Value-Added Tax (VAT) is one of the most significant cost considerations for South African businesses, but many VAT-registered entities are unaware that they may be leaving money on the table when purchasing from non-VAT vendors.

One of the more underutilised tax benefits available under the VAT Act South Africa is the ability to claim notional VAT—a mechanism that allows qualifying businesses to recover input tax on eligible second-hand goods even when no VAT was charged at the point of sale.

For businesses that regularly purchase pre-owned assets—whether machinery, vehicles, furniture, or even certain fixed property—understanding how notional input VAT on second-hand goods works can create measurable cash flow savings. But it’s not a free-for-all. The rules are technical, the definitions are specific, and non-compliance can result in SARS rejecting the claim entirely.

What Is Notional VAT?

In simple terms, notional VAT is an input tax deduction that a VAT-registered business can claim when buying qualifying second-hand goods from a seller who is not registered for VAT.

Even though the seller doesn’t add VAT to the purchase price, the buyer may still treat a portion of that price as if VAT had been charged and claim it back in their VAT return.

This provision ensures that the VAT system remains neutral: it prevents businesses from being financially disadvantaged simply because they bought from a non-vendor rather than a VAT-registered supplier. Without it, buyers might avoid transacting with non-vendors, undermining the viability of the second-hand goods market.

Second-Hand Goods – The Definition In The VAT Act

The term “second-hand goods” has a precise meaning in the VAT Act—and it’s broader than many realise.

It covers previously owned tangible movable goods and certain fixed property, but with clear exclusions. Understanding the distinction is essential before attempting a claim.

What Qualifies As Second-Hand Goods

• Tangible movable goods that have been previously owned and used (e.g., furniture, machinery, tools, vehicles)
• Fixed property (land and buildings) in certain conditions
• Goods containing gold, silver, platinum, or other qualifying precious metals (subject to special provisions)

What Is Excluded

• Animals and consumables (e.g., fuel, food, sand)
• Securities, shares, and other financial instruments
• Intangible assets such as trademarks or copyrights

Example:
A construction company purchasing a pre-owned excavator from a private individual may claim notional VAT, provided all documentation requirements are met.
However, if that same company buys 1 000 bricks from a private builder, the purchase will not qualify—bricks, once used, are generally considered consumables.

How To Claim The Notional Deduction

Section 16(3) of the VAT Act South Africa sets out the procedural requirements for claiming notional VAT on second-hand goods. Missing even one of these can invalidate your claim.

1. Confirm VAT Registration

Only VAT-registered vendors can claim notional VAT. If your business is not registered for VAT, this deduction is not available.

2. Verify The Seller Is A Non-VAT Vendor

The seller must not be registered for VAT. If they are, they must charge VAT in the usual way, and you claim standard input VAT.

3. Obtain A Seller’s Declaration

The declaration is a statutory requirement, functioning as the substitute for a tax invoice. It must include:

• Seller’s full name, address, and ID or business registration number
• Statement confirming the seller is not registered for VAT
• Full description of the goods (including serial numbers where relevant)
• Condition of the goods
• Date of transaction and purchase price

4. Maintain Adequate Records

Keep copies of the declaration, proof of payment, and any supporting documentation proving the goods’ second-hand status for at least five years. SARS can request these during an audit.

Calculating How Much To Claim

The notional VAT amount is calculated as if VAT had been charged, using the formula:

VAT Amount = Purchase Price × (15 / 115)

Example:
Purchase price = R115 000
Notional VAT = R115 000 × (15/115) = R15 000

This R15 000 is then claimed as input tax in the VAT period when the transaction occurred. Using the wrong formula is a common mistake that can result in SARS adjusting your claim.

Avoiding Costly Errors When Claiming Notional VAT

Notional VAT is one of the most frequently challenged deductions in SARS audits. These mistakes can cost your business far more than the deduction itself.

1. Missing Or Incomplete Seller’s Declaration

Without a valid declaration, SARS will disallow the claim—no exceptions.

Example: Buying office desks from a private company without obtaining a seller’s declaration results in SARS rejecting a R30 000 notional VAT claim.

Prevention: Use a standard declaration form and get it signed before payment.

2. Claiming For Non-Qualifying Goods

Items outside the VAT Act’s definition—like consumables or intangible property—will not qualify.

Example: A company claims notional VAT on used tyres. SARS disallows the claim, classifying the tyres as consumables.

Prevention: Train procurement staff to identify eligible goods before purchase.

3. Overlooking The Seller’s VAT Status

Claiming notional VAT when the seller is VAT-registered is incorrect and flags your account for audit.

Prevention: Check the seller’s VAT number using the SARS VAT vendor search.

4. Incorrect VAT Calculation

Some calculate VAT as 15% of the price, which inflates the claim.

Prevention: Always use the 15/115 fraction and build it into your accounting software.

5. Inadequate Record-Keeping

Without records, SARS can reverse claims years later.

Prevention: Keep digital copies of all declarations, receipts, and proof of payment for at least five years.

Why Getting It Right Matters

The benefits of claiming notional VAT are clear—it improves cash flow and levels the playing field when buying from non-vendors. But the risks of getting it wrong are equally real. A single disallowed claim can trigger a wider SARS audit, leading to penalties, interest, and reputational harm.

VDM Attorneys – Attorneys In Sandton

Correctly applying notional input VAT on second-hand goods is about more than just knowing the rules—it’s about executing them with precision. At VDM Attorneys, we assist businesses in navigating VAT legislation, ensuring compliance, and protecting against unnecessary disputes with SARS.

Whether you are purchasing high-value assets, restructuring your supply chain, or responding to a VAT audit, our legal team in Sandton provides clear, practical advice tailored to your circumstances.