Travel allowance is granted to employees who travel for business purposes and it is granted to finance a portion of an employee’s transport costs. Many payroll professionals, however, struggle to come to grips with the South African Revenue Service’s (SARS) travel allowance system, and employees are notoriously lax when it comes to recordkeeping of their work travels, says Sumeshan Nair, Executive Committee Member at the South African Payroll Association (SAPA).
Travel allowance versus reimbursive travel
The point of departure for fixed travel allowances, reimbursements for expenses and company petrol cards by SARS is that 80% is subject to PAYE and should be included in the employee’s remuneration. This is based on the assumption that only 20% of the employee’s use of the vehicle is for business purposes.
“While travel allowance is taxed against the IRP% 3701 form, reimbursive travel is reported against the IRP 3702 and IRP 3703 codes. Reporting travel allowance correctly to SARS is crucial as it can mean the difference of being able to claim money back from SARS in the form of deductions,” says Nair.
The annual discretionary travel allowance is restricted to no more than R 1,000,000 per individual per calendar year (children under 18 are restricted to R 200,000). In the case where an employee is given a company petrol card that they can use as needed, no amounts are paid out to employees on their payslips, but a taxable benefit will still arise.
“The same 80/20 rule discussed above applies to employees who receive a petrol card as these types of expenses are unlikely to be 100% for business purposes. Code 3701 will be used for reporting purposes as well,” says Nair.
Requirements to claim deductions
Employees need to meet a number of requirements in order to claim travel allowance from SARS. Some of these requirements include a record of the total distance travelled for business and personal use and proof of expenses that are to be retained. Employees can deduct costs related to wear and tear of their vehicle, maintenance and repairs, vehicle license costs, insurance costs, and finance charges.
“It is important to note that an employee cannot claim deductions against a travel allowance if they receive the right to use a company car. Travel between an employee’s home and place of work is also regarded as private travel, for which you cannot claim money back from SARS,” says Nair.
Nair concludes by adding that it is not a payroll manager’s responsibility to scrutinise an employee’s logbook or make sure that employees are maintaining their logbooks.
“Employees need to keep their logbooks up to date and ensure their submissions to SARS are 100% factual. A template for the logbook is available on the SARS website. Keep this by your desk or in your car so that you can get into the habit of updating it as you travel for business. Without a logbook, you will not be able to claim any deductions,” concludes Nair.