[Question] VAT Registration date after date of commencement of instalment sale agreement

[J7J]

Hi all,

What happens if an entity is registered for VAT on say 1 February 2012, but has a instalment sale agreement in place that commenced before that date (say January 2012).

For illustration purposes, let me use some figures:

On 1 January 2012, instalment sale agreement for stock purchase of R1,000,000 (excl VAT), R1,140,000 (incl VAT) commenced. The agreement is signed on that date and a tax invoice for this purchase is issued by the supplier. The date of the invoice is 1 January 2012. The supplier is registered for VAT, but the purchaser is only registered for VAT on 1 February 2012.

Per the instalment sale agreement, the outstanding amount is payable over 6 months. The first instalment of R190k (R167k excl VAT) was paid on 1 January 2012. The purchaser allocated the full amount of R190k to stock, as VAT input can not be claimed. The seller accounts for R23k Output VAT and R167k is allocated to turnover.

The entries on 1 January 2012 are as follows (purchaser):

Dr Stock R1,140,000 (full value incl VAT as not yet registered for VAT)
Cr Supplier R1,140,000

Dr Supplier R190,000
Cr Bank R190,000

The second instalment of R190k (R167k excl VAT) was paid on 1 February 2012. Can the purchaser allocate R167k to stock and claim back R23k Input VAT on this transaction? He is registered for VAT from 1 February 2012, but the invoice date is before that date?

Please advise...

Thank you!

[geraldenek]

no, you won't be able to claim the vat on the transaction as the contract date was 1 Jan 2012 - the business is registered on the invoice basis - not on the payment basis so regardless of when he pays the amount he won't be able to claim the vat

[CLIVE-TRIANGLE]

The supplier is registered for VAT, but the purchaser is only registered for VAT on 1 February 2012.

Why was this?
Is the purchaser incorporated? Is so, when?

[J7J]

Why was this?
Is the purchaser incorporated? Is so, when?

The purchaser is operating in a company (company registered in 2011). We did the VAT Reg application and the effective of registration on the VAT 103 is 1 February 2012.

[CLIVE-TRIANGLE]

1. In terms of Section 18 (4)(b) you can, as a change in use, claim the vat on assets that you use to make taxable supplies, in your hands on registration.
2. Section 19 allows you to claim VAT on pre-incorporation expenses, provided the company has reimbursed whoever paid for it, in full, and it is incurred within 6 months prior to registration. Note that a loan account entry might well not cut it...

[J7J]

Thank you very much for the responses. Really appreciate it.