Value-added tax (VAT) in South Africa works as a collection mechanism: businesses collect VAT from customers (output VAT), offset it against the VAT they paid to their own suppliers (input VAT), and pay the difference to SARS on the VAT201 return. Understanding this offset is the foundation of VAT compliance under the VAT Act 89 of 1991 (SARS: VAT, 2024).
Key Takeaways
- Output VAT: the 15% VAT you charge customers on standard-rated supplies - held on behalf of SARS until remitted.
- Input VAT: the VAT you paid on business purchases - claimable only on valid tax invoices from registered vendors.
- Net VAT = output minus input: positive means you pay SARS; negative means SARS refunds you.
- The VAT-inclusive to VAT-exclusive calculation is 15/115 - not 15% of the total.
Output VAT: what you collect
Output VAT is the VAT you charge on supplies you make to customers (VAT Act 89 of 1991, section 7). When you sell goods or services at the standard rate of 15%, you add 15% to the price - or include it in an all-inclusive price. That 15% is output VAT, held on behalf of SARS until you remit it on your VAT201 return.
Example:
You sell a service for R10,000. You add VAT at 15%: R1,500. Your customer pays R11,500. Of that, R1,500 is output VAT owed to SARS.
Output VAT also arises on:
- Deemed supplies (goods taken from business stock for personal use).
- Supplies made by barter or exchange, valued at market value.
- Certain fringe benefits provided to employees where VAT applies.
Input VAT: what you reclaim
Input VAT is the VAT you paid to your suppliers on goods and services acquired for your business (SARS: VAT). If you paid 15% VAT to a registered vendor and that purchase is used for making taxable supplies, you can deduct that input VAT from the output VAT you owe.
Example:
You buy office supplies costing R2,000 including VAT. The input VAT is R2,000 × 15/115 = R260.87. You can claim this as input VAT.
To claim input VAT, you must hold a valid tax invoice from a registered VAT vendor. You cannot claim input VAT on:
- Purchases from non-VAT vendors (they cannot charge VAT).
- Non-compliant tax invoices (missing required fields like “Tax Invoice”, VAT number, etc.).
- Blocked expenses - entertainment, certain motor vehicles.
- Exempt or non-supply purchases.
The VAT offset: your net VAT position
At the end of each tax period, you calculate:
Output VAT − Input VAT = Net VAT
- If output VAT exceeds input VAT: you pay the difference to SARS.
- If input VAT exceeds output VAT: SARS owes you a VAT refund.
Businesses with high input costs relative to their sales - for example, exporters making zero-rated supplies - often receive VAT refunds rather than owing VAT to SARS.
Worked example: a vendor’s VAT period
A design studio’s two-month VAT period looks like this:
| Amount (excl. VAT) | VAT | |
|---|---|---|
| Sales (standard-rated) | R200 000 | R30 000 output |
| Software and equipment bought | R40 000 | R6 000 input |
| Other supplier costs | R20 000 | R3 000 input |
| Net VAT due to SARS | R21 000 |
Output VAT of R30 000 less input VAT of R9 000 = R21 000 payable on the VAT201. Had the studio instead been an exporter charging 0% on that R200 000, output VAT would be nil but the R9 000 of input could still be claimed - turning a R21 000 payment into a R9 000 refund. That is the practical difference zero-rating makes.
Zero-rated supplies and input VAT
Zero-rated supplies are taxed at 0% - you charge no VAT on the supply, but you can still claim input VAT on expenses used to make those supplies (SARS: Zero-Rated Supplies). This is a significant advantage over exempt supplies.
Exports are the most common zero-rated supply. An exporter can charge 0% VAT on the export but still claim all input VAT on the production and shipping costs, resulting in a net VAT refund from SARS.
Exempt supplies: no input VAT
For exempt supplies (residential rental, certain financial services, some educational services), no VAT is charged to the customer and no input VAT can be claimed on related costs. If your business makes a mix of taxable and exempt supplies, you need an apportionment calculation to split input VAT claims between the taxable and exempt portions.
The VAT-inclusive vs VAT-exclusive distinction
On your VAT201 return:
- Sales amounts go in VAT-exclusive (before adding VAT) - SARS calculates output VAT at 15%.
On a VAT-inclusive invoice, input VAT is extracted at 15/115 of the total price:
- R1,150 (VAT-inclusive at 15%) → Input VAT = R1,150 × 15/115 = R150.
Getting this wrong - applying 15% to a VAT-inclusive total instead of 15/115 - results in an overstated input claim that SARS may disallow in a VAT audit.
VAT conversions at a glance
| To get | From | Calculation |
|---|---|---|
| VAT-inclusive price | exclusive price | × 1.15 |
| VAT-exclusive price | inclusive price | ÷ 1.15 |
| VAT portion of a price | inclusive price | × 15/115 |
| VAT to add | exclusive price | × 15% |
Keep this handy: most VAT-201 errors come down to using the wrong one of these four.
Common mistakes
- Claiming input VAT using 15% instead of 15/115 on VAT-inclusive invoices.
- Claiming input VAT before receiving a valid tax invoice.
- Including exempt or zero-rated purchases in the input VAT field when no VAT was charged.
- Claiming input VAT on entertainment or other blocked expenses.
- Not separating output VAT from the VAT-inclusive total received when entering figures in the VAT201.
Frequently Asked Questions
Can I claim input VAT on a purchase if I haven’t paid the supplier yet?
Generally, you can claim input VAT once you hold a valid tax invoice from a registered VAT vendor and the supply has been made. If you account for VAT on an invoice basis, the tax period in which you receive the invoice is typically when the claim arises. Verify the precise timing rules for your accounting basis with a tax practitioner.
What is the difference between zero-rated and exempt supplies for input VAT?
Zero-rated supplies are taxed at 0% - no VAT is charged to the customer, but the vendor can still claim input VAT on related costs. Exempt supplies have no VAT charged and no input VAT claimable on related costs. Exporters benefit significantly from zero-rating because they receive input VAT refunds from SARS on production and shipping costs.
How do I calculate the VAT portion from a VAT-inclusive price?
Multiply the total by 15 and divide by 115. For example, R1,150 (VAT-inclusive at 15%) contains R150 of VAT (R1,150 × 15 ÷ 115). Using 15% of the VAT-inclusive total instead gives R172.50 - which overstates the input VAT claim and is a common audit finding.
What happens if SARS audits my input VAT claims and finds missing invoices?
SARS can disallow input VAT claims where you cannot produce a valid tax invoice from a registered VAT vendor. Additional output VAT becomes payable, plus interest and potentially penalties. The obligation to hold compliant tax invoices is yours - a payment record or bank statement is not an acceptable substitute.
Sources
- SARS: VAT - VAT registration, zero-rated and exempt supplies, input and output VAT overview
- SARS: VAT Returns (VAT201) - how to declare output and input VAT on the VAT201 return
- VAT Act 89 of 1991, sections 7 and 16 - the legislative basis for VAT at 15% and the offset mechanism
Related guides
- How to Register for VAT in South Africa: A Step-by-Step Guide
- VAT Invoice Requirements in South Africa: Full and Abridged
- How to Submit Your VAT Return on SARS eFiling (VAT201)
- Voluntary vs Compulsory VAT Registration in South Africa
This guide is for general educational purposes. VAT rules and SARS practices can change - verify current requirements with SARS or a qualified tax practitioner before filing.