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Make sure you levy VAT on company fringe benefits - or the SARS auditors will have a good reason to visit you!

by , 01 April 2016
Did you know that fringe benefits, like the private use of a company laptop are actually taxable supplies?

Which means you HAVE to levy output tax on them! If you don't, you become an easy target for the SARS auditors. They know that very few employers are clued up about which fringe benefits are subject to VAT and which aren't.

Let's look at how to get your payroll 100% VAT compliant, so the auditors don't find anything worth penalising.

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If you claim input tax, your SARS Vat audit is impending
And when the SARS auditor comes knocking or sends a query, he'll check if:

Your books and records comply with the requirements of Section 55 of the VAT Act;
  • You didn't claim on exempt supplies;
  • Any of your claims were for non-taxable supplies;
  • You apportioned inputs correctly and at the right tax rate (Sections 16, 17 and 20 of the VAT Act);
  • And more!
But the truth is, even if you're entitled to your claim, but don't have the valid documentation, he'll still reverse your deduction!
Here's everything you need to secure every input tax claim you submit.

3 Types of fringe benefits you must levy output tax on
The fringe benefits that are generally subject to VAT include:
  1. Assets you give the employee (e.g. goods, commodity or property). Cash doesn't count.
  2. The right to use assets or services made available by you for your employees' private use. This use could either be free of charge or for a nominal consideration (usually below market value). For example, if you're a beauty salon and you allow your staff to make use of the tanning bed at no cost.
  3. The release of an employee from an obligation to pay any amount he owes you. For example, if the employee borrowed R500 from you, and you decide to write off the debt.
Apply the tax fraction to the value of the benefit to calculate how much output tax to be paid over to SARS.
You levy output tax on the benefit to recover the portion of the input tax deduction you claimed when you originally bought the benefit i.e. when you bought the laptop you offered as a perk.
Take the cash equivalent of the benefit (as you would calculate it for income tax purposes) and apply the tax fraction to it (i.e. amount x 14/114).
This value will be the VAT amount you must levy as output tax.  If the benefit has no value, don't levy any output tax on the supply.
While you have to declare output tax, you don't have to recover this from the employee.

You're liable for the VAT on the same day you'd be liable for the PAYE
You become liable for the VAT on the same day you'd deduct the PAYE from the perk, for income tax purposes.
If your employee's or director's remuneration isn't subject to PAYE, then calculate and account for the VAT liability of this perk on the last day of the employee/director's year of assessment.

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When it comes to the company car, use the specific VAT formula

The use of a company car is one of the most common examples of a fringe benefit, on the modern payroll. But the rules for the VAT on this perk, are different to those for other perks.
This is because the cash equivalent for income tax purposes includes both a capital cost and a running cost element. Plus, when your company buys the car, it's denied any input tax deductions. And fuel isn't subject to VAT.
So, from a VAT point of view, you can only redeem the private use of the car and the related repairs, maintenance and insurance costs.
This is why you must use the specific formulas below to calculate the value and VAT liability for the private use of the company car:
  • Where the input tax was specifically denied on a vehicle, the calculation is as follows:
    0.3% x the determined value of the car x 14/114 = output VAT payable.
  • Where the input tax was allowed on a vehicle (e.g. bakkies), the calculation is: 0.6% x the determined value of the car x 14/114 = output VAT payable.
  • If the employee pays in full for the repairs to or maintenance of the vehicle, the calculated amount may be reduced by R85 per month.
  • If the employee contributes an amount to you for his private use of a company vehicle, the contribution must be allocated to the items to which it relates. If he contributes to fuel costs, then there's no reduction, since fuel is zero-rated. But if he contributes to the cost of maintenance, then you can reduce the contribution.
The determined value of the vehicle is the price excluding VAT and finance charges.

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