Company A is a VAT vendor which pays for the entertainment expenses for its subsidiary, Company B. The tax
invoice is made out to Company A for R11 400 (R10 000 + R1 400 VAT).
At the end of the month, company A recovers this entertainment cost from Company B, as it's Company B's expense.
Now, for VAT purposes, the recovery of this cost is as follows:
. Company A pays the tax
invoice, because the supplier issues the tax
invoice in Company A's name. But company A can't claim the R1 400 input tax
because input tax
is denied on entertainment. So then, Company A's cost is R11 400.
All it takes is just one mistake for SARS to deny your input tax claim and slap you with penalties and interest!
With the Input Tax 101 eReport
, you'll be 100% sure of every input tax
credit you can claim.
It's your complete guide to input tax
, with information on:
Nine items you can claim input tax on
10 Items you CAN claim input tax on, but didn't know about
Five exceptions to the rule against entertainment expenses
Eight Motor vehicles you can claim input tax on
And much, much more!
Company A then gives a tax
invoice to Company B for the R11 400 plus R1 596 VAT. The description on the tax
invoice is now 'management fee'.
Company B can claim the R1 596 as input tax
because there are two supplies made here, with the first one being the supply of entertainment to Company A and the second one being the management fee from Company B.
Company B now claims input tax
, not on entertainment, but on the supply of a taxable service, which is a management fee in this case. This is irrespective of how Company B allocates this amount within its books.
But now, if for example, Company A acted as an agent of Company B in terms of an agent and principal agreement, it doesn't claim input tax
or levy output tax
. Company B will pay Company A the full tax
invoice value of R11 400 so that Company A will not have lost money in the transaction. But Company B can't claim the VAT of R1 400 as input tax
because it relates to entertainment. Company A won't issue a tax
invoice to Company B here, but rather a statement to recover the payment it made on Company B's behalf.
To learn more on VAT on entertainment expenses, subscribe to the Practical VAT Loose Leaf Service.