If the audited financial statements have not been completed within a period of 3 months after the financial year- end, an adjustment should be made using the year-end trial balance figures. This would be followed by a final adjustment when the audited financial statements for that year are eventually finalised.

For new enterprises with no past financial statements, an estimate based on expected taxable turnover according to the enterprise’s business plan or sales/marketing forecasts could be utilised. As in the situation above, an adjustment would be required within 3 months of the financial year end to account for any differences between the estimated apportionment percentage used, and the actual extent of taxable supplies as determined from the most recent financial statements.

Where the turnover-based method does not yield a fair approximation of the extent of taxable supplies, the vendor should approach the local SARS branch office to obtain consensus on an alternative method which yields a more accurate result. Some examples of special/alternative apportionment methods are shown below.

Examples : Special/alternative apportionment methods

The Varied Input Based Method

This method is based on the ratio of VAT wholly attributable to taxable supplies to the total VAT incurred for all supplies (excluding the VAT incurred for mixed taxable and exempt supplies). The ratio obtained is multiplied by the VAT incurred for goods and services acquired/imported for mixed use to determine the VAT which may be claimed. For example, Vendor D incurs R200 VAT wholly for the purposes of making taxable supplies, R100 VAT for exempt purposes and R90 VAT for both purposes. The input tax which may be claimed is calculated as follows:

R200 + (R90 x 200/300) = R260

The Floor Space Method

Vendor E owns a building which is used as a shop (taxable) and a crèche (exempt purposes). The floor area of the shop is 200 square metres and the crèche is 300 square metres. The vendor incurs R500 VAT wholly for purposes of the shop, R400 VAT wholly for purposes of the crèche and R300 for both parts of the business. The input tax which may be claimed is calculated as follows:

R500 + (R300 x 200/500) = R620.

The Transaction Based Method

If a vendor is involved in a business where both taxable and exempt transactions are conducted where the cost of those transactions is the same in each case, application may be made to use this method. For example, assume that Medical Scheme F has 7 000 transactions a year with its members (exempt) and 3 000 transactions on behalf of another medical scheme (taxable). If it incurs R2 000 VAT wholly in relation to transactions with its members, no VAT directly in connection with taxable supplies and R1 000 VAT in connection with both activities, the input tax which may be claimed is calculated as follows:

R1 000 x 3 000/10 000 = R300

The Employee Time Method

Assume that Vendor M is in the business of loaning money to the public and earns both administration fees (taxable) and interest (exempt). The vendor finds that employee time relating to each activity yields the most reasonable and accurate apportionment result, and, in terms of the survey conducted, determines that 200 working days is spent by employees earning fees and 40 working days is spent earning interest. It incurs R700 VAT wholly for earning administration fees, R200 VAT wholly relating to interest income and R400 relating to both. The input tax which may be claimed is calculated as follows:

R700 + (R400 x 200/240) = R1 033

The flow diagram on the next page illustrates the concepts of attribution and apportionment. This is followed by a comprehensive example which illustrates how the turnover-based method is used to determine the apportionment percentage for the year, as well as the required annual adjustment.