Do you know how to tax your company cars in these five unusual scenarios?
Before you decide to hand your exec the keys to a company car, you need to know how to treat the use of this car on your payroll.
If you don't know when and how to tax the use of the car, you could end up underdeducting PAYE.
And a 10% penalty from SARS is inevitable.
Especially in the following five unusual scenarios...
The company car. An employee's favourite perk. An accountant's little time bomb.
Spending time trying to calculate all the variables of company cars vs. travel allowances can be frustrating not to mention complicated.
Well, you don't have to pull your hair out anymore.
Here are 14 practical examples to make your travel calculations in minutes.
Why you need to know how to handle the tax on your company cars
Your employee's private use of the company car is a fringe benefit. And you MUST deduct PAYE on the value of the private kilometres, which the employee travels in the company car.
These private kilometres are the private use of the car, by the employee.
Here's how you would normally tax your employee's private use…
How to make yourself invisible to SARS
The key to reducing how much tax you pay is staying off SARS' radar.
SARS has conducted R1.8 million audits. They've added 100s of new tax collectors and auditors to their payroll and each one has his own collection targets to meet. This means two things:
But there are 139 perfectly legal ways for you to make yourself invisible to SARS. Here's how…
If you're not compliant, your chances of an audit this year have just doubled, and
You will pay more in penalties.
How to tax your employee's private use of the company car in four easy steps
These are the basic steps you must follow:
Step #1: Calculate the value of the fringe benefit. That's 3.5% of the determined value of the car, each month. For all the details on the determined value and how to calculate it, refer to the Practical Tax Handbook.
Step #2: Multiply the value of the car by the relevant fringe benefit percentage to get the monthly fringe benefit value.
It will either be 3.5% if the car doesn't have a maintenance plan.
Or 3.25% if the car does have a maintenance plan.
Step #3: Include 80% of the fringe benefit value in your employee's monthly PAYE calculation as taxable income.
Step #4: Deduct the PAYE from the employee's monthly salary.
As I said, these are the basic steps.
But this becomes tricky with the following five unusual scenarios:
How you tax your employee in these five scenarios is slightly different than the normal approach you would take.
Your employee didn't start using the company car until midway through the month;
He uses the car more than 80% for business travel;
He uses more than one company car;
He pays the maintenance, fuel and licensing costs – instead of the company; and
You actually rent the company car (through a rental agreement or operating lease) instead of buying it and owning it through the company.
The Practical Tax Handbook goes into each of these scenarios in detail, with practical examples of how you should tax your employees. Make sure you get your copy now.
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