Travel Allowance

Travel allowance structure

We work with so many people and have often found that many do not have their travel allowances properly structured and this could lead to problems such as amounts to be paid in when the income tax return is filed or amounts lost as the allowance is too low but the amount on the IRP5 is the ceiling or maximum amount that SARS will allow to be deducted.

For example; let’s say that you have a car to the value of R200 000 and a travel allowance of R40 000. Your allowance on the IRP5 under code 3701 and or 3702 is R40 000, as stated above, but you have done enough business km to claim, say, R70 000 against your allowance. Now, SARS will only allow R40 000 to be deducted from your income as this is the ceiling amount. This means that you have lost a claim of R30 000 * your tax rate (let’s assume 31%) so a loss of R9300. Would it not have been better to get advice on where the allowance should be?

Get your allowance right

The other side of the coin is as follows. Say you have a huge travel allowance in relation to the value of your car and your company taxes the allowance at only 20% (your company can tax it at a rate of 20% or 80%), you might have to pay in on the return as you would have to claim 80% of your travel allowance but if the allowance was excessive to begin with, there will be an amount to be paid in on the return. So, despite working hard and going through the SARS audit, there might still be an amount to be paid in.

Therefore, understand your allowance and get it right the first time. When we recommend a structure, we document our working and issue you with a letter which your HR or payroll can simply implement.