How does notional input tax work when it comes to repossessed goods?

Simangele Mzizi, Fsp Business, 08 Sep. 2014

Tags: sars penalties, notional input tax, notional input tax and second-hand goods, vat

You probably know that notional input tax is the Vat you can claim on a non-taxable purchase of second-hand goods for your business.

But do you know how notional input tax work when it comes to repossessed goods? Does it even apply at all?

Read on to find out the answer so you won’t make any mistakes that could result in SARS penalties.

What you need to know about notional input tax rules for repossessed goods

Sometimes buyers fail to make the agreed payments under an installment credit agreement.

The reality is that the tough economic times are just making it difficult for most people to stick to their payments obligations. When this happens, you can repossess the goods.

That’s when notional input tax comes into play.

If you repossess goods, the Vat Act deems that the debtor is supplying the goods to you!

This means you must give him a credit note for the portion of the purchase price not paid.

You can then use this to claim notional input tax.

But, there’s just one condition.
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You must have the right documents to claim notional input tax

According to the Practical Vat Loose Leaf Service, the records you must have include:
  • The name and ID number of the seller, as well as a copy of his ID;
  • If the seller is a company, the name and ID number of the person representing the company and the company registration number, as well as a copy of the person’s ID together with a copy of a letterhead of the company which verifies the company’s name and registration number;
  • The date of the purchase/transaction;
  • A description of the goods;
  • The quantity or volume of the goods; and
  • The amount paid for the goods.

Now that you know how notional input tax works when it comes to repossessed goods, handle it correctly and avoid SARS penalties.

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