When does it make sense to give Mike a travel allowance?

43984, 22 Oct. 2014

Tags: travel allowance, sars

You’ve heard business owners around you talking about a travel allowance.
They say it’s best when you give an employee a fixed amount each month as part of his remuneration package so he can cover his business travel costs.
Since your employee Mike travels for business regularly, you’re now wondering if it would make sense to just give him a travel allowance.
Here’s what you need to know…
It only makes sense to give Mike a travel allowance in this case
A travel allowance is ideal for employees who travel for business on a daily or weekly basis.
So if, for example, Mike is a medical rep and he travels on a daily basis to see clients, it makes perfect sense to give him a travel allowance to cover his business travel costs.
How much should you give Mike?
There’s no set figure. SARS leaves it up to you to estimate the number of business kilometres Mike is likely to travel and then award him an allowance in line with this and based on the value of his car.
Just make sure your estimate doesn’t get you into trouble with SARS.
If your allowance is too small, when Mike submits his ITR12 tax return his business expense claims might be bigger than the allowance he gets. This will ring alarm bells for SARS and Mike will lose out on deductible expenses (resulting in him paying more tax at the end of the day).
If, on the other hand, the allowance you give him is too big, SARS will think you’re giving Mike an extra perk. It could disallow the allowance altogether or Mike will end up having to fork over a lot of tax when he’s assessed (as his business travel won’t cover the untaxed portion of his travel allowance.)
Now that you know when it makes sense to give Mike a travel allowance, handle travel allowances correctly so SARS doesn’t come after you.

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