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Company car or travel allowance? – That is the question!

Aug 27, 2018

There has always been a bit of a question about whether the company car or private car travel allowance are the better option when it comes to claiming tax benefits. With some new rules having been recently imposed by SARS, it becomes even more of a dilemma.

In the interests of always trying to assist our clients by keeping things as comprehensible as possible, we will endeavour to keep this in layman’s terms, as it can get a little complicated. Explained as best we can then, let’s look at this issue of Company car or travel allowance? – That is the question!

What has changed?

In essence there has been a removal of the 12,000Km previously applied to re-imbursements. Previously whether travel allowances exceeded or were under the SARS prescribed rate, it was split into different codes and either way PAYE was not deducted from the claimants salary. Now claims above the allowed rate fall under a new code which has been introduced since 1st March this year.

Under the new system the excess reimbursed portion is subject to PAYE, just like a fixed travel allowance or fuel, garage and maintenance cards. Regardless of what you know about the codes etc. – the bottom line is the 12,000km limit has been removed and PAYE is billable on the excess portion. This changes the dynamics quite significantly!

What does this mean?

Those in particular claiming over the prescribed rates now have to review whether they are receiving the best tax benefits. Lower reimbursements may actually offer the employee better tax benefits by avoiding the PAYE on the surplus.

Well-kept log books are more important now than ever – as PAYE avoidance is a focus of the new more streamlined SARS.

Is the company car a better option?

It is believed that if more than 60 – 65% of your travel is for business, you’re losing out by using a personal vehicle. Maintenance, insurance and depreciation, often more than 50% of the cost of owning the vehicle, are not covered by typical travel allowances, so it would appear the company car would be the better option.

The ‘catch 22’ however is that companies don’t want to be caught with fleet costs and management and individuals only realise their loss when trading in their private vehicles.

The solution

In the case of Employees on high travel mandates, the better option is definitely a company vehicle …and Employers need only turn to their qualified tax experts like Ratio Accounting for the best advice on their travel benefits – or any other area relating to maximising their tax benefits!

We hope this article on ‘Company car or travel allowance? – That is the question!’ has been helpful to you and remember we are here to serve you, as tax experts and with all other aspects of accounting and financial services. Contact us to learn more about us and for sound financial advice. We look forward to it!