HOW VAT CAN REDUCE TRAVELLING COSTS

HOW VAT CAN REDUCE TRAVELLING COSTS

In the corporate world travelling is a fact of live, and comprises a huge expense to any organisation. These costs need to be effectively managed. An area that is often overlooked is the value-added tax (VAT) component of travel. Local VAT represents an additional 14% cost to the company if it is not claimed correctly. 

There are two main components of local travel, namely the airfare, and accommodation. If you are using travel agents, you are reliant on the information presented to you on their tax invoices. Travel agents act as both agents and principals. Acting as principals, they will charge you a service fee for putting together all your travel arrangements, and the VAT that they charge you for this component is their liability. But they also act as an agent for all the disbursements that they incur, examples being hotel bills and airline tickets. For your convenience they will often indicate, on their tax invoice, the VAT portion that you are entitled to claim in this respect. However, they also supply you with original tax invoices from hotels and car rental companies they’ve booked for you, and the South African Revenue Service (SARS) has issued a ruling that an airline ticket itself can be used as a tax invoice. 

Often overlooked 

However, one issue that has come to light, and which is often not treated correctly by travel agents, is that there is VAT on some of the airport taxes charged. These airport taxes are detailed on the airline ticket, but it is clear that they are inclusive of VAT. For example, SARS have issued a draft interpretation note stating that the passenger services charged for by the airports operating company, ACSA, is VAT inclusive on both local and overseas flights. You should ensure that you claim the VAT on this portion of the charge, as it represents a saving to you on the cost of your company’s travel expenditure. 

You are entitled to claim the VAT on business accommodation, as long as the company employees concerned are away from home when this is incurred. As far as meals go, if it is for the subsistence of an employee away from home, it falls outside the definition of entertainment, and can be claimed as an input tax deduction. You are not entitled to claim the VAT on the meal of any clients while away on business as this would fall within the definition of entertainment. 

An area where companies often claim VAT incorrectly is on car hire. Car hire falls within the definition of a motor car, on which an input tax deduction is disallowed in terms of the VAT act. Incorrectly claiming an input tax deduction on this type of expense could lead to an adjustment, and the levying of interest and penalties by SARS. 

Reference: 

Teren Kamener – Payroll World