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Part 4: The fringe benefits you didn't know about and how to declare Vat on free or cheap services

by , 05 December 2014
Dear Reader,

Most business owners don't consider declaring Vat on free or cheap services they give to their employees.

But, you should!

Why?

Because Vat Law says where you give a benefit or an advantage to your employee, it's seen as if you actually supplied, or sold, those goods or services. This is why you must calculate Vat on certain fringe benefits.

In the past weeks, I've shown you how to calculate Vat on these fringe benefits you give your employees:

• Company cars;
• Goods/services given to relatives of employees;
• The purchase of an asset at less than actual value;

This week I'm talking about fringe benefit number four - free or cheap services you give your employees. Read on to see what these are.

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Can you really afford not to be 100% sure about every input tax claim you submit?
 
You risk: 
•              Claiming less money than you should; or
•              Claiming more money than you should, and getting a black mark from SARS plus penalties and interest!
 
Make sure you're 100% sure. Here's how… 
 
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You may be giving your employees free or cheap services that you must declare Vat on. Do you know what they are?
 
Any service or product you give your employee for cheap or free is a fringe benefit!
 
Examples include:
·         A motor dealer allowing the employees to maintain their personal cars for free;
·         A laundromat allowing the employees to wash and iron their personal laundry for free; and
·         A garden services maintaining employees' gardens for free etc.
 
Make sure you calculate Vat on these or SARS will assess you with penalties and interest!
 
Read on to see how to calculate Vat on this fringe benefit…
 
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Are there any inaccuracies in your tax invoices?

You could be liable for penalties, interest and even prosecution!

Are you sure that the tax invoices you receive are issued properly?

Are all the legal requirements on the tax invoice?

Discover our 8 point checklist here.

**********
 
How to calculate Vat on free or cheap services you give your employees
 
You must calculate the value of the fringe benefit and multiply this by 14/114. This is the output tax payable in block 12 of the Vat return.
 
Let's look at the example of 'Perfect Skin' a beauty salon in Northriding.
 
Perfect Skin lets their staff get free manicures. So at the end of the month, Perfect skin determines the value of the free manicures to the staff came to R3 000. 
 
Perfect skin now has to make an output tax calculation as follows:
 
R3 000 x 14/114 = R368.42
Perfect Skin must add the R368.42 in Block 12 of their Vat return for the same period.
 
P.S. Don't spend hours searching on the internet for a solution to your Vat problem! Get the Practical Vat Loose Leaf on your desktop and you'll have an easy reference guide to work through all your Vat queries, anytime! 


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