A company bought two 4-ton trucks and one 6-ton tipper truck between 2017 to 2019, before they became liable to register for VAT. In March 2020 they registered for VAT as they reached the compulsory registration threshold. They want to claim the VAT
Important:
This answer is based on tax law year ending 28 February 2021.
Answer:
The VAT Act Sections of the VAT Act dealing with pre-registration adjustments
Section 16(3)(f) of the VAT Act allows a vendor a deduction of amounts calculated in accordance with, amongst others, section 8(4) of the VAT Act.
Section 18(4)(b)(i) of the VAT Act determines that where goods or services have been supplied to or imported by a person and VAT has been charged on the supply, and no deduction of input tax has been made, such goods are deemed to be supplied to the vendor in the tax period that the vendor first uses the goods or services in a taxable activity.
The formula to compute the quantum of the deduction in terms of section 18(4) of the VAT Act is: A x B x C x D, where “A” represents the tax fraction (currently 15/115), "B" represents the lesser of the adjusted cost of the goods or the open market value of the goods or services at the time when the supply is deemed to be made, “C” represents the percentage taxable use to which the goods or services will be put, and “D” represents the extent to which the purchase price of second-hand goods have been settled.
Sections dealing with documentary requirements Section 16(2)(f) of the VAT Act determines that no deduction may be made by a vendor unless the vendor is in possession of the documentation prescribed in by the Commissioner to support the deduction.
The documents that must be obtained and retained are contained in VAT Interpretation Note 92 (“the IN”)
The IN Item E under Paragraph 3 of the Interpretation Note requires that the vendor making a deduction under section 16(3)(f) of the VAT read with section 18(4) thereof, must be in possession of the original tax invoice issued and proof of the open market value of the goods or services (the fact that the original tax invoice does not contain the recipient’s VAT registration number is irrelevant as it was not a requirement for a valid tax invoice prior to registration as a VAT vendor).