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Revealed: Five exceptions to the rule against entertainment expenses

by , 26 September 2013
Entertainment expenses are a tricky area of Vat law. After all, SARS will reject some entertainment-related claims right off the bat. But there are some that SARS MUST allow. Here's a checklist of the five exceptions to SARS' rule against entertainment expenses.

"As a Vat vendor, it's your duty to charge output tax and claim input tax as long as you can prove your claims and back them up with all the required documentation,' says the Practical Vat Loose Leaf Service.

If you want to claim every input tax credit possible on entertainment expenses, it's crucial you know when you'll be allowed to claim.

You can claim the input tax on entertainment-related expenses in the following circumstances:

#1: You're allowed to claim if the core function of your business is to provide entertainment, for example, you run a restaurant

But this only applies if you provide the services or entertainment with the objective of making a profit, and these prices cover the cost you paid for the entertainment.

If you sometimes lose money on promotions, but your usual business is to make a profit, you aren't denied the input tax.

For example, a client promotion where you offer two burgers for the price of one on Wednesdays.

So, let's say the price of one burger is R32.95 (incl. Vat). Two will normally cost you R65.90. But on Wednesdays, customers can buy two burgers for R32,95. This the seller will pay over the Vat on R32,95 (R4,05), BUT he can claim his input tax relating to two burgers.

#2: If you pay for the personal subsistence of employees, then you can claim back the input tax. But you can only do this if your employee incurred the expenses in the line of his work duties.

Remember, your employee must be away from his usual residence or business place for at least one night in order for you to qualify for the input tax claim.

#3: You can claim if you provide meals and refreshments that are included in the price of a ticket or entrance fee, for example, you host a seminar and the meals are included in the fee.

#4: Municipalities are allowed to claim if they provide sport and recreational facilities.

#5: Welfare organisations can claim all their entertainment expenses back.

It's that simple. If you tick any of these boxes, be sure to claim input tax on these entertainment-related expenses.

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