[Question] Substance over form and VAT implications

[Ladel]

I've got a client who bought a vehicle (delivery) solely for his business. (The business couldn't get finance) Based on the substance over form definition we claimed all expenses through the business and the business pays the lease, the assets are recorded in the business' accounts and when the lease is paid in full he will sign over ownership to the business.

However now I need to know who claims the VAT, him or his business (the tax invoice is in his personal name)?

Thanks
Ladel

[Marq]

Not an area that I know much about but I think the following would be applied.

SARS would see the vehicle as a private one not belonging to the business. The invoice is not made out to the business and has no ties in that way. So they would not allow the vat transaction through the business side. The same could be applied for income tax purposes as the transactions do not legally belong to the business. They even get sticky on the type of vehicle and whether it matches the type of business you are in.

The only way around this would be through an 'agreement' between the owner and the business whereby the business rents the vehicle from its owner on a monthly basis, the value of which is based on lease costs and the business 'purchases' the vehicle at the end of the lease. This would help the tax side but not the vat side.

I suppose one could just claim on the basis that you suggest, but I do not know that it would pass muster if scrutinised under a vat audit.

[Ladel]

Mmmm...Thanks Marc, that's what I fear. This guys' business is in fact up for an vat audit and I almost had a heart attack when I saw his capital purchase invoiced in his personal name. Anyhow I will try the substance over form angle for the audit (even though if I had processed the initial transaction I wouldn't have claimed the VAT), and if you're interested I'll let you know the outcome of the audit!

Thanks for your thoughts!

Ladel

[Dave A]

Unless there is a practice note to the contrary for this sort of situation, the requirements for information on the Tax Invoice is pretty clear before you can claim a VAT input - particularly for amounts over R3 000.00. Not only does that include the correct name of the purchaser, but also the purchaser's VAT number.

Maybe pleading a misunderstanding about substance over form or perhaps even deemed VAT on second hand goods might help in an appeal against penalties and interest if it heads that way.

and if you're interested I'll let you know the outcome of the audit!

It all adds to the pool of knowledge, so definitely interested.