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Tempted to use a travel allowance to increase your employee's salary? Here's why you must resist

by , 11 July 2014
Quick question: Do you sometimes get tempted to use a travel allowance to increase your employee's salary?

If so, you're not alone.

That said, we strongly advise you resist the temptation. Here's why...

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Here's why you must resist the temptation to use a travel allowance to limit the PAYE deduction for your employee

While it's tempting to use a travel allowance to increase your employee's salary, you mustn't do it, says the Practical Tax Loose Leaf Service.

You see, SARS checks your employment contracts if it has any doubts about the allowance. And it'll question the legality of an allowance that's been awarded when it shouldn't have been. This means it could issue a revised assessment and impose penalties and interest!

Here's the solution: Make sure your employee's contract clearly states that he's required to use his personal car to carry out his duties.

If his position in the company changes and it requires him to travel on business and use a car, you should consider agreeing with your employee to amend his employment contract accordingly.

Overall, when it comes to travel allowances, you must determine if your employees need to travel on business. If they do, you must put a travel policy in place for your business.

This policy should identify and address all aspects relevant to business travel. Make sure you update it regularly when there are any legislative amendments. This way, you'll be compliant.

Here's the bottom line: Never use a travel allowance to increase your employee's salary. If you do, you might have to pay a 10% penalty for under deducting PAYE. What's more… SARS could find you guilty of tax evasion and slap you with a 200% penalty! Can you afford to take that risk?

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