From the desk of Peter Franck…

How will deregistering from Vat affect your home-business?

With the threshold for compulsory Vat registration increasing from R300 000 to R1 million, many small businesses operating from home will now be leaving the Vat system.

If you have decided to deregister, the question you may be asking yourself is this: “Do I have to pay exit Vat on my home?”

The answer is no if its your private home, or a house you let for residential purposes.

However, if you use part of your home for a Vat-registered business, you might have an exit Vat liability!

When do you have to pay exit Vat?

• Even if you bought a private house before Vat was introduced and used, or let it for business purposes, you’ll have to declare exit Vat if you deregister.
• If you bought it before 30 September 1991 (when Vat was introduced), used it mainly (50% +) as your home and you didn’t claim input tax on it, you needn’t declare Vat on it when you deregister.
• If you bought it after 30 September 1991, and claimed Vat on the business portion thereof, you’ll have to declare Vat on it when you de-register.

How is the exit Vat calculated?

• You declare Vat on the lower of the cost, or the current market value; and
• You claim the portion of the Vat you previously didn’t claim as input tax.

Example

Dr Cureall, a general practitioner, operates from a home-based surgery, which makes up 30% of the area of his home.

He bought the house in 1998 for R342 000, and claimed 30% of the Vat on the purchase price as input tax (30% of R42 000 = R12 600). The market value of the house is now R1 million.

His annual fee income is R800 000 and he decides to deregister as a vendor, but will carry on his practice as a non-vendor. This is a positive development for his patients as they’re non-vendors).

He must declare exit Vat on his house, but on the lower of the cost or the market value, thus:-

R342 000 x 14/114                                     R42 000       
less the Vat he previously could claim (R42,000 - R12,600)        R 29 400
Exit Vat payable to SARS                        R12 600

He must also declare Vat on his movable assets (his stock of medicines, office furniture, computers and his medical equipment) - but also on the lower of the cost or market value.

If he is on the payments (cash) basis of accounting for Vat, he must also declare output tax equal to the tax fraction (14/114) of his collectible debtors.

He should also pay all his creditors (suppliers) so that he can claim the input tax which is claimable only when he pays – if he doesn’t, he will lose this input tax once he has deregistered.

Remember, this Vat is payable over six months, interest free.

A little good news: because input tax isn’t allowed on the Vat paid on the cost or rental of a motor car, no exit Vat is declared on a motor car when the vendor deregisters!

That’s it from me! Nothando will be back with more Vat news in a fortnight.

Peter Franck
Editor in Chief
The Practical Vat Handbook