The Power of Input VAT: A Guide to Maximizing Your Recovery

As a business owner, you're constantly looking for ways to optimize your operations and minimize your costs. One often-overlooked area is input VAT recovery. By understanding how to claim back the VAT you've paid on business expenses, you can unlock a significant source of savings and boost your bottom line.

The Basics of Input VAT Recovery

To start, let's cover the basics. Input VAT is the tax you pay on goods and services you purchase for your business. As a registered trader, you can recover this VAT, but only if you meet certain conditions.

First, you must be a registered trader for VAT purposes at the time of supply. This means you need to have a valid VAT registration number and be up to date with your VAT returns.

Next, the supplier must have made the supply to you as a taxable person. This means the supplier must have charged you VAT on the supply, and you must have a valid tax invoice to support your claim.

The Importance of Supporting Documents

Speaking of tax invoices, these are crucial for input VAT recovery. A valid tax invoice must contain all the necessary information, including the supplier's name, address, and VAT registration number, as well as the date of the supply, the description of the goods or services, and the amount of VAT charged.

But that's not all - the tax invoice must also be valid for three months from the date of issue. This means you need to claim your input VAT within this timeframe, or you risk losing out on your recovery.

What's Recoverable and What's Not?

Now, let's talk about what's recoverable and what's not. As a general rule, you can recover input VAT on business expenses, but there are some exceptions.

For example, input VAT on business entertainment, such as meals and accommodation (for a director), is not recoverable. Similarly, input VAT on motor cars that are not wholly used for business purposes is not recoverable, unless you're a car dealer or use the car for a taxi business or driving school.

On the other hand, you can recover input VAT on most business expenses, including office supplies, equipment, and services. However, there are some nuances to be aware of. For example, only 90% of the input VAT on petrol is recoverable, while no input VAT is recoverable on diesel.

Partial Exemption: A Common Challenge

One common challenge businesses face is partial exemption. This occurs when you make a mixture of taxable and exempt supplies, and you need to apportion your input VAT between the two.

To overcome this challenge, you can use various methods, including the turnover-based apportionment method. This method involves calculating the recoverable non-attributable input VAT based on your taxable supplies as a percentage of your total supplies.

Putting it into Practice

So, how does this work in practice? Let's say you're a retailer who makes both taxable and exempt supplies. Your total supplies for the year are K100,000, with K60,000 being taxable supplies and K40,000 being exempt supplies. Your non-attributable input VAT is K10,000.

Using the turnover-based apportionment method, you would calculate the recoverable non-attributable input VAT as follows:

Recoverable non-attributable input VAT = (Taxable supplies ÷ Total supplies) x 100

= (K60,000 ÷ K100,000) x 100

= 60%

You would then multiply the non-attributable input VAT by this percentage to determine how much VAT is attributable to taxable supplies.

By following these steps and understanding the rules and regulations surrounding input VAT recovery, you can unlock a significant source of savings and boost your bottom line. So, take the time to review your business expenses and ensure you're claiming back all the VAT you're entitled to. Your business?will?thank?you!