If you are required to travel for work there are several ways to claim for this expense. You can receive a travel allowance or be provided with a company car.
In the case of a travel allowance, the employer would normally pay a set amount, for example R5 000 a month. Only 80% of that is added to your taxable income – in this example, that would be R4 000 (80% of R5 000).
If, however, you use the car for business travel more than 20% of the time you can claim this back at the end of the tax year.
You can do this either by providing all invoices for fuel, insurance and repairs or by using a logbook and applying the SARS formula based on the total kilometers driven for business.
Tax expert Jean du Toit at Tax Consulting warns that in order to qualify you must actually travel for business. If your employer withheld PAYE at a rate of 80% and your vehicle was used 60% of the time for business, you will be entitled to a refund.
“However, the opposite also applies, ” say du Toit. “If your employer withheld at a certain rate and your business travel was less than anticipated, you will have to pay in upon submission of your return.”
Du Toit adds that employees must be aware that the travel between your own home and your place of work constitutes private travel. This must be distinguished from travel from a home office to a client, which is business travel.
“In this vein, structuring your remuneration package for tax purposes to include a travel allowance and company car only makes sense if it aligns with your factual reality, i.e. you actually travel for business. Otherwise, you will simply have to make good the shortfall of PAYE on submission of your tax return, which defeats the purpose.”
Du Toit says that as a result of the COVID-19 pandemic, there is a likelihood that business travel will be far less and this must be factored in when making decisions on structuring and withholding rates.
Travel allowance or company car?
You also need to decide whether it makes more sense to have a travel allowance or a company car.
If more than 60-65% of your travel is for business purposes, then it is to your benefit to use a company vehicle. The reason for this is simply that fuel generally does not make up more than 50% of the total cost of running a car, and additional expenses like maintenance and insurance or depreciation are not covered by a travel allowance.
In this case, a fringe benefit tax applies. This tax amounts to 3.5% per month of the determined value of the vehicle or 3.25% if the vehicle has a maintenance plan.
Generally, the “determined value” means the retail market value of the vehicle. If more than 80% of the use of the vehicle is for business purposes then tax only applies to 20% of the fringe benefit.
For example, if the car is worth R400 000 with a maintenance plan, then the fringe benefit would be valued at R13 000 per month (3.25% of R400 000). Tax would apply to 20% of the benefit so therefore R2 600 would be added to the employee’s taxable income.
For business owners, it only makes sense to purchase a vehicle in the company’s name if it is to be used for purposes of trade. In this case the company can deduct the cost of the vehicle or claim an allowance, as the case may be, for tax purposes.
Du Toit says the business owner also needs to consider the tax treatment between leasing and owning the car.
When it comes to leasing, the full value of the monthly lease is deductible as well as the cost of the fuel. However, one also needs to take into considering the limitations around leasing which include limits on what the vehicle may be used for and mileage restrictions.
Keeping proper records is critical, as the onus is on you as the taxpayer to prove your business travel. This is done by way of a logbook, which, according to the SARS Guide, must have the following information:
- Date of business travel
- Business km travelled
- Business travel details (destinations and reasons)
You do not have to keep a record of your private travel.
This article first appeared in City Press.