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Two types of travel allowances: What they are and how to use them

by , 29 January 2014
A travel allowance is the sum of money you give an employee, regularly, such as every month, to cover his business travel costs. There are two types of travel allowances you need to know about. Read on to find out what they are...

The two types of travel allowances are:

  • Allowances or advances for business travel; and
  • Reimbursive travel allowance.

Let's take close look at each one.

Two types of travel allowances

#1: Allowances or advances for business travel. This must cover all of the expenses incurred while travelling on business. For example, the costs incurred travelling to different factories or branches.

You'll give your employees a travel allowance if it's a fixed amount per month, and structured into his salary.

#2: Reimbursive travel allowance: This is based on the actual distance your employee travels for business purposes. You'll pay this after your employee has already travelled.

Basically, you'll give your employee a reimbursive travel allowance if your fund them for their travel at the end of each month based on business travel per their logbook.

Important: The Practical Tax Loose Leaf Service urges you to determine if your employees need to travel on business. If they do, then you must put a travel policy in place for your business. This policy must identify and address all aspects relevant to business travel.

Make sure you update it regularly when there are legislative amendments. This way, you'll be compliant and avoid any unnecessary penalties.

Remember, travel expense claims and deductions are one of the most common triggers for a SARS audit.

If you don't award, tax and record your staff's travel allowances correctly, SARS will pick up the errors and audit you.

You might have to pay a 10% penalty for under deducting PAYE. What's worse is SARS could find you guilty of tax evasion – and that carries a 200% penalty!

To be on the safe side, read this article. It's contains a detailed breakdown of the differences between allowances for business travel and the reimbursive travel allowance.

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