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Here's how to calculate output tax if you offer services to your employee's relatives

by , 17 September 2014
You know that rewarding your employees has Vat implications for you. But, did you know that even offering goods or services to your employee's relatives results in Vat consequences?

It's true.

If, for example, instead of paying Mr Mthembu a bonus, you decide to pay for his wife to go with him on a business trip to Durban, you must calculate output tax on this fringe benefit and declare it to SARS. If you don't, SARS will charge you penalties and interest.

Don't take that risk.

Keep reading to find out how to calculate output tax on benefits like this.


If you offer services to your employee's relatives you'll need to calculate output tax as follows 
 

According to the Practical Vat Loose Leaf Service, the rule for calculating output tax on a fringe benefit is that you must take the amount the fringe benefit cost you and multiply it by the tax fraction 14/114. This will show you what amount of output tax you owe SARS.

Then you must declare the output tax amount on your Vat return (in the month you gave the benefit) in block 12.

If this sounds confusing, take a look at this example below…

 
*********** Reader's choice **************

3 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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This example will show you exactly how to calculate output tax if you offer services to your employee's relatives


Jim Jones achieves his annual sales target in the first six months of the year. To do this, he had to travel and be away from home a lot.

To thank his wife for her sacrifices – tolerating him being away from his home a lot – Jim's company gives her a new car as a gift.

The company will have to calculate Vat on the cost of the car and pay it over to SARS as output tax.

So if the car cost R100 000, the company must apply the tax fraction to the R100 000. It will calculate this as follows: R100 000 x 14/114 = R12 280.00 output tax payable.

The company will have to pay R12 280.00 to SARS as output tax.

It's that simple.

Knowing how to calculate output tax if you offer services to your employee's relatives will help ensure you avoid SARS penalties and interest.

PS. Here are 34 Input tax savings you could be missing out on…



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