Article by: Fourways Accountant: Annja Louca
We would like to take this opportunity to address the topic of claiming expenses related to travel. In this discussion, we will cover the deductibility of expenses, the allowance guidelines provided by SARS, the impact on VAT, PAYE, and company tax, and how to determine whether travel expenses can be categorized as a business expense or not. Specifically, we will focus on travel by flights, local transportation (such as car or train), and accommodation during business trips.
Travel and Accommodation Expenses
What is a travel or accommodation expense?
Expenses related to travel can be claimed as a business expense if they are necessary for conducting business operations, such as traveling from one location to another. These expenses may include fuel, flights, and accommodation if staying away from your usual residence is required. For instance, staying in a hotel during a business trip overseas or to another part of the country can be classified as a business expense and can, therefore, be reflected on the income statement according to SARS guidelines.
Who can claim travel expenses?
In the tax guidelines for private companies, SARS does not differentiate between employment statuses for individuals in different roles. Regardless of their position, all individuals working at private companies are considered employees and are treated equally in terms of travel allowances, travel reimbursements, and subsistence allowances.
Travel Allowance
A travel allowance refers to a fixed amount paid to an employee on a monthly basis to cover their travel expenses incurred while performing their job duties. The travel allowance is considered as part of the employee's total remuneration package and is subject to taxation at a reduced rate,
resulting in a lower monthly PAYE payment.
For example:
A company has a sales agent who frequently needs to travel throughout the year on business. If the employee earns a fixed amount of R 500 000 per year and they request a travel allowance, then their basic salary could be reduced to R380 000 and, thereafter, R120 000 can be allocated to their travel allowance. They would be taxed at the normal rate for the R380 000 that they are receiving but only 80% of the R120 000 is subject to PAYE.
Because the travel allowance is in the employee’s contract, it helps to limit their remuneration owing to the fact that it is taken from their salary, this helps to save on employee related expenses when compared to the option of the travel reimbursement allowance. This can also be paired with a petrol card, which would reduce the cash flow certainty benefits.
In this scenario, if the employee receives an allowance of R60 000 and the amount that spend on petrol is R50 000 then the full R110 000 can be claimed from SARS reducing the PAYE that needs to be paid. It is the responsibility of the employees to keep a logbook detailing company travel. This is due to the fact that in the travel allowance the company does not have to keep any record of what the travel related expenses of the employee are.
Risks and Drawbacks
To mitigate this risk, one option is to provide the employee with both a travel allowance and a petrol card. By doing so, the employee can claim the full amount of petrol and the travel allowance as a tax deduction. However, to successfully claim the tax deduction, the employee must maintain an accurate logbook and submit it to SARS.
One of the main risks associated with implementing a travel allowance is the possibility of underpaying PAYE to SARS, which can result in penalties and interest, as well as the need to pay more towards PAYE in order to resolve any disputes with SARS. For any travel allowance claim to be successful, a valid and up-to-date logbook must be submitted, including an accurate record of the business-related kilometres traveled. It is the responsibility of the employee to keep this logbook up-to-date.
If PAYE is underpaid due to incomplete or incorrect information, the employer will be held liable rather than the employee receiving the travel allowance. Since the business is responsible for making PAYE payments to SARS, any shortfall in the amount paid will be the responsibility of the business. Therefore, it is in the company's best interest to ensure that any such scheme is properly managed and administered. A travel reimbursement allowance may be a better option for you to consider.
Travel Reimbursement Allowance
The travel reimbursement allowance has a key advantage in that it enables you to ensure that the accurate number of kilometres is being recorded. It also creates mutual incentives for both you and SARS: you aim to record the figures correctly to reimburse your employees accurately, and SARS
requires accuracy to ensure the appropriate amount of tax is paid.
One advantage of the travel reimbursement system is the minimal risk of underpaying PAYE to SARS due to the built-in checks and balances in the administrative process. However, there are some administrative expenses associated with this system. This is because your employees will need to submit a reimbursement form that will need to be verified, as well as a logbook to SARS. In addition, forecasting cash flow will be more challenging since the exact amount to be reimbursed each month is uncertain, requiring assumptions to be made for any expense forecasts.
Accommodation and Business trips
When your employees go on business trips, you have the option to provide them with either a subsistence allowance or a subsistence advance. Both are fixed amounts intended to cover their expenses during the trip. The key difference between the two is that for a subsistence advance, the employee must submit receipts as proof of expenses and return any unused funds.
However, with a subsistence allowance they would not be forced to provide proof of expenditure. For our purposes, we will assume that they must provide proof of expenditure, simply because of the added accounting control involved.
SARS will allow R139 per day for incidental expenses like private phone calls, beverages, tips, and room service and R452 per day for meals and incidental expenses. Importantly, SARS does not stipulate an allowance for accommodation. Therefore, should your advance, including accommodation, be R900 per day and you can prove to SARS that the additional R448 per day was for accommodation, then the entire R900 will be tax free despite it being above the R452 threshold.
This allowance is only accounted for by the individual at the end of the financial year and therefore is not a liability for your business should the individual not be able to prove that R448 was for accommodation.
Any amount that is within the limit set out for SARS will not require supporting documentation. For an individual going on a business trip who receives an advance for accommodation and consequently is over the limit of R452 set by SARS, they will need to provide proof of this expense to be able to claim the entire advance as a tax reduction in their IRP5.
Additionally, any amount that is not repaid by the employee will be considered as taxable income. If you receive more than the allowed amount, and can provide evidence that it was spent on travel-related expenses, you may claim it as an expense on your personal tax return. However, for the claim to be accepted, you will need to provide proof of expenditure, which we strongly recommend keeping regardless of the situation.
It is important to note that SARS has different subsistence rates depending on the country you travel to. For instance, if you are travelling to the USA, the daily allowance is $146. Therefore, before deciding on the subsistence allowance, it is advisable to check the SARS subsistence for foreign travel annexure.
Once a business trip is confirmed, it is recommended to provide an allowance for accommodation and flights to the employees attending. If the company pays for these expenses directly, they can claim back the VAT (if applicable). However, if an allowance is provided instead, the entire expense will be recorded on the income statement, resulting in a reduction in the company tax paid to SARS. As the company tax rate is higher than VAT, this can lead to a net saving for the company.
How do I claim these allowances?
Travel allowance and Travel Reimbursement
These allowances are claimed in the personal tax return of the individual, with a logbook being required for any valid claim.
Subsistence Allowance
You claim against your personal tax return by using proof of expenditure as the supporting documentation for SARS.
Flights
VAT is charged on all domestic flights but, if they can be shown to be for business rather than pleasure, then this VAT can be claimed back from SARS. There is no VAT on international flights; instead, an Air Passenger Tax is imposed of R190 per passenger travelling abroad unless they are flying to the following countries: Botswana, Lesotho, eSwatini where the tax is R100.
What about VAT?
For VAT purposes, goods and services can be subject to different rates. The Standard Rate is charged and, where applicable, the input VAT can be claimed back from SARS. Alternatively, a 0% rate may be charged, in which case the vendor can claim the input VAT back from SARS. Finally, some goods are exempt from SARS, meaning that no VAT is charged on the goods being sold, and the vendor cannot claim the input VAT back from SARS. When it comes to travel, below is a list of items that are commonly subject to VAT.
Standard Rate
Zero Rated
VAT Exempt
If you need help with travel allowance, get in touch!
For more information, please visit our website www.anlo.co.za or give us a call on 011 658 1324
