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Do you know when you must pay Vat on employee education? Find out here so you don't land up with SARS penalties

by , 18 December 2014
Training employees is an important part of running your business.

This might include sending him for outside training or getting someone to do the training in house.

This can get very pricey, but if you don't know when to pay Vat on this education, it could get even more costly.

The reason is SARS won't hesitate to slap you with 200% penalties for this mistake.

To help you avoid this expensive mistake, I'm going to tell you when you must pay Vat on your employee education...

 
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Here's when you have to pay Vat on employee education

 
If you give your employees vocational (professional) training, SARS doesn't see it as an educational service. This means you have to pay Vat at the 14% standard rate.  
 
But if you're a non-residential employer and you give your employees vocational training, then you'll pay Vat at the zero-rate.
 
But the cost of educating your employees isn't the only expense. If you have to cover these expenses for any of these five items as part of your employee's education, you'll pay Vat on them too:
 
1. Renting a lecture hall;
2. Purchases from a tuckshop;
3. Supply and delivery of food to employee learners;
4. Sports club activities – i.e. tickets for sporting events, membership fees and sponsorships received in return for rendering advertising services; and
5. Renting a sports field.
 
The good news is, you don't always have to pay Vat on employee education. This is because there are situations where it's exempt. 
 
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Three things to Remember About VAT Exempt Supplies
 
The general rule is that if you're registered as a Vat vendor, you must include Vat at the standard rate or zero-rate, in the price of your goods and services. And then if you have a Vat liability, you pay the assessed amount over to SARS in your defined tax period.
 
But there's a significant exception to this general rule: Exempt Vat supplies! And there are three things to remember about exempt supplies…
 
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Here's when paying for your employee's education is Vat exempt

 
If you pay for your employee to go to any of these institutions for further education or training, it's Vat exempt. This means you won't pay Vat on employee education at:
 
State schools or other schools. But they must be registered under the South African Schools Act;
State established further education and training institutions who are registered under the Further Education and Training Act ;
Institutions providing higher education on a full-time, part-time or distance basis. They must also register under the Higher Education Act, for example, private colleges;
Joint Matriculation Board referred to in the Universities Act;
Institutions in South Africa that are exempt from income tax because they are Public Benefit Organisations, and that:
 
- Promote adult basic education and training. This includes literacy and numeracy education (in terms of the adult basic education and training act), vocational training or technical education;
- Promote education and training of religious and social workers;
- Train or educate people with a permanent physical or mental impairment; and
- Give bridging courses to help impoverished people enter a higher educational institution. 
 
If one of these institutions gives additional lessons, and its part of the charge for the education service, the exemption applies.  
 
But where a private individual gives extra lessons, you may have to pay Vat on these lessons.
 
So there you have it. If you pay for your employees to have professional training you must pay Vat on it. But if you help your employee with further education, you won't pay Vat on it. 
 
For more information on when you'll pay Vat on employee education and training, check out the Practical Vat Loose Leaf Service.
 


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