The seven fringe benefits you didn't know about and how to declare Vat on each: Part 2 - goods/services you give your employees' relatives
Did you know you have to pay Vat for goods or services you give your employees relatives?
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 you must calculate Vat.
Before I show you how to calculate the Vat, let's quickly recap on the seven fringe benefits that relate to Vat.
The seven fringe benefits which relate to Vat are:
1. Company cars;
2. Goods/services given to relatives of employees;
3. The 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 e.g. cosmetic and skin care groups that allow employees free facials; and
7. Medical costs incurred by the employer.
Now let's look at how you calculate the Vat on free goods/services you give your employees' relatives...
12 Taxable fringe benefits - are you taking advantage of all of them?
There are hundreds of companies out there that don't know which fringe benefits are taxable or they land up taxing the wrong percentage on them...
This kind of error could cost you thousands in penalties to SARS if it catches you out – and it will!
How to calculate Vat on free goods/services you give your employees relatives
Let's look at an example.
Instead of paying Mr Goodwork a bonus, his company pays for his wife to go with him on a business trip to Durban. The trip includes:
A sunset cruise around the harbour.
Mrs Goodwork's portion costs the company R10 000. The company must work out the Vat on the fringe benefit of R10 000 and pay the resulting Vat over to SARS as output tax.
So, their calculation will be R10 000 x 14/114 = R1 228 output tax. They must show this in block 12 of the Vat return.
That's all for now.
Look out for my next email where I'll talk about fringe benefit number three: the purchase of an asset at less than actual value, and how to deal with the Vat.