[FAQ] The VAT implications for multiple enterprises in one company

[FAQ] The VAT implications for multiple enterprises in one company

• 19 January 2021
• VAT
• Christo Theron

Background

A taxpayer recently started a business of delivering fast food. He is in the process of registering as a VAT vendor. He also owns trailers which he rents out as a sole proprietor. He would like to bring the trailers into the business. He has established clients renting the trailers on a monthly basis paying rental excluding VAT.

Can the trailers and delivery business fall under the same company and will he be liable for VAT on the rental from the trailers if he brings the trailers into the company?

Answer

The VAT Act

Section 7(1)(a) of the VAT Act imposes VAT, subject to the exceptions, exemptions, deductions and adjustments, on the supply by any vendor of goods or services supplied by him in the course or furtherance of any enterprise carried on by him.

“Enterprise” is defined in section 1(1) of the VAT Act as any enterprise or activity which is carried on continuously or regularly in or partly in the Republic [of South Africa] and in the course or furtherance of which goods or services are supplied to any other person for a consideration.

Section 23(1)(a) of the VAT Act determines that every person who carries on a VAT enterprise and is not registered as a VAT vendor becomes liable to be registered at the end of any month where the total value of taxable supplies made by that person in the period of 12 months ending at the end of that month in the course of carrying on all enterprises has exceeded R1 million.

Section 8(11) of the VAT Act determines that a supply of the use or the right to use or the grant of permission to use any goods under any rental agreement, instalment credit agreement, charter party, agreement for chartering or any other agreement under which such use or permission to use is granted, is deemed to be a supply of goods.

Application of the principles

The company would constitute a person for VAT purposes. There is nothing in the VAT Act that prohibits any person from carrying on more than one enterprise for VAT purposes. The trailer-rental business may accordingly be transferred to the company, in which case the company will be carrying on two enterprises (i.e. trailer renting and delivery services).

The sale of the trailers to the company would not be subject to VAT as the sole proprietor is not registered as a VAT vendor (and we assume should not be registered as such). The company would be entitled to a notional input tax deduction on the acquisition of second-hand goods (the trailers) (see section 16(3)(a)(ii)(aa) of the VAT Act read with the definition of “second-hand goods” in section 1(1) of the VAT Act).

VAT will be payable on the rental charges once the company is registered as a VAT vendor being a supply of goods for VAT purposes.

Webinar Commentary

Further webinar commentary on 2020 Webinar: Risks and rewards of VAT governance can be accessed here.

1 COMMENTS

LEAVE A COMMENT