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VAT on interest

Gerhard says:
31 March 2022 at 12:37

I have a business that collects debt on behalf of other service providers, we eventually charge interest if the payments are overdue longer than 3 months. Are we required to charge VAT on this interest?

TaxTim TaxTim says:
31 March 2022 at 13:08

Interest never attracts VAT - it does not matter if you are a Financial Service Provider as defined. The essence of VAT is on the end user consuming goods and services. Interest is not a service or good being supplied, but a penalty for late payment and thus does not qualify for VAT to be charged. Your service fees for collecting debt would be subject to VAT, however. 

Let's say you buy a vehicle and the offer to purchase says that you are due to pay interest If you buy the vehicle on terms, if you ask for a more comprehensive invoice you will see that interest is on the entire total. So they add up the capital cost plus the VAT then you get finance for that amount of which interest is charged. They don't charge the interest first and then the VAT.  Please note that you are only allowed to charge VAT if you are a SARS registered VAT vendor, please ensure that your invoice includes this number to avoid any confusion. 

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