Distinguish Between Zero-Rated VAT, Exempt VAT & Non-Taxable Supplies
All supplies could be classified as exempt, zero-rated or standard rated for VAT purposes. Supplies that are standard-rated or zero-rated are considered to be ‘taxable supplies’ as defined.
The supply of goods and services are generally subject to VAT at the standard rate (20%), unless such supply is specifically zero-rated or exempt in terms of the VAT Act.
A zero-rated supply is a taxable supply on which VAT is levied at the rate of 0%. No output tax will be payable to HM Revenue & Customs in respect of zero-rated supplies. Registered VAT entities making zero-rated supplies are entitled to claim their input tax deductions on goods or services acquired in the course of making such taxable supplies.
An exempt supply (i.e. not a taxable supply) is the supply of goods or services on which no VAT rate is chargeable. Registered VAT entities may not claim an input tax deduction in respect of goods or services acquired in the course of furtherance of making exempt supplies. A person that makes only exempt supplies cannot register for VAT as they are not providing taxable supplies as per the VAT Act.
Where goods and services are purchased for taxable and non-taxable purposes, only a portion of the input tax may be claimed. VAT registered entities making mixed supplies (taxable and exempt supplies), are required to apportion their input deduction to the extent to which the entity has utilised the goods or services in the course and furtherance of making taxable supplies.
Confusion often exists about ‘VAT at a Zero-Rate’, ‘Exempt supply’ and ‘Non-supply’. The main difference between zero rate and exempt supplies is that the suppliers of zero-rated goods and/or services can still reclaim all their input VAT, but the suppliers of exempt goods are either not registered for VAT or if they are, they cannot reclaim their input VAT. Examples of VAT at a Zero rated items and services include:
- Petrol leaded or unleaded;
- Mahango, mahango meal, maize meal and bread, but not as a prepared meal;
- Water and electricity to a residential account;
- Selling of residential property;
- Fresh milk
- Sunflower oil
For more information on anything related to VAT feel free to get in touch with one of our experts.
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