Exempt… or not exempt? When certain goods or services entirely fall away from VAT
Just lately, we have seen a lot of confusion among vendors when it comes to exempt supplies.
VAT in South Africa is charged at the well-known 14% standard rate. Another rate of VAT, perhaps best known because of certain foodstuffs (e.g. mealie meal) is the zero rate of VAT. Even though the zero rate is technically NIL VAT, a vendor who supplies zero-rated goods or services, can still register for VAT and claim input tax. However, there are certain goods and/or services which entirely fall away from VAT. These are known as exempt supplies.
What is exempt?
· Financial services (e.g. interest, long term or life insurance)
· Sales of donated goods by an association not for gain
· Residential rentals
· Sale of land not situated in South Africa (e.g a holiday home in the south of France)
· Levies, charged by body corporates
· Road and rail transport, of fare paying passengers, within South Africa
· Educational services
· Trade unions, bargaining councils and political parties
· Crèches and after care fees
Why do you need to know this?
If your business operates by supplying any of the above, then you fall away from VAT liability. This means that you would never register for VAT. Even if your turnover in the previous 12 months was more than the VAT registration threshold (currently R1 million), you are never liable to VAT register if you are supplying services which are vat exempt. Subsequently, you would never be entitled to any input tax claims either.
Let’s look at an example:
“Just Learn” is a non-profit organisation which operates six high schools, for disadvantaged children, in Limpopo. “Just Learn” receives grants from the Department of Education, of R20 millions per year, in lieu of school fees.
Because “Just Learn” is supplying educational services, they will never register for VAT – even though they receive an income of R20 million per year. And the reason they’ll never register is because they’re providing exempt from VAT services.
If you are still unsure about exempt supplies, why not sign up for one of my training courses. Send me a mail and I’ll be sure to let you know when my next training is.