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If you give your employee a travel allowance, you MUST ensure the amount is reasonable

by , 09 June 2014
When it comes to a travel allowance and a reimbursive travel allowance, you must use the right SARS formula and apply it to the estimated business kilometres your employee will travel.

You must ensure the amount of the allowance is reasonable.


If you give your employee an allowance they can't hope to cover on their tax return, they'll end up paying a very large amount of tax on assessment, because their travel deduction won't cover the portion of the allowance that wasn't subject to Pay As You Earn (PAYE) during the year.

Sound complicated? Here's an example to show you how it works.

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Not convinced you should give your employee a reasonable travel allowance? This example will sway you

The Practical Tax Loose Leaf Service gives you an example that shows why you must give your employee a reasonable travel allowance:

Mrs Peters is struggling financially, so she asks her employer to structure a travel allowance on her salary so she only has to pay tax on 80% of this allowance and clear a bit extra each month by paying less PAYE.

She travels from time to time for business purposes. Her monthly salary is R25 000 gross and she asks for a travel allowance of R10 000 per month. Her employer obliges.

Come the end of the tax year, Mrs Peters files her annual tax return. She's already paid PAYE on 80% of her annual travel allowance of R120 000, which means she needs to have a deduction of at least R24 000 to cover the portion of her travel allowance that wasn't taxed during the year.

But she realises she only travelled 130kms for business purposes (15 000 kms in total). If her car is valued at R110 000, she'll only have a deduction of R474.

So what does that mean?

For argument sake, let's assume she falls into the lower tax bracket of 30%. This means, on assessment, she has to pay SARS R7 058 (R24 000 – R474 = R23 526 x 30%). A very ugly surprise at the end of the day.

The bottom line: When it comes to travel allowances, think about your employee's tax burdens as well!

These days, employers are encouraged to go the extra mile for their employees. If your employee feels you care about her concerns, she'll feel appreciated and, as a result, she'll be more productive and that's good news for your company's bottom line.

PS: Avoid 200% tax penalty

Find out how to avoid penalties of up to 200% today.

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