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 regular item > 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.
This option should also be used when you give your employee a petrol card to pay for fuel and related expenses. In both cases – expense reimbursements and petrol cards – 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.
Reimbursive travel allowances are not subject to PAYE but may be taxable on assessment, i.e. when the necessary returns are submitted to SARS. SARS will require detailed records in the form of logbooks as supporting documentation.
Note: 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.
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 8 000 kilometers for the year
- 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 and reimbursements for expenses 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 or reimbursement for expenses 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 and expense reimbursements, 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.