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2496. Recovery of costs
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VALUE-ADDED TAX
2496. Recovery of costs
FEBRUARY 2016 – ISSUE 197
The question of whether VAT must be levied on costs that are on-charged often arises, particularly when no VAT was incurred on the cost in the first instance. The issue is most prevalent in the services industry where a consultant, for example, seeks to recover from his client certain costs that the consultant has incurred in rendering services to the client.
Where the consultant incurs costs on behalf of the client, such as the payment of an application fee or a license fee, then such fees are paid in the capacity as agent for and on behalf of the client. The recovery of the costs in these circumstances will not be subject to VAT in the hands of the consultant. The consultant will simply recover the actual cost incurred from the client without claiming any input tax and will not account for any output tax on the recovery either. This is because section 54(2) of the Value-Added Tax Act, 1991 (the VAT Act) deems the supply to be made to the client directly.
The position is less clear where the consultant incurs the costs for his own account, for example VAT exempt costs for using the Gautrain to attend a meeting at the client’s premises, or zero-rated petrol costs (based on a rate per kilometre) for travelling to the client, which he seeks to recover from the client.
Section 7(1)(a) of the VAT Act levies VAT on the supply by a vendor of goods or services in the course or furtherance of an enterprise carried on by the vendor. The VAT is then, in terms of section 10(2) and 10(3) of the VAT Act, calculated at the applicable rate on the consideration received for the supply.
The term ‘consideration’ is defined in section 1(1) of the VAT Act to include any payment made or to be made in respect of, in response to, or for the inducement of, t
The question of whether VAT must be levied on costs that are on-charged often arises, particularly when no VAT was incurred on the cost in the first instance. The issue is most prevalent in the services industry where a consultant, for example, seeks to recover from his client certain costs that the...
