The latest version of the Employees' Tax Handbook has an unexpected change which I think you, as an employer, need to be aware of.
The handbook, issued by the South African Revenue Services (SARS), is a guide for employers on how to apply employees' tax tables. The change relates to the treatment of a reimbursive travel allowance.
Before I deal with the change I will explain the differences between the reimbursive and the general travel allowance, and their previously required treatment.
Firstly, if you employ people who use their own cars for business purposes, you may provide them with a general travel allowance designed to cover their costs.
For employees' tax purposes Pay As You Earn (PAYE) must be deducted from 50 percent of the allowance. The full allowance must be shown on the employees' tax certificate. Your employee may claim a deduction on his or her tax return against the allowance based on:
* A portion of the actual costs incurred to run the car, based on the actual business kilometres travelled (reflected in a log book) as a proportion of total kilometres for the year; or
* Deemed costs incurred (gazetted figures are set out in the booklet) as determined on the balance of kilometres travelled (limited to 32 000) after deducting 14 000 deemed private kilometres; and
* Total actual costs incurred apportioned between business and private kilometres based on the kilometres travelled (limited to 32 000) and 14 000 deemed private kilometres.
Alternatively, you may reimburse your employees for actual kilometres which they travel for business purposes. Provided this reimbursement does not exceed R1,30 a kilometre, the employee is reimbursed for no more than 8 000 kilometres a year, and the employee is not also provided with a general travel allowance, this amount is not taxable in the employee's hands.
Previously this allowance was not required to be reflected on the employees' tax certificate.
The latest employee's tax handbook indicates that the treatment of the reimbursive allowance must be changed. For the tax year March 1, 1998 to February 28, 1999 you must:
* Reflect a reimbursive allowance on the IRP5 employees' tax certificate even if there is no other travel allowance given to the employee. (It would not need to have been subjected to employees' tax); and
* Where both allowances are provided, subject to 50 percent of the reimbursive and general allowance to employees' tax on a monthly basis. (Both would be reflected on the IRP5 under the heading of travel allowance). This situation arises where you provide both the reimbursive allowance for business travel claimed and a general allowance for other sundry business travel which the employee does not claim as a reimbursement.
There are two practical aspects to be considered in relation to these changes.
Firstly, how will the SARS know that the reimbursive allowance reflected on your employees IRP5 is, in fact, entirely reimbursive and that your employees need not substantiate a travel claim on their tax returns? This is largely overcome by the disclosure on the new IRP5 certificate, which requires that the general travel allowance, the taxable reimbursive allowance and the non-taxable reimbursive allowance be split and separately reflected.
Secondly, your salary and wages administration staff will need to calculate the PAYE on 50 percent of the reimbursive claim, which will vary each month.
What is the solution?
The most practical would be for the SARS to revert to the previous system. Alternatively, you could restrict the allowance to reimbursive or general, and not permit both.