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The final word on company cars vs. travel allowances. Which one suits your business best?

by , 13 July 2016
The final word on company cars vs. travel allowances. Which one suits your business best?We receive questions all the time from our Tax Bulletin readers, asking if it's better to give employees a company car or a travel allowance.

This is a very common problem because you have to think about a lot of factors before you decide which one is best for you.


You need to consider:
 
·         Who owns the car?
·         Who does SARS tax for the car?
·         Who decides on the model of car?
·         Who carries the costs of fuel, insurance, etc.?
·         What about the car's depreciation?
·         What if the employee travels a lot for business?
·         How's the perk taxed?
·         What happens at the conclusion of the lease period (if you leased the car initially)?
·         How difficult are company car schemes to manage?
 
Without knowing how these affect you or your employee, you won't be able to make the best choice for your company.
 
Let's have a look at these factors, so you can decide which one suits you best.
 
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Eight factors you must consider before you choose between a company car or travel allowance

 
  Consideration Company car  Travel allowance
  Who owns the car Your company does. The employee does.
1. Who does SARS tax for the car? You tax the employee for the private use of the vehicle as a fringe benefit. No one. You just compensate the employee for the business use of his private car.
2. Who decides on the model of car? In many cases, the employee has no choice as to the type or model of vehicle. The employee has the choice when it comes to the car. It's their car.
3. Who carries the costs of fuel, insurance, etc.? You do, but your employee can also carry the fuel and maintenance in some instances. Your employee does.
 
4. What about the car's depreciation? You can deduct the cost of the car using the wear and tear allowance.  You can't claim any wear and tear for the employee's car as a deduction.
 
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Use these 69 answers to solve all your company car and travel allowance headaches
 
If you don't know the answers to questions like:

  • 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?

Don't worry, you're not alone when it comes to not knowing all there is to know about company car and travel allowances. There are 7,743 other Tax Bulletin readers who have recently asked us company car and travel questions...

And that's why our experts David van Niekerk, a qualified chartered accountant, and Alan Lewis, a specialist tax law consultant and Advocate of the High Court of South Africa, have put together 69 solutions to the most common company car and travel allowance questions for you.
 
And it's available in Your Company Car and Travel Allowance Problem Solver: 69 Answers to the Most Frequently Asked Questions.
 
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Eight factors you must consider continued….


5. What if the employee travels a lot for business? If your employee travels a lot for business, a company car is a better option for him. If your employee doesn't travel a lot, a travel allowance will be a better option for him.
6. How's the perk taxed? You will tax your employee on 80% of the determined value x 3.5% every month. This is if there's no maintenance plan.  If a maintenance plan exists, you'll use the 3.25% fringe benefit value. You will tax your employee on 80% of the travel allowance every month.
7. What happens at the end of the lease period (if you leased the car initially)? The difference between the actual price paid and the market value will attract tax for your employee at the end of a lease. This is if you give the company car to the employee at the end of the lease. The use of a travel allowance offers the advantage that at the conclusion of the lease period, the ownership of the car already resides with the employee, so there's no tax consequence
8. How difficult are the schemes to manage? You must make sure you have the admin capacity to manage a company car scheme. And make sure you calculate the taxable benefit correctly. Once a year, you calculate a travel allowance for the employee. You include this benefit on payroll, and you should not need to do anything else for the tax year. Minimal admin and recommended for all sizes of business.
 
Once you've looked at all of these factors, write out your own scenario.
 
You then need to look at the calculations, for a company car and for travel allowances. To find out how to do the step by step calculations for each option, go here.
 
P.S. Page over to chapter T 09 in your Practical Tax Loose Leaf Service handbook to learn more on travel allowances as how to tax them. If you don't already have this great tax resource, click here.


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