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Part 3 - The seven fringe benefits you didn't know about and how to declare Vat on each: The purchase of an asset at less than actual value

by , 27 November 2014
Dear reader,

If you've been reading my series on Vat on fringe benefits, you'll know you need to calculate and pay Vat on your employees' fringe benefits.

If you don't declare output tax on these seven fringe benefits, SARS will charge you penalties and interest all the way back to when you first made the mistake.

I've spoken about how to calculate Vat on the first two fringe benefits - company cars and goods/services you give your employees relatives.

This week I want to focus on the next fringe benefit - where you allow your employees to buy assets at less than actual value.

Read on to see how to calculate Vat on the purchase of an asset at less than actual value.

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Well it doesn't have to be a problem for you.
 
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How to calculate Vat when your employees buy assets at less than actual value 
 
Miss Katy Cat is the Financial Manager for the company Megabucks.  She has been working there for two years. Megabucks buys new computers to replace all their old ones. They give Miss Cat an offer to purchase her old computer at 75% less than its market value. 
 
The computer's current market value is R4000. So Miss Cat only has to pay R1000. Let's work out how to calculate the Vat correctly on this fringe benefit.
 
Megabucks first need to calculate the cash equivalent on the benefit as follows:
R4 000 (current market value) – R 1 000 (amount paid) = R3 000.
 
Now they must work out the Vat on the equivalent of the fringe benefit as follows:
R3 000 x 14/114 = R368.42.  
 
Read on to see how Megabucks allocates this payment on the Vat return.
 
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Your chances of being audited by SARS just increased…
 
A small administrative mistake is all it takes for SARS to schedule an audit for your business.
 
Putting a simple zero in the wrong place on the new VAT return could cause a long and tedious audit process that could cost your business thousands.
 
Make sure this never happens to you by filling in the new VAT return 100% correctly every, single time. 
 
 
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How Megabucks should treat the Vat on the fringe benefit
 
Megabucks calculated the Vat to be R368.42. This amount is output tax. Megabucks must pay this amount on the Vat return which covers the period they gave the benefit to Miss Cat. The R368.42 goes into block 12 of the Vat return.  
 
Keep looking out for my upcoming emails where I'll show you how to treat the Vat on these remaining fringe benefits:
 
Right of use of an asset; 
Free meals and refreshments; 
Free or cheap services; and
Medical costs incurred by the employer. 
 
For everything you need to know about fringe benefits, check out the Fringe Benefits Guide.
 

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