Dear Tax Bulletin
Travel expense claims and deductions are one of the most common triggers for a SARS audit.
If you don't correctly pay, tax
, and record employee travel allowances, SARS will pick up the errors. They'll audit you and charge you penalties for non-compliance. And SARS has taken the approach of increasing their 'tax base' by hitting taxpayers hard on nearly every non-compliance!
Let's look at the two types of travel allowances you can use and what you need to do to minimise your risk of an audit.
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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.
There are four easy steps you can follow.
Diane is one of your sales reps and is on the road a lot, but you're not sure how to reimburse her for her travel expenses.
Here are two options available to you:
1. Fixed travel allowance; or
2. Reimbursive travel allowance.
Let's explore these options and have a look at their tax
implications to make sure you don't raise any flags monthly when submitting your PAYE returns to SARS.
How to handle travel allowances to minimise your risk of a SARS audit
1. Fixed travel allowance
Here, you give a fixed amount each month as part of Diane's salary package regardless of how many kilometres she racks up. This is ideal for employees who travel on a daily or weekly basis, every month of the year.
To reduce the risk of an audit, you must make sure you don't change the travel allowance monthly. You can revise it once or twice a year and still be okay. You'll only choose to use this option for staff who travel every month. If travel is intermittent, two of the 12 months during the year, then you'd be better off using the reimbursive travel allowance.
You estimate that Diane will travel 2 000 km per month for business. Using the SARS reimbursement rate of R3.16 as a basis, you give her R6 320 per month as the travel allowance on her salary.
If your estimation is wrong you could end up in trouble with SARS. If the amount you allocate is too low, Diane's business claims on her ITR12 tax
return will be bigger than her travel allowance and trigger alarm bells for SARS. She'll get a massive refund as well, which could lead to SARS auditing both. Generally a refund above R10 000 is automatically flagged for verification.
If the allowance is too big, SARS will think you're giving Diane an extra perk and might disallow it altogether. Diane might end up having to pay over a huge amount of tax
on assessment, and SARS will again look to you as the employer – why did you give your employee such a large travel allowance?
Now let's look at the other option available to you
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2. Reimbursive travel allowances
Here, Diane would cover her travel expenses herself and then put in a claim to be paid back. You'd generally only use this situation if she only travelled occasionally for business.
This option makes it easier for you to get the reimbursement figure correct from the start. You can either pay Diane the SARS reimbursement rate of R3.16 per km or you can use the SARS rate per kilometre schedule to calculate the rate.
You want to ensure that the reimbursive amount is declared under the correct code on the IRP5, else there'll be problems when you perform your annual EMP501 reconciliation. Use the wrong code, and SARS might tell you that PAYE was supposed to be withheld, and then – under-estimation and late-payment penalties!
Reimbursive travel allowances don't attract PAYE! You'll never withhold PAYE on a reimbursive allowance. IF you do, SARS will want to audit you, because this is a sign that you may not be treating other payroll items correctly for PAYE.
Diane's car originally cost her R200 000. Using the SARS rate per kilometre schedule, the fixed cost of her car is R66 440. She travelled 21 000 km during the year, 16 000 of which were business kilometres. Diane hasn't kept any records of actual costs – only of her business km.
Using the formula above and the prescribed rates set by SARS, she calculates how much she spent on her business kilometres for the year:
Fixed cost = R66 440 x 100 = 316 c/km
Fuel cost =89.60 c/km
Maintenance = 36.90 c/km
TOTAL = 442.50 cents/km (or R4.425).
Since she travelled 16 000 km for business, the total amount she spent on business travel for the year is 16 000 km x 442.50c / 100 = R70 800.
So, based on the above example, you can see that a reasonable rate of reimbursement is around R4.425 per km for her, based on the value of the car she drives, and the km she travels.
You can use this as an estimate for future years as well (but make sure it's still appropriate each year when you set your rates for the reimbursive travel allowance!). By using a reasonable rate of reimbursement, you'll minimise your risk of an audit.
You don't have to set a companywide reimbursement rate – you can (and should) calculate reasonable rates for each employee based on the type of car they drive, and the distance you expect them to travel each tax