The tax experts at the Practical Tax Loose Leaf
explain the difference between a travel allowance and a travel reimbursement allowance, as well as point out when to award each type to employees.
What's a travel allowance and when should you give it to employees?
This is when you give the employee a fixed amount each month as part of his remuneration package, towards his monthly business travel. But it's awarded regardless of how many business kilometres he actually travelled.
It's ideal for employees who travel for business on a daily or weekly basis, e.g. a medical rep.
There's no set figure you must use. SARS leaves it up to you to estimate the number of business kilometres your employee is likely to travel, and then award him an allowance that's in line with this and based on the value of the employees car.
If your allowance is too small, when the employee submits his ITR12 tax return, his business expense claims might be bigger than the allowance he gets. This rings alarm bells for SARS, and your employee will lose out on deductible expenses (resulting in more tax being paid at the end of the day).
If the allowance you give him is too big, SARS will think you're giving the employee an extra perk. And it could disallow the allowance altogether. Or your employee will end up having to fork over a lot of tax when he's assessed (as his business travel will not cover the untaxed portion of his travel allowance).
So how should you work it out?
Usually you'll deduct PAYE from 80% of the value of the allowance, UNLESS the employee can prove 80% or more of his total yearly travel is business travel (and not private travel). In this case, you only need to deduct PAYE from 20% of the allowance.
Record the full value of the allowance against code 3701 on the employee's IRP5.
What's a reimbursive travel allowance and when should you give it to employees?
A reimbursive allowance, on the other hand, is when you cover the costs of your employee's travel, but reclaim the expense from the company. This is better for employees who only occasionally travel for business reasons.
You can use the SARS reimbursement rate of R3.24 per kilometre for the 2014 tax year (2013 tax year: R3.16).
Alternatively, you can calculate a rate from the travel allowance tables published by SARS
, based on the value of the employee's car.
Reimbursive travel allowances aren't subject to PAYE, so you'll exclude this allowance when you calculate your employee's monthly PAYE deduction.
Since a reimbursive travel allowance isn't taxed during the year through PAYE, your employees can end up getting a huge shock on assessment if they've reported their business travel to you incorrectly. Always make sure that, if you offer your employees a reimbursive travel allowance, only do so if your employees give you accurate travel logbooks on a monthly basis. If you don't insist on this, you could end up with SARS coming after your business for the underpaid PAYE!
Remember to record the reimbursement on the employee's IRP5, even if it's tax free. There are two source codes you can use (but not at the same time!):
Use code 3702 if:
• The rate per kilometre you used to reimburse the travel expenses is greater than the prescribed figures set by SARS (either the R3.24 or the calculated rate per km); or
• The employee travelled more than 8 000km for business during the tax year; or
• You give the employee a travel allowance as well as a reimbursive travel allowance.
Use code 3703 if:
• The rate per kilometre you used to reimburse the travel expenses is less than or equal to the prescribed figures set by SARS (either the R3.24 or the calculated rate per km);
• The employee travelled less than 8 000km for business; and
• You ONLY give the employee a reimbursive travel allowance (and no other Travel Allowances on top of it).
Don't forget, SARS will ask for proof to substantiate any travel claims you or your employees make.