VAT on bank charges, interest and insurance
Which South African financial services are exempt from VAT, which fees carry it, and when a vendor may claim input tax on its bank and insurance costs.
By Achekam · · 5 min read · For Running a business businesses in South Africa
Every month the bank statement carries a cluster of small lines: a monthly account fee, transaction charges, interest on the overdraft, a debit order for the life cover on the owner's bond, a charge for converting a foreign payment. Whoever does the books has to decide, line by line, whether there is VAT in there to claim.
Get it wrong in one direction and the business leaves input tax unclaimed. Get it wrong in the other and it claims VAT that was never charged, which SARS will disallow. This article explains how South African VAT treats financial services, why interest and fees are not the same thing, what you need before claiming, and how to deal with these lines when they come off the bank statement into your books.
Exempt financial services
SARS's VAT 404 guide for vendors says financial services such as the provision of credit, life insurance policies, and dealings in shares and derivatives are generally exempt from VAT.
Exempt means no VAT is charged on the supply at all. So when your bank charges interest on an overdraft or a loan, that interest is the price of credit, an exempt financial service, and it carries no VAT for you to claim. The same applies to the premium on a life policy and to dealings in shares.
The guide quoted is issue 15, up to date as at 17 December 2024.
Fees that carry VAT
The same guide draws a line inside financial services. It says that fees charged for services such as currency exchange are standard-rated.
So "it came from the bank" does not settle the question. A fee for a service, as opposed to the interest on credit, can carry VAT at the standard rate. Currency exchange is the guide's own example. Other fees need to be looked at one by one: where the bank has charged VAT, its tax invoice or statement should show it.
For insurance, the guide's example of an exempt service is life insurance. For other kinds of cover, look at what the insurer has charged and whether it has given you a tax invoice, rather than assuming either way.
| Line on the statement | How SARS's guide treats it |
|---|---|
| Interest on an overdraft or loan | Provision of credit: generally exempt |
| Life insurance premium | Generally exempt |
| Buying or selling shares | Generally exempt |
| Currency exchange fee | Standard-rated |
| Other bank fees | Check what VAT the bank charged |
SARS's VAT 404 guide for vendors explains exempt and standard-rated supplies, input tax and the tax invoice rules in full.
Interest and fees are not the same thing
On a single statement, interest and fees can sit next to each other and look alike. They are not alike for VAT.
A worked example in words: a construction business has an overdraft and receives a payment from a client abroad. In one month, its statement shows a monthly account fee, interest on the overdraft, and a charge for converting the foreign payment into rand. The interest is the price of credit, exempt, with nothing to claim. The conversion charge is a currency exchange fee, standard-rated, so if the bank charged VAT on it and the business holds the right document, that VAT can be claimed. The account fee needs checking against what the bank actually charged.
The mistake to avoid is treating the whole cluster as one: either claiming VAT on everything, including interest, or claiming on nothing.
Two rules about what you may claim
Exempt supplies and private use. SARS's VAT 404 guide says a registered vendor may not deduct VAT on goods or services acquired to make exempt supplies or for private use. It adds that a person that makes only exempt supplies may not register for VAT at all. So even a VAT-bearing fee is not claimable if it relates to the owner's private account or to a part of the business that makes exempt supplies. SARS's guide says no VAT is levied on letting a dwelling under a lease, so a landlord letting homes is the obvious example; see VAT and residential rent.
Hold the document first. SARS's guide to completing the VAT201 says a valid tax invoice or other prescribed document must be held before input tax on capital or other goods and services is claimed in fields 14 and 15. The VAT 404 guide adds that failure to issue tax invoices is a contravention of the VAT Act and an offence, and that without a proper tax invoice or approved alternative document a vendor cannot deduct input tax. If you cannot find the bank's document for a fee, you cannot claim its VAT yet.
Other expenses where input tax is restricted, such as entertainment and passenger vehicles, are covered in VAT you cannot claim: cars, entertainment, club fees.
From the bank statement into the books
In Achekam, bank lines are matched by suggestion and a person accepts each match. A line not yet in the books becomes a suggested journal that a person approves, and a reconciliation completes only when no difference is left or every leftover line is explained.
That approval is where the VAT decision is made for bank charges. Before approving a suggested journal for interest, a fee or a premium, ask:
- Is this interest or a premium for an exempt service? Then no input VAT.
- Is it a fee on which the bank charged VAT, and do we hold the document?
- Does it relate to a private account or to exempt activities? Then no claim.
Where a financial service provider sends a tax invoice, as it may for some fee-based services, recording it as a supplier bill keeps the VAT visible. A South African business's supplier bills and purchase orders take 15% or 0% VAT per line, and bills post input VAT to the ledger. Use 15% only on a VAT-bearing fee with its document in hand, and 0% for the exempt lines. On the sales side, invoice lines likewise take 15% or 0%, and the invoice screen does not tell zero-rated and exempt apart, so keep your own note of which 0% items are exempt.
Before next month's statement
Go through last month's bank statement with the table above. Mark each charge as exempt, VAT-bearing with a document, or still to check. Ask the bank for the documents you are missing. Then make that review part of approving bank lines every month.
General guidance only, not advice on your own circumstances. Tax and payroll rules change: check the current position with the authority or your adviser.
