VAT264 explained for motor dealers

If you're a VAT-registered motor dealer in South Africa and you buy used vehicles from members of the public, every one of those purchases comes with a piece of paperwork: the VAT264. Get it right and you claim notional input VAT. Get it wrong and the deduction can be reversed years later in an audit.

This guide explains what the form is, exactly when you need it, what it must contain, and the common mistakes SARS reviewers look for.

What is VAT264?

VAT264 is a SARS-prescribed declaration form titled “Declaration for the supply of second-hand, repossessed or surrendered goods.” Its job is to record a purchase by a VAT vendor (you) from someone who is not a VAT vendor (typically the member of the public who's selling you their used car).

The form sits at the heart of the second-hand goods scheme. The scheme exists because a non-vendor seller has no VAT to charge you, but you're going to sell the vehicle on with VAT included. Without something in the middle, VAT would be charged twice on the same value. The VAT264 lets you claim a notional input VAT deduction equal to 15/115ths of the price you paid — effectively zeroing out the double-VAT effect.

When you need a VAT264

You need to complete a VAT264 whenever all of these apply:

• You are a registered VAT vendor.
• The goods you're acquiring are second-hand as defined in the VAT Act (a used motor vehicle qualifies).
• The supplier is not a registered VAT vendor in respect of the transaction (a private individual selling their personal car is the typical case).
• You intend to use the goods to make taxable supplies (you're going to re-sell the vehicle).

In plain terms: every time you take in a trade-in from a member of the public, or buy a used car from someone walking onto your lot to sell privately, a VAT264 should be completed for that purchase.

You don't need a VAT264 when you buy from another VAT vendor (another dealer, an auction house, a finance house) — those transactions are supported by a normal tax invoice from the seller.

What the VAT264 must contain

SARS publishes the form, but if you're writing it from scratch or using software to generate one, these are the fields it must capture:

• The supplier's full name, identity number and physical address. The ID number is important — it's how SARS traces the seller if they audit the trail.
• The supplier's declaration that they are not a registered VAT vendor in respect of the goods.
• The supplier's signature and the date.
• A description of the goods — for a vehicle, this means Year, Make, Model, Variant, VIN and Registration. Same level of detail you'd put on an invoice.
• The consideration — the total amount you actually paid for the vehicle, in rand.
• The acquirer's details — your dealership name, VAT number and address.
• The date the goods were acquired.

You keep the original signed form. SARS requires it to be retained for at least five years and produced on request.

The notional input VAT calculation

Once the form is signed and the vehicle is in stock, the deduction you can claim in your next VAT return is calculated as:

You claim the R30,000 as input VAT on your next VAT201 return, which reduces the VAT you owe SARS. When you later sell the vehicle for, say, R287,500 including VAT, you account for output VAT of R37,500 on that sale — netting out at R7,500 of VAT actually paid to SARS on the R57,500 of gross profit. That's the scheme working as intended.

Important: payment to the seller must actually have been made in cash, EFT or bank transfer before you claim. If you trade-in against a new vehicle and there's no cash actually changing hands, the position is more nuanced — speak to your accountant.

The common mistakes

1. Not getting the ID number

The single most common reason a VAT264 fails an audit. “The seller didn't want to give me their ID” isn't a defence — SARS will simply disallow the input VAT claim.

2. Claiming before paying

Notional input VAT can only be claimed in the tax period in which you actually pay for the goods. If you're paying the seller in instalments over six months, you only claim as you pay, not upfront.

3. Treating the seller as a non-vendor when they're actually registered

If you take a vehicle in from a small business owner who's VAT-registered and is selling a company vehicle, that's not a VAT264 transaction — it's a normal VAT-inclusive supply with a tax invoice. Misclassifying it can result in disallowed input VAT plus penalties.

4. Losing the original form

SARS wants to see the signed original (or a SARS-accepted digital equivalent). A photo on the salesperson's phone is not enough. Scan it into your DMS or filing system the same day.

5. Vehicle description too vague

“2018 Toyota Hilux” isn't enough. Include the variant, the VIN and the registration. If the VIN on the form doesn't match the VIN on the vehicle's registration certificate, SARS will reject the claim.

Where the VAT264 sits in your workflow

For a typical trade-in or buy-in, the paperwork flow is:

1. Inspect and value the vehicle. (Auto Evaluate handles this end of the workflow.)
2. Agree the purchase price and complete the VAT264 with the seller present.
3. Pay the seller (EFT, cash, or credit against the new vehicle they're buying from you).
4. Take ownership of the vehicle and add it to stock.
5. Keep the VAT264 on file. Claim the notional input VAT on the next VAT201 return.
6. When the vehicle later sells, raise a tax invoice on the sale (with output VAT).

The same trail also matters for your books. The VAT264 records the cost price of the vehicle, which is what you'll need for stock valuation, gross profit calculation, and SARS's view of your inventory.

For the formal SARS guidance, the relevant documents are the VAT 420 Guide for Motor Dealers and the VAT 264 form itself, both on the SARS website. Confirm specific transactions with a registered tax practitioner.