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Johannesburg - The 2010 FIFA World Cup is sure to increase entertainment spend, but firms should take note that wining and dining linked to a business undertaking may mean a heavier value-added tax (VAT) and income tax burden.
According to David Warneke, a tax partner at Cameron and Prentice Chartered Accountants, a registered vendor may not claim VAT back from the South African Revenue Service (Sars) on entertainment expenses.
Entertainment is a defined term in the VAT Act and specifically includes food, beverages, accommodation, amusement or recreation - this includes food and drinks supplied to customers for marketing purposes, or staff tea and coffee.
"It should be noted it makes no difference whether the expenses are considered valid business expenses or not," said Warneke. "VAT relating to the supply by the vendor of 'entertainment' may not be claimed.
"There are exceptions to this rule, where a vendor regularly and continuously supplies entertainment for a market-related charge," he said. This usually refers to firms in the business of supplying entertainment, or which supply the entertainment to an employee for a market-related price.
For example, you cannot claim anything relating to the supply of food and drink to customers in entertainment boxes or other areas at sporting events. But if your business decals are emblazoned on the entertainment area, you can claim the input VAT in full on the cost of the decals as they are an advertising expense outside the definition of "entertainment".
"Certain concessionary rules will, however, apply during the Soccer World Cup, whereby supplies of hospitality or merchandise will be zero-rated at the World Cup Championship sites.
"This means that VAT will not be charged on supplies of hospitality or merchandise at these sites," he said. "Tickets for the matches are, however, subject to VAT at the normal rate of 14% and the VAT input on these tickets may not be claimed."
Also, as long as the type and amount of the expenditure can be justified for valid marketing purposes and it is not capital in nature, the Income Tax Act allows you to claim a deduction.
"The deduction would be the actual cost to the taxpayer of the expenditure – including the VAT that was not claimable as input VAT, due to the prohibition on the supply of entertainment," said Warneke.
For example, if the taxpayer spends R20 000 (excluding VAT) and R22 800 (including VAT) on food and beverages to customers for marketing purposes and may not claim the VAT input, the income tax deduction would be the full R22 800.
- Fin24.com