Skip to content

Travel Allowance

A travel allowance is any sum paid, or advance granted, by the employer to the employee for the use of the employee’s private motor vehicle for business purposes.

SimplePay has a built-in item to accommodate the special tax and reporting requirements related to travel allowances. To add a travel allowance, go to an employee’s profile and click on Add (next to Regular Inputs) > Travel Allowance and select the relevant option(s).

Fixed allowance paid regularly

Select this option in cases where an allowance is given to an employee to finance transport, i.e. a fixed amount per pay period. It is an amount paid over and above the employee’s salary and is not included in the salary.

The full amount (100%) of the fixed travel allowance will be reported under code 3701.

Reimbursed for expenses (petrol, garage, maintenance, etc.)

Generally speaking, if employees are reimbursed for business-related expenditure, such reimbursements will be non-taxable and will not be reported on the employees’ IRP5 certificates.

However, when reimbursements are made for fuel and expenses related to a motor vehicle, different rules apply. The 80/20 rule (discussed below) will apply since these types of expenses are unlikely to be 100% for business purposes. Code 3701 will be used for reporting purposes.

Company Petrol Card (not paid out)

This option is for cases where an employee is given a company petrol card on which they can spend as much as is needed. No amounts are paid out to employees on their payslips, but a taxable benefit will still arise.

The 80/20 rule (discussed below) will apply to this option too since these types of expenses are unlikely to be 100% for business purposes. Code 3701 will be used for reporting purposes.

Reimbursed per Km travelled

Where a reimbursement is based on the actual distance travelled for business purposes (that is excluding private use), the amount expended on business is deemed to be the actual distance travelled, multiplied by the prescribed rate per kilometer fixed by the Minister of Finance or the determined rate provided in the Rate per Kilometer Schedule.

Note:

  1. If you are reimbursing employees per km travelled, you may need to know the value of the employee’s vehicle before the IRP5 can be issued at the end of the tax year.
  2. SARS will require detailed records in the form of logbooks as supporting documentation.

From 1 March 2018:

Reimbursive travel allowances are not subject to PAYE, provided that they do not exceed the prescribed rate. If the employee is reimbursed at a rate exceeding the prescribed rate per kilometre, the portion above the prescribed rate will be subject to PAYE. This applies irrespective of the kilometres travelled.

If the reimbursement does not exceed the prescribed rate per kilometre, it is reported under code 3703 if no other compensation is received and under 3702 if the employee also receives a fixed travel allowance.
If the reimbursement exceeds the prescribed rate per kilometre, the portion up to the prescribed rate is reported under code 3702 and the portion above the prescribed rate is reported under code 3722.

Prior 1 March 2018:

Reimbursive travel allowances are not subject to PAYE but may be taxable on assessment, i.e. when the necessary returns are submitted to SARS.

A reimbursive travel allowance might be a taxable or non-taxable allowance. A non-taxable reimbursive allowance is a reimbursive amount which is deemed in terms of the Income Tax Act to be expended on business if it meets the following three criteria:

  • it does not exceed the rate per kilometer as fixed by the Minister of Finance
  • the total business kilometers being reimbursed do not exceed 12 000 kilometers for the 2018 tax year (2017: 8 000)
  • no other form of compensation such as a fixed travel allowance has been given / paid to the employee

If the reimbursive allowance meets all three criteria and is, therefore, non-taxable, code 3703 should be used for reporting purposes. If one or more of the criteria are not met, code 3702 should be used.

Where an employee receives both a fixed travel allowance and a reimbursive allowance, the amounts will be combined on assessment by SARS. This combined amount will be treated as a taxable travel allowance. The employee should then claim a travel deduction on their personal income tax return.

Only 20% Subject to Tax

The point of departure for fixed travel allowances, reimbursements for expenses and company petrol cards 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.

However, where the employer is satisfied that at least 80% of the vehicle’s use will be for business purposes, the employer may take only 20% of the fixed travel allowance, reimbursement for expenses or company petrol card expenditure into account for the purposes of calculating PAYE by clicking on Only 20% Subject to Tax. This determination must be made on a monthly basis.

This setting only affects fixed allowances, expense reimbursements and company petrol cards, NOT reimbursement per Km, which is not taxed during the year (and will be non-taxable after year-end as well if certain limits are not reached – see the three criteria discussed above). Note that the final tax on all of these figures will only be determined after year-end when the employee does their tax return.