Can I claim VAT on Staff Entertaining in South Africa?

Staff entertaining is a common practice for many South African businesses. It involves providing meals, drinks, accommodation, or entertainment expenses for employees, clients, or suppliers. But can you claim the VAT charged on these staff entertaining expenses? The answer depends on the specifics.

The default rule is you CANNOT claim Value-Added-Tax on any expenses related to staff entertainment or hospitality in South Africa. This includes team events, functions, meals, drinks, accommodation, and employee sporting tickets. Let’s discuss in detail:

What Counts as Staff Entertaining for VAT Purposes?

The South African Revenue Service (SARS) has strict guidelines on what is defined as entertainment for VAT purposes. Here are some of the common examples that would be considered staff entertaining:

• Business lunches, dinners, or drinks
• Accommodation for business trips and conferences
• Team building events, parties, or celebrations
• Sporting event tickets
• Travel and meals provided at these events

If an entertainment element is involved in the staff expenditure, VAT cannot be claimed.

General VAT Rule for Staff Entertaining

The general VAT act states that VAT charged on entertainment expenses for staff cannot be claimed from SARS. This applies whether the entertainment happens at or away from the business premises.

The logic is that entertainment expenses are private and personal, even if they involve current or potential clients and benefit the business.

Exceptions That Allow VAT Claims

While the general rule disallows VAT claims on staff entertainment, there are a few exceptions where SARS does allow these types of expenses to be claimed.

The three main exceptions are:

Entertainment for Overseas Clients or Suppliers

If you are entertaining overseas clients or suppliers, you can claim 50% of the VAT charged on these expenses. Overseas guests should visit South Africa for genuine business engagements, and entertainment must be provided in business execution.

Employee Relocation Costs

VAT charged on some staff relocation costs can be claimed. Typically, this involves accommodation and meals provided to an employee and their family when moving location for a new business role. Certain SARS conditions exist around permanent employment and limits on periods/costs.

Training Refreshments

The VAT can be claimed if you provide light refreshments such as tea, coffee, and biscuits for staff training or conferences. But it cannot cover alcoholic drinks or lavish meals, which would be seen as entertainment. The focus should be on actual training, not hospitality.

So, in these three instances – for overseas business clients, employee relocations, and training refreshments – staff entertainment VAT can still be claimed back from SARS if you meet the specific legal conditions and have sufficient documentation.

How Should Staff Entertainment VAT be Treated?

Given the complex conditions around staff entertainment expenses, we recommend taking the following steps:

• Review entertainment costs and identify staff events/travel versus allowable exceptions.
• Extract the VAT to a separate entertainment VAT control account for disallowed staff entertainment.
• Ensure this entertainment VAT is excluded from your VAT201 return to SARS.
• For permissible claims on overseas clients or employee relocations, retain clear documentary evidence of eligibility and deductibility.  

This will help demonstrate compliance, clarify claimable amounts, and simplify your entertainment VAT treatment.

What Evidence is Needed?

For staff entertainment that IS eligible for VAT claims – like overseas client entertainment or employee relocation expenses – you need to retain documents that provide evidence:

1. Nature and purpose of the expenditure  
2. Supporting invoices and proof of payment
3. Names and details of staff/clients involved
4. Agreements around relocation policies

SARS can request this documentation anytime to validate if your entertainment expense claims are accurate and permitted.

Conclusion

The default VAT rule in South Africa is that no tax claims are permitted on staff hospitality or entertainment costs. However, there are a few exemptions where 50% or full VAT claims, such as overseas supplier events, specific employee relocation expenses, and minor training refreshments, may be allowed. There are strict legal conditions associated with these exceptions, so obtaining expert tax advice is crucial if you wish to claim VAT relief. Always maintain clear documentary proof, too. Your business can ensure accurate VAT treatment on staff expenditures with proper understanding and compliance processes.

Tools like our handy VAT Calculator can also help optimize your VAT accounting and Returns.

Frequently Asked Questions

What are some examples of non-claimable staff entertainment expenses?

Some common examples of staff entertainment that does NOT qualify for VAT claims include:

• Team lunches, dinners, or drinks
• Staff parties, events, or celebrations
• Sporting event tickets or entertainment for employees
• Venue hire and catering for internal functions
• Accommodation for local conferences or meetings

Can I claim VAT if I entertain both employees and clients together?

No. If staff members attend an entertainment event or receive meals/drinks paid for by the company, you cannot claim the VAT charged – even if clients are also present. The fact employees are there means it is defined as staff entertainment, which is not claimable.

What if we run training seminars over lunchtime with food provided?

As long as the primary focus is on actual employee training and skills development, refreshments can be permissible for VAT claims. But there are strict limits, e.g., no alcohol. The food should be secondary to the training for seminars over typical meal times.

How long should I retain entertainment VAT documents?

You are legally required to keep valid VAT documentation for audit purposes for five years. This includes any invoices, receipts, policies, or registers related to entertainment expenses and any VAT reclaimed. So, store files securely for at least five tax years.