With Christmas just around the corner you might be thinking of giving your employees a little something to say thank you for a year of hard work.
But before you rush off to buy expensive pens and bunches of flowers you need to think about the Vat implications involved in such purchases.
Because gifts for employees fall under the category of entertainments, they're generally a no go when it comes to claiming input on them.
But the good news is, this isn't always the case.
Today we're going to show you when your gifts for your employees are subject to input tax...
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Saying thank you to staff with an office Christmas party doesn't result in an input tax claim
Because an office Christmas party does fall under the definition of entertainment, you can't claim input tax on it.
This means you'll incur the expenses and pay Vat on any purchases you make for the party but you won't be able to claim input tax on them.
The reason for this is it's easier for SARS to simply deny the full entertainment expense and then make exceptions, such as allowing a deduction for expenses for an employee that has to spend a night away from home.
Now most employee gifts and awards fall under entertainment, SARS won't let you claim input tax on them either. For example if you give your employees who've been with you for ten years a gold watch, you can't claim input tax on the expenses.
But this isn't always the case for all gifts you give your employees.
There are two types of gifts you can claim input tax on.
Give your employees promotional gifts and you can claim input tax
If you give your employees promotional gifts you can claim input tax. These gifts include golf shirts, t-shirts, umbrellas, pens, calendars, desk pads and calculators.
If when you give promotional gifts to employees there's no output tax for you to levy because you're not getting any payment or Vat in for it (Section 10(23) Vat Act).
But if you make taxable and exempt supplies, you'll incur input tax for the purchase of promotional goods. So you can claim it for goods you acquire for the taxable portion of the business.
But what happens if you give your employees flowers or plants?
Here are the Vat implications if you give your employees flowers as an end of year gift
If your give your employees plants, flowers, bouquets and wreaths it falls outside of the definition of entertainment. This means you can claim input tax in terms of Section 17(2)(a) of the
So you can claim these kinds of gifts for your employees because they fall outside of the definition of entertainment.
There you have it. If you want to say thank you to your employees for their hard work, rather avoid the Christmas party and opt for promotional gifts or flowers so you can claim input tax.
For everything you need to know about claiming input tax correctly, check out Input Tax 101