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Remember: If you give your employee a 'private use perk,' it'll cost him

by , 15 August 2014
You appreciate your employees and give them perks like company cars and laptops they can use anytime. But these 'private use perks' comes with a booby trap.

The moment you give your employee something for his personal benefit or use, it's a taxable fringe benefit.

This means your employee has to pay tax on that company benefit.

Even though it won't cost him much in comparison to the value of the benefit, you must still warn him about the extra tax before you hand these out...

 

Here's an example of when your employee will pay fringe benefit tax on that private use perk

 
A company car is a common employee benefit. It helps your employee get to and from work and between clients, not to mention all the other in between stuff.
 
Your employee pays 3.5% of the car's value every month in fringe benefit tax. This, despite the fact that he uses it for work but because he uses it as his personal car too. 
 
But, if your employee only used that car for the purely business purpose things are a little different.
 
*********** Reader's choice  ***************
 
12 Taxable fringe benefits - are you taking advantage of all of them?
 
There are hundreds of companies out there that don't know which fringe benefits are taxable or they land up taxing the wrong percentage on them...
 
This kind of error could cost you thousands in penalties to SARS if it catches you out – and it will!
 
 
***************************************
 

If your employee only uses a benefit purely for business purposes there's no fringe benefit tax

 
If your employee keeps a logbook that proves he uses the car for business 80% of the time you can shrink his fringe benefit tax by 60%. 
 
And if that log book proves he only uses it for work and leaves it there at the end of the day, it's completely tax-free.
 
This goes for just about any benefit you give your employee.
 
So before you let your generosity get the better of you, warn your employee about the extra tax he'll have to pay if he uses his employee benefits for anything other than business.
 


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