VAT inputs on Professional Membership dues – SARS clamps down

Do you pay for your staff’s professional memberships? Can you claim the VAT inputs?

Until now, many professional firms have, when paying their staff’s annual membership dues to the relevant professional body, been claiming the input VAT on this expense. SARS have given notice that this practice will not be allowed as a VAT deduction from 1 January 2013.

Employers have in the past been allowed to claim the input VAT deduction, subject to certain conditions, in terms of a ruling issued by SARS to the South African Institute of Chartered Accountants (SAICA) at its request, but SARS has now advised that the ruling will only be valid for membership fees charged in respect of the 2012 calendar year and claimed as input tax in or before the December 2012 tax period

There is an anomaly in the interpretation of the VAT Act in that sole practitioners can deduct their membership fees to a professional organisation but employers cannot. The reason for this is that an input deduction is only allowed in the VAT Act to an employer if the goods or services were purchased by the vendor (employer) for the purpose of making taxable supplies. As the employer is paying membership dues on behalf of the employee, the key issue is that, although the services are indeed used in the making of taxable supplies, it is not the vendor (the employer) that acquires the membership as required by the Act – it is rather the employee who acquires the membership.  The fact that the employee learns professional skills and is subject to the disciplinary procedures of this professional body means, as SAICA have argued, that employers effectively outsource these functions to the employees’ statutory body. If the professional body did not carry out these functions, the employer would have to, and thus the services are “wholly” for the benefit of the employer and should be deductible as a VAT input.

Although therefore a strong case has been made to SARS to allow the VAT deduction in the hands of the employer, from 1 January next year this will no longer be possible.

The position with income tax

However, if employers structure their employees’ membership of professional organisations correctly (so that, for example, being a member of the professional body is a condition of employment) the full amount including VAT is deductible for income tax purposes.

Other staff expense VAT inputs

It is a good time to review VAT deductions for other expenses incurred by staff, such as travel expenses. It is worth making an appointment with your accoutant to ensure you have planned for future SARS VAT queries.

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