Most employees have travelled less for business this year than they would in the pre-COVID19 world.

In cases where they travelled less and still received a travel allowance as a fixed monthly cash payment, they may face tax implications when they submit their personal income tax return for the 2020/1 tax year.

Taxation of a travel allowance on the payroll

 PAYE (Pay-As-You-Earn) must be withheld from 80% of a travel allowance, unless the employer is satisfied that the employee will use the vehicle at least 80% for business travel, in which case, PAYE on 20% of the travel allowance must be withheld. If you receive a monthly travel allowance of R1 000, tax should be calculated on either R800 or on R200, depending on how often you travel for business.

Personal income tax assessment

When you submit your personal income tax return, you may claim a deduction against the allowance based on actual expenditure per kilometre, or the deemed or prescribed rate per kilometre determined by the Minister of Finance. The deemed rate is determined by a scale based on the value of the vehicle. The prescribed rate is a simplified, per kilometre rate (currently R3.98) which you may use if you received no other compensation for business travel.

The amount which will be included in the taxable income of the employee on assessment is: Travel allowance – (business kilometres travelled × expenditure per kilometre). The expenditure is either the actual cost, deemed rate or the prescribed rate per kilometre. Examples of actual expenditure includes wear-and-tear, lease payments, fuel, oil, repairs and maintenance, car licence, insurance and finance charges, some subject to certain limits.

An example of how your tax picture might change

Imagine your travel allowance is based on a typical mileage of 20 000 business kilometres for a year and you only travelled 10 000 business kilometres this year due to the pandemic. Your excess travel allowance as a result of reduced business kilometres should be included in your taxable income for the tax year (March 2020 and February 2021).

If you received a travel allowance of R3 000 per month and your employer deducted PAYE on 20% of the amount each month, tax on 80% of the remaining allowance must be paid on assessment if no business travel took place. To eliminate any unpleasant surprises on assessment of your tax return, you can do the following:

• If you are an employer: Review and discuss the taxability of the travel allowance with affected employees. You may have to adjust the PAYE withholding from 20% to 80%.
• If you are an employee: Review your travel allowance amount together with your employer. You may have to consider a reduced travel allowance for the remainder of the tax year. Alternatively, you can request that your employer withholds additional PAYE each month. This will ensure that you won’t have to pay in a substantial amount on assessment. Seek the advice of a tax practitioner if you are not sure of the tax implications.

Yolandi Esterhuizen, registered tax practitioner & Compliance Manager, Sage Africa & Middle East.