input tax, prior approval has to be granted by SARS.

The turnover-based method uses the following formula to determine the apportionment
rate of input tax:
 Requirement 2:
Documentary proof

The second requirement that has to be met before input tax can be claimed, lies in the
documentary requirements of the VAT Act, including tax invoices.

PRINCIPLE: Tax invoices are the driving force behind the VAT system and no input tax may
be claimed unless a vendor is in possession of a tax invoice.

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>

Requirement 3:
VAT at 15% must have been paid

Input tax (input VAT) is defined in section 1 of the VAT Act and includes the following:
• The actual VAT payable ( 15%) by a vendor when acquiring goods or services from another vendor
• This is requirement 3 for input VAT to be claimed the vendor must have actually paid VAT on the
supply of the goods/services at a rate of 15%.
• To put it in another way – the person who made the supply must have levied VAT at 15% (and not
0% or no VAT in the case of an exempt supply).

Notional input VAT on the acquisition of second-hand goods situated in SA

• Notional input VAT means that no output VAT was levied and yet we are allowed to claim input VAT.
• This is also sometimes referred to as deemed input VAT not real.
 Requirement 4:
Denial of input VAT (section 17(2)

In specific circumstances, input tax (input VAT) may not be claimed by a vendor, even if all
the relevant requirements are met.

In other words:
• Even if the goods/services will be used for the making of taxable supplies AND
• All documentary requirements are met AND
• VAT has been paid at 15%
• IF Section 17(2) of the VAT Act applies, no input VAT may be claimed it is specifically
prohibited.

There are three instances where input VAT is specifically prohibited/denied:

1) Goods or services acquired for entertainment (as defined) purposes
2) Acquisition of club membership fees and subscriptions
3) Acquisition of a motor car (as defined)

① Entertainment

SARS generally does not allow input VAT to be claimed on goods

or services that were acquired for the purposes of entertainment.

ENTERTAINMENT:
1. Businesses supplying entertainment
2. Personal subsistence
3. Taxable transportation services
4. Seminars or similar events
5. Prizes by vendors who receive bets
 CLUB
subscriptions
* The input VAT on any membership fees or subscriptions paid by a vendor for recreational, sporting or
private purposes is prohibited.
• These include membership of a country club, amateur boxing club, stokvel savings club, golf club,
soccer supporters club, etc.

* The input VAT on subscriptions to magazines and trade journals, that are directly related to the
enterprise of the vendor, is not prohibited and may be claimed.

* Input VAT is also not denied on the payment of professional membership fees, for example SAICA or
SAIPA membership fees, if the vendor is the actual member of the professional organization.

#The input VAT on any fees or subscriptions to professional organisations paid by a vendor on behalf if
his/her/its employees is prohibited and may not be claimed.
• The reason for this is that the invoice is issued in the name of the employee and not the vendor, which
means that the documentary requirements in section 20(4) are not
complied with.

② motor car

The input tax on the acquisition of a motor car, as defined, is prohibited.

Motor car is defined in section 1 of the VAT Act as follows:

If a vendor acquires a motor car (as defined), then the input VAT on that motor car is denied,
irrespective of whether all of the other requirements to claim input VAT, is met.
 The denial of input tax on the acquisition of a motor car does not apply in the following cases
( input VAT can be claimed):
• Car-dealers ( vendors who buy and sell motor cars on a regular basis)
• Car-hire/rental businesses ( vendors who rent out motor cars on a regular basis and are
continuously updating/replacing motor cars in their fleet).
• Vendors who supply the motor car as a prize in a betting operation (e.g. casinos).

NOTIONAL INPUT VAT

Requirement 3 for input VAT to be claimed is that input VAT can only be claimed if it
was actually levied and paid at 15%.
• The exception to this is known as notional input VAT – also referred to as deemed input VAT.
• Notional means ‘not existing in reality’ not real or actual
• Deemed means to consider something as having specific characteristics even though
something did not actually happen, we can deem it to happen and treat it as an actual event.

These are the requirements that have to be met for a vendor to be able claim notional input VAT:
• Acquisition of second-hand goods (as defined); AND
• By a vendor that will use it for the making of taxable supplies; AND
• Acquired from a SA resident who is either a non-vendor or a vendor that used the goods
100% for the making of exempt supplies; AND
• The goods are situated in South Africa.

There are also specific documentary requirements for notional input VAT.