VAT you cannot claim: cars, entertainment, club fees
Which VAT a South African vendor may not claim back, from motor cars and entertainment to club fees and private use, and how to record those bills.
By Achekam · · 5 min read · For Running a business businesses in South Africa
Once a business registers for VAT, it gets used to a comfortable rhythm: VAT on sales goes to SARS, VAT on purchases comes back as input tax. It is tempting to assume every supplier invoice with VAT on it fits that rhythm.
Some do not. South African VAT law blocks input tax on certain purchases even when they are genuinely for the business, and they are easy to get wrong: the vehicle that turns out to be a car for VAT purposes, the year-end function, the golf-club subscription. This article sets out the main categories SARS's guide for vendors names, and how to record such bills so that the VAT you cannot claim never reaches your return.
Motor cars and entertainment: the general rule
SARS's VAT 404 guide for vendors says that, as a general rule, VAT incurred to acquire a motor car, or goods or services for entertainment, may not be deducted as input tax, even if they are used for making taxable supplies.
The last part is what surprises people. A sales representative's car may be essential to earning the business's income, and a client lunch may well win the contract, but under the general rule the VAT on them stays a cost. The guide describes this as a general rule, which means it has exceptions. Whether one applies to your situation depends on what you do and how, so read the relevant section of the guide or ask your accountant before claiming on anything that looks like a car or entertainment.
Two words in the rule repay attention:
- "Motor car". The rule is about motor cars specifically. Whether a particular vehicle, such as a double-cab bakkie or a minibus, counts as one is a question to settle against the guide's definition, not by the name on the licence disc.
- "Entertainment". Meals, drinks, functions and hospitality for clients or staff are the obvious examples. The fact that a meeting happened over lunch does not change the character of the lunch.
If staff also use a company car privately, there is a payroll side to the same vehicle; see the company car fringe benefit.
Club memberships versus trade journals
The guide draws a clear line between two kinds of subscription. VAT on membership fees to sporting, recreational and private clubs may not be deducted. VAT on trade journals directly related to the enterprise may be deducted.
So the golf-club fee, even if the membership is held so that the director can network, is blocked. The professional or industry journal the business subscribes to for its work is not. A useful test for your own subscriptions list is whether the subscription is a publication tied to your trade or a membership of a club.
Private use and exempt supplies
Two further blocks apply more broadly. The VAT 404 guide says a registered vendor may not deduct VAT on goods or services acquired to make exempt supplies or for private use. It also says that a person that makes only exempt supplies may not register for VAT at all.
Private use is the familiar one: a laptop bought through the business for a family member, groceries for the owner's household. Exempt supplies are less obvious and matter most for businesses with a mix of activities, for example one that earns some exempt income beside its taxable sales. VAT on costs that serve the exempt side is not claimable.
No proper document, no claim
Even where input tax is allowed, it has to be supported. The guide says that without a proper tax invoice or approved alternative document, a vendor cannot deduct input tax. A card slip or a supplier's statement is not the same document as a tax invoice, so check what you actually hold before claiming. For the time limit on claims, see the five-year limit on input tax.
All of these rules, with their exceptions, are set out in SARS's VAT 404 guide for vendors, which covers input tax limits alongside tax invoices, records and penalties. The guide cited here is Issue 15, up to date as at 17 December 2024; check for a later issue.
Recording a bill whose VAT you cannot claim
In Achekam a business records supplier bills line by line with VAT. A South African business's bills and purchase orders take 15% or 0% VAT per line, and bills post input VAT to the ledger. A bill without a purchase order waits for approval before it posts, and it can be paid in full or in parts from a chosen bank account.
For a purchase whose VAT is blocked, the aim is that no input VAT is posted. Since the bill posts input VAT from each line's rate, the way to achieve that is to enter the blocked line at the full amount you paid, VAT included, with 0% VAT, so the whole cost goes to the expense account. Agree this treatment with your accountant, and keep the supplier's tax invoice with the bill so the record shows what was actually charged.
A worked example in words: a restaurant bill for a client lunch shows a price and VAT on top. Enter one line for the total paid, at 0% VAT, coded to entertainment. The ledger then carries the whole amount as the cost of the lunch, and nothing is added to input VAT for the period.
Where one bill mixes allowable and blocked items, such as a supplier invoice that includes both trade journals and a club fee, split it into separate lines so each is treated correctly.
Checking suggestions from uploaded slips
Many of these costs arrive as photographs of slips. In Achekam, supplier invoices and receipts uploaded to Financial Intake become suggested postings. AI can suggest how to post them, but only a person approves and posts.
That approval step is where blocked VAT should be caught. Before approving a suggestion, the reviewer should ask:
- Is this a motor car, entertainment or a club membership?
- Was it bought for private use, or for an exempt part of the business?
- Is there a proper tax invoice behind it?
If any answer points to a blocked claim, do not approve a posting that claims the VAT. Manufacturers with large purchase volumes will find more on the routine side of input VAT in input VAT on purchases for manufacturers.
A rule for the approver
Give whoever approves bills and suggested postings a one-line rule: cars, entertainment, clubs, private use and exempt activities carry no input VAT unless the accountant has confirmed an exception. Applied every month, that rule keeps the blocked VAT out of your returns before SARS has to take it out for you.
General guidance only, not advice on your own circumstances. Tax and payroll rules change: check the current position with the authority or your adviser.
