I deducted the tax on the fringe benefit, but now SARS is asking 'where's the Vat?'
We recently received this question on the Accounting and Tax Club site.
Lucia, a business owner gave her employee and his family a weekend away to the Kruger as an employee incentive. She knew an incentive of this kind was a fringe benefit. And she dutifully calculated the tax and deducted it from her employee's payroll.
But when a SARS auditor came into her office for an unrelated Vat audit, he found out about the fringe benefit.
Lucia was shocked to find the tax she paid wasn't enough for SARS. The auditor wanted the Vat too! When she told him she hadn't declared Vat on the fringe benefit, he demanded the Vat and gave her a 200% penalty for the late payment.
Lucia couldn't believe the auditor wanted her to pay Vat on a fringe benefit, and on top of the PAYE too! Surely the Vat auditor was mistaken!
... Or was he?
Read on to find out...
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Is there Vat on a fringe benefit?
Unfortunately, the answer is yes!
If you give a benefit or an advantage to your employee, and that benefit is a supply of goods or services, it's seen as if you've actually supplied, or sold, those goods or services. The same applies to goods or services you give your employees' relatives. This is why Lucia was supposed to calculate Vat.
And here's how to calculate the output tax:
Simply, 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 awarded the benefit) in block 12.
Now that you know how to calculate it, don't be caught out in the same situation as Lucia. Here are eight fringe benefits that qualify for output tax.
SARS issues TWO MILLION Vat review letters a year
That's the letter that pops up immediately after your submit your Vat returns. The same letter that has seen people around the country wake up to thinned out bank balances.
Now get this: There are only 700 000 vendors registered with SARS…
You do the math.
Every vendor should receive this letter at least once a year.
Here's how to protect your bank account before you do…
Declare Vat on these eight fringe benefits or face SARS penalties
1. Rewarding employees for a great service;
2. Goods/services given to relatives of employees;
3. Purchase of an asset at less than actual value;
4. Right of use of an asset;
5. Free meals and refreshments;
6. Free or cheap services;
7. Medical costs incurred by the employer; and
8. Motor vehicles given as company cars.
There you have it. Now that you know what SARS expects when you give your employees fringe benefits, you can avoid the 200% penalty!
P.S. Do you know the correct way to calculate the fringe benefit for a company car correctly? Don't pay thousands for a consultant! Get the answer to this and 76 other niggling fringe benefit questions, for a fraction of the cost.
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