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How to calculate the fringe benefits of VAT on company cars

by , 15 February 2017
How to calculate the fringe benefits of VAT on company carsOne of the most common fringe benefits encountered on modern payrolls is the right to use a company car

Where an employee has the right to use a company car, you must calculate the VAT on the fringe benefit as follows:

  • Where the vehicle is a motor car (not a bus or kombi) and the input tax was specifically denied, the calculation is as follows:
        0.3% x the determined value of the car x 14/114=output VAT payable.
 
  • For any other vehicles, the calculation is:
         0.6% of the determined value of the car x 14/114=out VAT payable.
 
  • If the employee pays in full for the repairs or maintenance of the car, the calculated amount must be reduced by R85 per month.
The determined value of the car is the purchase price, excluding VAT and finance charges. Let's look at an example…

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Example

John's employer gives him a company car. The determined value of the car is R140 000. The consideration for the deemed supply of the fringe benefit is R420 per month (R140 000 x 0.3%).

His employer must account for output tax of R51.58 a month (14% of the value of the fringe benefit).


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This requirement is commonly overlooked, and rakes in thousands of rands in fines and penalties for SARS. With the Practical VAT Handbook, your payroll administrator will be aware of all the provisions relating to fringe benefits, and will tax employees correctly.



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Fringe benefits include:
  • The company car for the star sales exec,
  • The laptops and expensive business books for staff
  • The long-service award for Freddie, the driver, who's been with you for 15 years above R5 000
  • The drinks and snacks you bought for that big client meeting last week unless provided at the employer's premises or during normal or special business hours
  • The World Cup hospitality booth you're coughing up for, to thank the cream of your crop for their record-busting performance...
If you don't declare the VAT on fringe benefits you'll pay 10% penalties
 
When you fail to declare the VAT on these sorts of benefits, you can expect VAT penalties of 10% of the fringe benefit amount... On a R350 000 company car, that's no small change!

We give you clear guidelines to follow on the VAT treatment of fringe benefits, so you never again lose thousands of rands in money in penalties (or unclaimed deductions!). We'll show you:
  • The five exceptions to the basic rule
  • The three benefits that are always subject to VAT
  • How to calculate your VAT liability right, the first time
  • How to calculate the fringe benefits VAT on the company car
  • The tax free fringe benefits that you can claim.
All of this detailed and practical information lies waiting for you in The Practical VAT Handbook.

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What else you'll discover in the Practical VAT Handbook, to help you take control of your VAT:

Checklists, to save you time and ensure you don't miss a thing!
  • Five exceptions to the basic fringe benefits rule
  • Six vehicles that SARS opens the doors to
  • Four critical facts you must know about VAT when you receive an insurance settlement
  • Documents to attach to your VAT101 application
  • Six basic rules about travel and VAT
VAT advice you can put into practice today:
  • 24 activities that qualify for the diesel refund scheme
  • How to claim every input tax credit possible
  • Three general rules about the VAT201 return
  • How to complete your VAT return
  • Four important documents to keep for export between branches
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