South Africa: VAT And The Recovery Of Costs

Last Updated: 29 September 2015
Article by Seelan Moonsamy

Most Read Contributor in South Africa, September 2018

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 No. 89 of 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 the VAT Act to include any payment made or to be made in respect of, in response to, or for the inducement of, the supply of any goods or services. The consulting services will be a taxable supply if the consultant is a registered VAT vendor, and consequently any consideration paid in respect of or in response to the supply of the consulting services will be subject to VAT. One therefore needs to consider whether the recovery of the costs incurred constitutes consideration for the consulting services rendered, or for the on-supply of the goods or services acquired.

In the case of Commissioner, South African Revenue Service v British Airways plc 2005 (4) SA 231 the Supreme Court of Appeal ("SCA") considered whether passenger service charges levied on an airline by an airport operator and on-charged by the airline to passengers on an international flight, comprised consideration for separate services rendered by the airline to the passengers which is subject to VAT at the standard rate of 14 per cent. The SCA held that:

"The charge that the [airports] company makes to British Airways is no more than a cost that British Airways has to bear in order to operate its carrier service, similar to those that it pays to land and park its aircraft, which it recovers from its passengers directly, rather than indirectly."

The SCA concluded that:

"..The moneys that are recovered by British Airways are not a consideration for the supply by it of airport services simply because it does not supply them at all".

The SCA therefore confirmed that the cost incurred by the airline and recovered from the passengers formed part of the consideration for the zero-rated international transport service supplied as opposed to being consideration for separate passenger services rendered by the airline to the passengers.

In a similar vein, SARS has previously ruled (in general written ruling 20) that where a landlord recovers a proportion of property rates incurred by him from his tenants in respect of commercial rental, the recovery of these costs by the landlord from the tenant forms part of the total rental consideration, irrespective of whether it is specified as a separate component of the rental consideration; VAT must accordingly be levied on the total rental consideration in terms of section 7(1)(a) of the VAT Act. At the time that the ruling was in effect, property rates fell outside the scope of VAT but this did not affect the recovery of such costs to be subject to VAT. SARS also previously ruled in general written ruling 76 that where a company recovers travelling expenses based on a rate per kilometre from another company (and these expenses include petrol costs), the recovery of the travelling expenses constitutes consideration in respect of a taxable supply and will therefore be subject to VAT in terms of section 7(1)(a) of the VAT Act.

Although rulings 20 and 76 were withdrawn by SARS, the principles on which they were based are in line with the SCA judgment in the British Airways case. In the case of ruling 20, the landlord does not supply municipal services to the tenant for which he receives the recovery of the property rates as consideration, but the recovery of the costs forms part of the rental consideration for the property. In the case of ruling 76 the recovery of the petrol costs forms part of the consideration of the services rendered by the company and is not consideration for the supply of petrol.

Revisiting the scenario of the consultant, the cost of commuting via the Gautrain forms part of the consultants consideration for rendering the services to the client and as such is subject to VAT at the standard rate. Similarly, the recovery of the petrol costs for travelling to the client is subject to VAT at the standard rate, being part of the consideration for the consulting services rendered. The fact that the Gautrain fares or the petrol costs did not attract VAT in the hands of the consultant, is a moot point.

Service providers should therefore closely scrutinise as to whether they are properly accounting for VAT on costs recovered as part of their services rendered to clients.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
Related Articles
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions