VAT – who charges what and why?

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When it comes to VAT, there has always been a bit of confusion. Even if you see yourself as fairly well-informed, there are little things that still trip you up. The general premise of VAT is that it is an indirect tax that you are charged when you buy a product or service. You as business owner will charge VAT on your product or services IF you are VAT-registered, and claim VAT on the products or services you consume in your business.

The difference between the VAT you have charged and the VAT you are claiming back, will be the amount you will need to pay to SARS. When the amount you are claiming back exceeds the amount you have charged in VAT, you will be due a refund from SARS.

There are two VAT categories that products and services fall under: Taxable and Exempt. Under Taxable you get two further types: VAT charged at 15% and VAT charged at 0%. You will charge VAT at 0% when you are for example a farmer. What this means is that you will charge VAT at 0% on your products, so the VAT charged amount is R Nil. But that means that you get to still claim all the VAT you paid on products and services required to produce your products. This is where Exempt products or services massively differ.

When you deliver products or services that are exempt from VAT (even though you are VAT registered), you are not allowed to claim the VAT that you were charged in the course of delivering that product or service. This is the case if you are for example a Financial Services Provider. But not all services a Financial Services Provider delivers falls under the Exempt category. Services like bank accounts are not a Financial Service, but more an administrative service. Therefore your bank will be able to charge you VAT at the rate of 15% for bank charges. Your bank won’t be able to charge you VAT on the interest of a loan, as a loan falls in the definition of a financial service.

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