More VAT

[Jody]

Hi All. I am new to the forum and to having my own business, so please bear with the mewbie questions

I am a consultant in the engineering field and have registered a cc but am not yet VAT registered. My client's don't loose out on VAT since our rates are always quoted "ex VAT" and I am thus 14% cheaper than my VAT registered counterparts.

What I wish to know is exactly which expenses I may claim back if I were VAT registered? I keep hearing of people claming the VAT back that they pay on EVERYTHING they buy! Car installments, fuel, maintenance, home appliences, office furniture, entertainment etc.... etc... etc... and that the benefits they recieve from claiming VAT back apparantly actually saves them alot of money. Is this possible (legally )

For example my greatest asset is my laptop. If I purchased it for R10 000 (excl. - R11 400 incl) then would I be able to claim back the R1400 VAT that I paid? I am not planning to sell it to make a profit, but I use it to do my work. The same could apply to vehicle costs, services maintenace and entertainment etc. If I add all the VAT paid for these "business related" expenses, then could I not reach a state where I am claiming back more VAT from my expenses than I am paying for the work I am selling? Would this not then save me money? It would however indicate that no value has been added by my work!

I, personally, have stayed away from registering for VAT to keep things simple(The company was only registered this year) . Am I perhaps making a mistake?

Thanks for your input.

Jody

[Dave A]

Hi Jody - and welcome to TFSA

I can see a few problems in your list. For starters, petrol does not have VAT on it, so you can't claim input VAT on petrol. However, oil does have VAT on it and input VAT could be claimable

On vehicles, you can't claim input VAT on cars, but you can claim input VAT on most LDVs.

Entertainment is another interesting one. I understood that you could claim input VAT for the VAT of your client's meal, but not on your own. However, just last week I was at a seminar on VAT where the presenter said we could not claim input VAT on entertainment unless we were a resturant or otherwise in the entertainment business. That had me scratching my head, I'll tell you

As to whether you should register or not, my view is that is mainly affected by how many of your clients are registered as VAT vendors. There are other views on whether to register for VAT here.

[geraldenek]

I agree with Dave.

The main thing is you should look at is your profit (excl. depreciation, finance charges, fines, penalties etc.)

The service industry is not the best one to register for VAT. Your income is high, but your expenses are low, thus resulting in you paying the whole time. But if your income exceeds R300 000 or there are reasonable grounds exist for believing that taxable supplies(turnover) will exceed R300 000 in one year you should register for VAT.

The other thing to consider is if all your suppliers are VAT registered, it does not help if you can't claim tax back.

But seeing that you are a CC, you have got an accountant, so the best thing is to go and speak to him, and he will be able to assist you. Because you will have to look at the figures.

[Jody]

Dave, Gerald.

Thanks for your advice. I am meeting with my accountant tomorrow to look at the figures...

[Herman Smit]

Vat On Light comercial vihecles

Hi as some of us being new on the forum and reading some questions i also lack the full understanding of Vat on bakkies.
I am one of two members in a project company and so far all vihicles(bakkies )were financed by the bank IN MY PERSONAL NAME. The company pay the installments every month. All payments are deducted outomatically on the first of every month. These vihecles are very esential for the company without it we will not be able to operate. Our company is vat registered and it (vat) goes of at the end of every fourth month. I want to clame as input vat. Is it legal.
So there, my first problem i need help with.
Regards
Herman

[Dave A]

Are the vehicles owned in your name too?

[duncan drennan]

Single or double cab bakkie?

[Herman Smit]

Hi Dave , Duncan
Thanks for the response
Yes the bakkies are in my name,and i am the md of our company.
And no it is not Dubble cabs it is in fact long wheel based and all of them (4) has 2.5 lt enjins and each does about 10 000Km in the course of three months.

[Dave A]

Unless you're personally VAT registered, I can't see the company being able to claim input VAT. They are effectively renting the vehicles from you (how are you allocating the payments in the company books?).

The upside is you can treat the whole thing as a sole proprietor type business. Assuming a financial lease, with depreciation and finance charges to offset income (the company payments), it could even reduce your personal tax bill with a loss at first, although the nett effect over full term should be zero if the company is paying exactly the same as the installments. If it is hire purchase, there will be a nil tax effect through the finance term. However, you will have to capitalise at the end of the financial agreement and that could get interesting. (I'm assuming in all this you are financing without a residual).

Whilst you might be losing on the input VAT claim now for the company, this should be more than made up by the income in your own hands when you dispose of the vehicles Ultimately the whole VAT business is a zero sum game - its main effect is it produces shifts in cashflow.



Have the company insure the vehicle in their own hands as part of their conditions of use, though

[Dave A]

Hmm. Got a bit verbose and off-topic there. The crux is deemed input VAT applies to the sale of second hand goods.