“When do I need to apportion input tax?”

Simangele Mzizi, Fsp Business, 14 Nov. 2014

Tags: apportionment, input tax, how to apportion input tax, when to apportion input tax

Dealing with input tax is a complex subject for many Vat vendors.

The high number Vat vendors who get penalised by SARS for claiming input tax incorrectly and the large number of questions our experts get on the topic is proof of this.

But there’s no judgement here, we’re here to help even if it’s by answering one question at a time.

One question we’ve picked from the big pile comes from a vendor who wants to know when he should apportion input tax.

Read on to find out the answer so you can apportion input tax correctly and avoid penalties.

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Here’s when to apportion input tax

According to experts behind the Practical Vat Loose Leaf Service, fortunately, most vendors only make taxable supplies, so apportionment isn’t a problem for them.
But, if you make both taxable and exempt supplies, it’s a different story. You’ll have to consider apportionment. For example, you run a gym studio (taxable) and a crèche (exempt) from the same premises.
You must establish an apportionment ratio for the financial year and apply it to all mixed-use goods and services.
According to the experts, in practice, it’s difficult to accurately determine the apportionment percentage for every tax period, as your income from taxable and exempt supplies may vary from period to period.
Due to this, SARS allows you to calculate the estimated percentage, using the turnover figures from the previous years’ financial statements. You then apply that percentage claim as input tax for each individual tax period for the current year.
You must then make an annual adjustment to account for any shortfall or over-estimation in the percentage used for the apportionment calculation.
You must do the adjustment after the financial year-end statements have been completed.
The reason for this is that you’ll now have actual amounts on which to calculate your apportionment and can thus determine whether you under- or over claimed Vat for the previous financial year. That way, SARS can’t come pointing fingers at you saying you’ve claimed too much.

Be warned! If you don’t apportion input tax correctly SARS will hit you with harsh penalties

If you don’t apportion input tax correctly, the danger is you could end up claiming the full amount even when you’re not entitled to the claim.
When this happens, SARS will be ready to pounce on you.
If SARS finds you claiming input tax where you shouldn’t, or, where you’re only entitled to a portion, it will levy a 10% penalty and monthly interest on the amounts you claimed that you shouldn’t have.
Don’t take chances, apportion input tax correctly now that you have the know-how.
PS: Check out the Practical Vat Loose Leaf Service to discover six tips to use to your advantage when dealing with apportionment.

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