VAT APPORTIONMENT: ARE YOU CALCULATING A PERCENTAGE OR DEFENDING A POSITION?

Published: 13 October 2026

Author: Tender Da Gama

Reading Time: 5 minutes

VAT apportionment is sometimes treated as a mathematical exercise.

Calculate the ratio.

Apply the percentage.

Record the input tax.

Complete the VAT201.

But the percentage is only the final result.

The more important question is:

Why is that percentage appropriate for the business?

When does apportionment become relevant?

Where goods or services are acquired for both taxable and exempt supplies, only the portion attributable to taxable supplies may generally be deducted as input tax.

SARS explains that vendors must first consider whether an expense can be directly attributed before applying apportionment.

That distinction is important.

Not every expense needs to be apportioned.

Direct attribution comes first

The first question should therefore be:

Can this expense be directly attributed to taxable supplies or exempt supplies?

If it can, direct attribution may be appropriate.

Where an expense genuinely relates to both taxable and exempt supplies, an apportionment methodology may then be required.

The methodology matters

A business may use an approved methodology where appropriate, but the fact that a calculation produces a percentage does not automatically mean that the underlying methodology is appropriate for every business circumstance.

SARS has issued guidance on the standard turnover-based method and the use of alternative methodologies where the standard approach may not appropriately reflect the business's activities.

Businesses change

This is where apportionment can become a governance issue.

Consider a business that has:

launched new products;

acquired another company;

entered a new market;

changed its revenue model;

introduced additional exempt supplies; or

significantly changed its cost structure.

The business may still be using the same apportionment methodology it used several years ago.

But does it still reflect the business?

That is the question.

What happens when SARS asks why?

Imagine SARS asks:

Why did you use this methodology?

A strong response should not simply be:

“Because this is the percentage our system calculates.”

The business should be able to explain:

what methodology was used;

why it was selected;

what information supports it;

how direct attribution was considered;

how the ratio was calculated;

how adjustments were performed; and

whether the methodology continues to reflect the business.

A percentage is not a defence

The calculation is evidence of the outcome.

The underlying methodology is what explains the outcome.

That is why VAT apportionment should be treated as part of the business's broader tax governance framework.

If SARS challenged your apportionment methodology tomorrow, could your finance team explain and support every step of the calculation?

If not, the issue may not be the percentage.

It may be the process behind it.

TCS Advisory & Compliance assists businesses with VAT reviews, apportionment considerations, compliance processes and broader tax governance.