VAT on incentives
06 November 2014
Posted by: Author: SAIT Technical
Author: SAIT Technical
Q: Tax Payer (A)
agreed to pay an incentive for the ultimate incentive of the employees (C) of a
client (B). Both A & B are VAT
vendors. B shows the incentive (this
incentive is based on an amount per products of the tax payer, sold by C) as
such on the employee’s payslip where PAYE is deducted and paid over to SARS. A receives a Tax Invoice from B for the
incentives and pays this tax invoice to B.
This shows as advertising and promotions expenses in the books of A.
B’s accountant indicated that VAT should not be charged on
the invoice that the raise and issue to A for these incentives as B is merely
collecting the incentives on behalf of A to be paid over to C. In any case, there will be PAYE deducted and
there should not be double tax on the amount.
A’s accountant (myself) is arguing that this is not excluded
from VAT. The client (in the way of
employees of the client) is providing a service (marketing and selling the
products of A) to A. This service is not
zero-rated, nor exempt services, but rather standard services provided by a VAT
A: We agree with
your view that there is a supply of a service, but we are not sure who the
client is that you refer to. Our
understanding is that A pays an amount to B and that B in turn pays this amount
to B’s employees. We submit that B is
‘making available … any facility or advantage’ and as such is rendering a
service to A. It doesn’t appear as if B
is recovering this in the capacity as an agent and it is unlikely that A is an
agent. The amount received by B is
therefore in respect of a taxable supply and inclusive of output tax at
14%. The supply definitely doesn't
qualify for the rate of zero per cent.
Disclaimer: Nothing in this query and answer should be construed as
constituting tax advice or a tax opinion. An expert should be consulted for
advice based on the facts and circumstances of each transaction/case. Even
though great care has been taken to ensure the accuracy of the answer, SAIT do
not accept any responsibility for consequences of decisions taken based on this
query and answer. It remains your own responsibility to consult the relevant
primary resources when taking a decision.