Working With VAT Input Tax

When you enter your purchases, you need to select the VAT code for the expense. You should select the VAT code that is applicable for you. This means that a supplier may include VAT on a bill, but if you cannot claim VAT on that expense, you have to use the 0-rated code. When you use the 0-rated code on an expense, the VAT billed by your supplier is treated as an expense.

A typical example of this is when you have entertainment expenses for your employees. As far as VAT is concerned, entertainment is not 0-rated, so the entertainment provider has to include VAT. However, VAT on entertainment expenses cannot be claimed as input tax. In such circumstances, although the supplier invoice includes VAT, you need to select 0-rated input tax.

To read more about VAT Output Tax (for income), click here.

South Africa has the following VAT codes for input tax:

SMARTEDGE Tax Code	Short Name	Description
0	N/A	VAT NOT APPLICABLE
10	0-rated	0-rated
12	14%	14% Normal Rate Non-Capital Goods
13	14% CG	14% Capital Goods
15	14% BD	14% Bad Debts
16	14% CIU	14% Change In Use
18	14% CR	14% Received Credit Notes
13	14% 28+	Accommodation exceeding 28 days. 60% VAT Discount gives and effective VAT of 8.4%

Tax Codes For Day-To-Day Operations

N/A

The Not Applicable code is usually not used for input tax. The 0-rated code is used instead.

0-rated

The 0-rated code is used when you cannot claim any input tax for the expense. In this case, no tax will be calculated on the VAT return.

14%

This is the standard VAT code for most expenses. However, this code should not be used, unless the supplier invoice explicitely shows that VAT has been claimed at 14%. The tax amount for this tax code will be declared in field 15 on your VAT return.

When importing goods, you do not pay VAT to your supplier, but you do pay VAT to Customs & Excise or a freight forwarder. When you enter the supplier invoice, the 0-rated code should be used instead of 14%, and you should capture a VAT invoice for imports. This is a bill Customs & Excise (or the freight forwarder) sends you. Go here to read more about VAT invoice for imports.

14% CR

This is a special VAT code that should be used when you receive Credit Notes only, and when the credit note is based on an invoice that was not issued in the same tax period. VAT claimed (charged) on such credit notes should be declared in field 12 on the VAT return, as an output tax.

If the credit note is based on an invoice that was issued in the same tax period, you should use the normal tax code 14% on the credit note as well. When you use this tax code, the tax amount will be declared in field 15 on the VAT return.

Tax Codes For Special Situations

14% CG

This VAT code should be used only on purchases of capital goods. An example of capital goods are fixed assets. When you buy a fixed asset, this VAT code should be used. The tax amount for this code will be declared in field 14 on your VAT return.

For imports of capital goods, follow the procedure described under the VAT Code 14%.

14% CiU

This VAT code should be used only when you change the use of your assets. You should consult your accountant or SARS before using this tax code. The tax amount for this code will be declared in field 16 on your VAT return.

14% 28+

This code should be used for rented accommodation with a rental period of more than 28 days. In such cases the supplier will give a 60% VAT Discount. SMARTEDGE calculates this tax by using an effective tax rate of 8.4%.

14% BD

This VAT code should only be used when writing off bad debts. The tax amount for this code will be declared in field 17 on your VAT return as an input tax, because you are claiming back tax that was originally paid as an output tax.