Stop! Before you hand your employee the keys to the company car, you better make sure you're taxing it correctly.
It's important for you to know when and how to tax the use of your company car. Or SARS will make you pay a 10% penalty for under deducting PAYE.
I'll show you four scenarios of when, and how, to tax your employees correctly on the use of your company car.
Disarm these four ticking time bombs on: Your guide to taxing company cars and travel allowances
Taxing employees on their use of company cars isn't as simple as you might think. Travel expense claims and deductions are one of the most common triggers for a SARS audit.
In fact, if you get it wrong you'll face penalties of up to 200% from SARS. And to top it off your employees will either pay too much tax or not enough. Either way, the admin to sort it out is just not worth your time.
The good news is that 90+% of the penalties involve only four mistakes that you can easily disarm today.
Read on to find out how to tax company cars correctly.
Do you know how to tax the employee if:
1. They didn't start using the company car until midway through the month?
2. They use the car more than 80% for business travel?
3. They use more than one company car?
4. They pay the maintenance, fuel and licensing costs – instead of the company?
Let's take a look at each scenario, in detail.
1. My employee started using the company car halfway through the month. How do I tax this?
Give your employee the right of use of the car during a particular month (say, on the 15th of the month), then adjust the taxable value of the fringe benefit. Do this by using the daily apportionment method. That way, your employee won't pay tax on the full month's use of the car.
2. If the employee uses the car mostly for business, you can reduce the fringe benefit tax on the private use of the company car from 80% to 20%
Let's say you have employees who travel between clients premises. They pop in at the office once or twice a week to chat to you and keep you abreast of things.
So, if you decide to give each consultant a company car, and you know that more than 80% of the car's use will qualify as business use.
The private use of the company car is the fringe benefit. But because the employees use the cars so heavily for business, you can reduce the fringe benefit from 80% - 20%.
Get the answers to these and 65 of the most frequently asked company car and travel allowance questions
How often your employees should hand in their logbooks?
If you have to pay Vat on a company car your employee wants to buy?
How to calculate travel allowances correctly to avoid being hunted down by SARS?
If you can claim input tax on a vehicle you use for company purposes?
Imagine how quickly you'll be able to calculate the fringe benefit for your company cars without making a single mistake when you have
Your Company Car and Travel Allowance Problem Solver at your disposal.
Learn more here
3. How to tax your employee if they use more than one company car
If you let your employee the use of more than one company car, make sure they use both vehicles purely for business purposes.
In this case, when you calculate their fringe benefits tax, use the car with the highest value of private use. But be aware that SARS might instruct you to use the value of the other car.
4. My employee pays all the maintenance, fuel and other costs, instead of my company
If your employee bears all the costs relating to the car (i.e. all license, insurance and maintenance or fuel costs), don't be tempted to reduce the value of the car's private use.
SARS will let the employee deduct these expenses when they submit their personal income tax return.
But again, they can only do this if they've kept an accurate logbook. Like the details of the expenses, as well as the supporting documents to prove the expenses (invoices, proof of payment, etc.).
The Fringe Benefit Guide All South African Companies Must Have is put together by a team of five tax experts with more than 51 years of experience in the South African tax industry, it'll show you how to claim fringe benefits you haven't even heard of! Click here to learn more