Often VAT vendors purchase goods from non Vendors (who consequently do not charge VAT on the sale of the item). Section 20 (8) of the Value Added Tax Act, 1991 allows the Vendor to claim an amount as input deduction on the purchase of this item as follows:
Purchase price – R100 X 14/114 = R12.28.
A fairly simple concept, but the claiming thereof is subject to certain documentary requirements.
Section 20 (8) states the following:
Notwithstanding anything in this section, where a supplier makes a supply (not being a taxable supply) of second-hand goods or of goods as contemplated in section 8(10) (which deals with goods subject to instalment sales agreements) to a recipient, being a registered vendor, the recipient shall, in the form as the Commissioner may prescribe, maintain a declaration by the supplier stating whether the supply is a taxable supply or not and shall further maintain sufficient records to enable the following particulars to be ascertained:
(a)
(i)The name of the supplier and—
(aa)where the supplier is a natural person, his identity number; or
(bb)where the supplier is not a natural person, the name and identity number of the natural person representing the supplier in respect of the supply and any legally allocated registration number of the supplier:
Provided that the recipient—
(A)shall verify such name and identity number of any such natural person with reference to his identity document, as contemplated in section 1 of the Identification Act, 1997 (Act No. 68 of 1997), and retain a photocopy of such name and identity number appearing in such identity document; or
(B)shall verify such name and registration number of any supplier other than a natural person with reference to its business letterhead or other similar document and retain a photocopy of such name and registration number appearing on such letterhead or document; and
(ii)the address of the supplier;
(b)the date upon which the second-hand goods were acquired or the goods were repossessed or surrendered, as the case may be;
(c)a description of the goods;
(d)the quantity or volume of the goods;
(e)the consideration for the supply; and
(f)proof and date of payment.
In addition to the above information, the seller also has to complete a VAT264 form which requires certain information (as stated above) to be physically provided to the purchaser. These are:
-Copy of Identity Document of the seller (if an individual)
-Copy of the company documents/trust deed if a legal entity. The VAT264 states a letterhead of the legal entity is sufficient, but rather obtain more information.
-Valid tax invoice from the seller (non Vendor) complying with all the requirements of a valid tax invoice.
-The seller also has to sign the VAT264 form.
On a final note, the definition of second hand goods are fairly wide, as Section 1 of the Act states:
“second-hand goods” means—
(a)goods which were previously owned and used; or
(b)in respect of the transfer of a unit in the circumstances referred to in Item 8 of Schedule 1 to the Share Blocks Control Act, such unit, (this refers to Sectional Title properties)
but does not include—
(i)animals;
(ii)gold coins contemplated in section 11(1)(k);
(iii)any prospecting right, mining right, exploration right, production right, mining permit, retention permit or reconnaissance permit as defined in section 1 of the Mineral and Petroleum Resources Development Act, 2002 (Act No. 28 of 2002), or any reconnaissance permission contemplated in section 14 of that Act granted or renewed in terms of that Act or received upon conversion pursuant to Schedule II, except when that prospecting right, mining right, exploration right, production right or interest in that right is transferred, ceded, let, sublet, alienated, varied or otherwise disposed of as contemplated in section 11 of the Mineral and Petroleum Resources Development Act, 2002;
(iv)any fixed property acquired in terms of the Provision of Land and Assistance Act, 1993 (Act No. 126 of 1993); and
(v)any fixed property acquired in terms of section 42E of the Restitution of Land Rights Act, 1994 (Act No. 22 of 1994);