Entertainment: When you provide food, beverages, accommodation, entertainment, amusement, recreation or hospitality of any kind, to your employees, customers, suppliers or anyone connected to your enterprise (Section 1 of the Vat Act).
This definition makes it hard to know when an expense for a gift or award falls under the classification of entertainment, amusement, recreation or hospitality.
This is something you have to pay attention to because SARS has established penalties if you claim entertainment expenses incorrectly.
Today we're helping ensure this doesn't happen to you.
If SARS finds out you've claimed Vat on entertainment, and you shouldn't have, it will reverse the deduction and penalise you 10% and monthly interest. Plus SARS will slap you with understatement penalties of between five and 200% (Tax Administration Act).
Keep in mind that SARS won't forget that you've claimed incorrectly and it may flag you for more regular audits.
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Here's a list that you can use to know what you can claim input tax
on when it comes to entertainment
You can claim input tax
on the following:
Business travel and employee subsistence
1. Business travel
if anyone mentioned below has to spend more than one night away from home on business travel:
• You, as the Vat
• Partners in a partnership;
• Company directors;
• Your employees; or
• Any independent contractors who work for you.
2. Your employees personal subsistence
(Section 17(2)(a)(ii) of the Vat
This includes meals, refreshment (including liquor) and accommodation. So, if your employee eats somewhere other than his hotel when he's away on business, you can still claim the Vat
on his meal. This also includes rations for your employees who work in sugar cane fields, plantations or on construction sites away from home, as long as they stay there overnight.
Note: You can only claim the input tax
for your employee's meals when they spend a night away from their usual residence or place of work.
3. Domestic airfares.
6. Internet costs (where applicable).
7. Toll gate fees.
Important: You can claim input tax
on domestic air tickets but not on car rental if it's not a bakkie!
8. Moving and relocating costs
If your employee transfers, or has to relocate to your area, and they live in a guesthouse or hotel while they find their own place. Costs for the employee's family are also claimable.
9. Removal or moving costs
Costs for moving and relocating are often considered as 'entertainment'.
.=Royalties you pay.
11. Medical expenses
Employee's medical expenses if you pay the bill.
If you send them to staff who are sick, having babies, having operations or whose loved ones have passed away.
13. Flowers for reception and plants for the office.
14. Training seminars
Seminars or training courses you or your staff attend.
15. Speakers doing presentations to customers on topics for your business.
16. Promotional Gifts
Promotional gifts such as:
• Desk pads;
• Umbrellas; and
• Windbreakers etc.
Note: Promotional gifts must have your company logo on them to qualify for this.
17. Subscriptions and memberships
Subscriptions to professional bodies by your enterprise, for example the Chamber of Commerce. Or subscriptions you pay for your employees, where the membership is a condition of employment, e.g. doctors, nurses, accountants and engineers.
Keep in mind that this list isn't exhaustive!