[FAQ] Input tax prior the effective date of registration

---

[FAQ] Input tax prior the effective date of registration

• 06 November 2020
• Accounting
• Christo Theron

Background

When a new company registers for VAT can the company claim input tax on capital and standard rated purchases made prior to the effective date of registration? How does the 5-year input tax prescription rule apply to the situation?

Answer

The VAT Act

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 on or after 30 September 1991, 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 16(3)(f) 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.

Documentary requirements

Interpretation Note 92 of the VAT Act determines that the following documents must be obtained and retained when a deduction is made in terms of section 16(3)(f) of the VAT Act.

• Goods or services acquired on a date falling within a period of 5 years immediately preceding the date of the adjustment:
  • The tax invoice issued and proof of the open market value of the goods (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).

The 5-year prescription rule

Proviso (i)(ee) to section 16(3) of the VAT Act determines that where a VAT vendor is entitled to deduct any amount in a particular tax period, the vendor may deduct that amount from the amount of output tax attributable to a later tax period which ends no later than 5 years after the end of the tax period during which the vendor for the first time became entitled to the deduction.

Application of the principles

• VAT on goods or services acquired prior to the date of registration as a VAT vendor may be claimed when the person registers as a VAT vendor in terms of section 16(3)(f) read with section 18(4) of the VAT Act.
• The deduction is limited to the extent that such goods or services will be used in the VAT registered business, for example capital goods held on the date of registration, trading stock on hand on the date of registration, rent paid before the date of registration to the extent that the rent relates to the period after registration as a VAT vendor, etc.
• The deduction must be made within 5 years from the effective date of registration as a VAT vendor. The fact that the goods or services have been acquired more than 5 years before the effective date of registration is irrelevant.
• The deductions are always subject to the appropriate documentation being held by the VAT vendor making the deduction.

Webinar Commentary

For further webinar commentary, view our webinar on VAT record-keeping requirements.

 

FAQs

1. Can I claim input VAT on purchases made before my VAT registration date?

Yes, you may claim input VAT on goods or services acquired up to 6 months before your VAT registration date, provided those items were not yet used, are still on hand at the time of registration, and were used to make taxable supplies.

2. What is the effective date of VAT registration in South Africa?

The effective date of VAT registration is the date from which a vendor is considered registered and liable to charge VAT on taxable supplies. This date is set by SARS and appears on your VAT103 certificate.

3. What are the conditions for claiming pre-registration input VAT?

To claim input VAT incurred before registration:

• The goods must be on hand on the effective date

• They must be intended for taxable business use

• You must have valid tax invoices

• Claims must be made within 5 years of the effective date

4. How do I claim input VAT from before VAT registration?

Declare the pre-registration input VAT on your first VAT201 return under the field for "Input tax on goods on hand at registration". Ensure you retain proof, such as invoices, inventory records, and evidence of intended taxable use.

5. Can I claim input VAT on services received before registering for VAT?

Yes, but only on qualifying services received within 6 months before your registration date. These services must directly relate to taxable activities and cannot include capital goods or services already consumed.

6. Is input VAT claimable on fixed assets bought before VAT registration?

Yes, fixed assets (like equipment or furniture) still in use on your registration date may qualify for an input VAT claim, provided they were acquired for business use and meet SARS’s documentation and timing requirements.

7. What if I used the goods before I was VAT registered?

If goods were fully used or consumed before your VAT registration date, you cannot claim input VAT on them. Only items still on hand and used for taxable purposes after registration are eligible.

8. Do I need a valid tax invoice for pre-registration VAT claims?

Yes, SARS requires a valid tax invoice that complies with VAT Act requirements. Without this, your input tax claim may be denied, even if the goods are otherwise eligible.

9. Can I claim VAT on stock held at the time of VAT registration?

Yes, you can claim input VAT on stock on hand at the time of VAT registration, provided it was acquired within 6 months, is used to make taxable supplies, and is supported by valid invoices.

10. What is the time limit for claiming pre-registration input VAT in South Africa?

You must claim input VAT within 5 years from the date of registration. Claims made after this period may be disallowed, so it’s essential to process them on your first VAT return or as soon as possible thereafter.

0 COMMENTS

LEAVE A COMMENT