VAT on entertainment expenses is a tricky area because even though it's understood you can't claim input tax on them, there are situations in which you can.
But be careful! Because if you get them wrong, you'll be hit hard by SARS penalties!
So to help you avoid them, use this checklist, consisting of three simple questions, to see when you can claim input tax on entertainment expenses...
Keep reading to see it...
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.
Use this checklist to see when you can claim input tax on entertainment expenses…
QUESTION#1: Is the core function of your business to provide entertainment?
If so, then you'll be able to claim input tax on entertainment expenses.
This is for example, when you run a restaurant.
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 the objective of your business is to still make a profit, then SARS won't deny you your input tax.
QUESTION#2: Do you pay for employees' personal subsistence?
If you pay for your employees' personal subsistence, then you can claim back the input tax. But this is only if your employees incur the expenses in the line of their work or duties.
Employees must be away from their usual residence and business place for at least one night to qualify for this input tax claim.
When it comes to personal subsistence, claim input tax on take aways and drinks.
QUESTION#3: Are meals and refreshments included in your fee?
If you provide meals and refreshments that form part of the price of a ticket or entrance fee, you can claim the input tax.
For example, this could be when you host a seminar and the refreshments are included in the fee.
*To learn of more situations in which you can claim input tax on entertainment expenses, page over to chapter I03: Input Tax
in your Practical VAT Loose Leaf Service
handbook, or click here
if you don't already have it.