Which is better? A company car or a travelling allowance?
Are you trying to decide between getting a company car or using a travelling allowance? Updated SARS regulations make it important to understand what impact this decision has on your tax. Read our blog post to gain a better understanding of the new system.
The updated system came into effect on 1 March 2018. If the employee receives a reimbursement rate per kilometre that exceeds the rate that is specified by SARS, then this amount needs to be divided into two segments. The segment that falls within the SARS rate should be listed under code 3702 and the additional segment needs to be listed under code 3722. Any extra travelling allowance continues to be listed under code 3701. What this means is that any money that exceeds the SARS rate is subject to PAYE.
Another noteworthy change is the elimination of the 12 000km limit. These adjustments have a significant impact on the outcome of your rewards. This new system makes it more important than ever before for employees to maintain accurate logbooks. As SARS increases its attention on employer PAYE audits, these logbooks are vital for companies to prove that they are tax compliant.
The new system changes the debate about whether receiving a company car or a travelling allowance is better. The adjustments have caused many employers to consider switching to the use of company vehicles instead. As a general guideline, if an employee uses their vehicle for business for up to 60% of their trips, they could benefit significantly from getting a company car. Petrol costs usually only count for half the expenses of running a vehicle. The other expenses can be attributed to repairs, insurance, and maintenance work. The depreciating value of vehicles also needs to be taken into account. A travelling allowance typically doesn’t cover these extra costs, which leaves the employee out of pocket if they’re using their personal vehicle for business travel. Companies who offer a more comprehensive package for highly mobile employees may offer a company vehicle as well as a travel allowance.
Company car vs travelling allowance
While tax is an important aspect of your choice, there are numerous factors that need to be considered when you’re deciding between a travelling allowance and a company car. You can start by calculating the number of kilometres you travel while you’re working. Whether you want to own a vehicle or not also needs to be factored into the decision. The size of the travel allowance that you’re offered will also affect your choice. While tax is an important consideration, there is a range of other aspects to think about. If you opt for a company car, it means that your vehicle belongs to your employer. In this case, the employer will cover the vehicle’s running expenses but you may need to pay for private trips. An advantage of an employer offering highly mobile staff a company car is that they are eligible for a wear-and-tear allowance, which individuals don’t have access to. The advantage of a travelling allowance is that you’ll own your vehicle. However, you’ll also be expected to cover insurance and maintenance expenses.
When you’re deciding between a company car and travelling allowance, the new SARS regulations, which influence the tax that you pay, is an important consideration. However, there is a range of other factors to consider. Do your research properly before you make a choice rather than letting your emotions guide you. Once you have a proper understanding of the intricacies of tax and PAYE, you will be better equipped to make an informed decision.