A travel allowance is an allowance you give your employee to cover his business travel costs. These can include driving to and from client meetings.
And the last thing you want is to trigger a SARS audit for your company by being non-compliant by mismanaging employee travel allowances. This carries a heavy penalty for non-compliance when SARS audits your company.
But your company can avoid this.
Avoid these two travel allowance errors to void hefty tax penalties for your business
Error#1:Don't use a travel allowance to limit the PAYE deduction for an employee
While it may be tempting to use a travel allowance to increase the salary payout to an employee, don't do it. SARS will check 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 will result in a revised assessment being issued and imposed penalties with interest.
Solution: 'Make sure it states clearly in the employee's letter of appointment or employment contract that he's required to use his personal car to carry out his duties,' advises the Practical Tax Loose Leaf.
Error#2: Don't suddenly remove your travel allowances – SARS will notice the change
If for the last five years, you've given all your employees a travel allowance, including your secretary, who never travels for work and you suddenly stop awarding them to staff, SARS will pick this up on your IRP5s and your PAYE returns.
'The sudden change on your part is an admission that the travel allowances you awarded in the past weren't justifiable. SARS will question the previous salary structures you had in place,' warns the newsletter.
Solution: If you've just realised a staff member is getting an allowance but shouldn't, don't just increase the employees' basic salary by the value of the previous travel allowance. Instead, record the allowances as fully taxable, but you must get the employee's consent to voluntarily over-tax. This way, you'll reduce the risk of SARS assessing your company, when it audits your employees.
There you have it! Steering clear of these employee travel allowances errors will ensure you avoid hefty penalties by SARS for noncompliance.