Travel allowances: The tax audit risks

Travel allowances: The tax audit risks

Human Resources, Legislation, Tax

For years, SARS has been concerned about the tax leakage that has occurred in the travel allowance space. It is one of the few remaining areas where taxpayers can achieve a significant tax saving and because of this, it is the area where we see the most legislative non-compliance.

Recently, SARS has once again been threatening to make changes in this space, with the doing away of travel allowances being mooted. SARS would prefer all employee business travel to be reimbursed according to the current travel reimbursement process. This would be easier to manage from a SARS perspective as the responsibility to ensure legislative compliance would rest on the employer. Auditing any claims and the recovery of any tax shortfall identified would be significantly easier if the employer was the responsible party.

With SARS flexing their muscles again, you can be sure that there is going to be an additional audit focus on this issue. As an employer, how confident are you that your travel allowance scheme is legislatively compliant? With an obligation on the employer to apply the legislation correctly and to correctly deduct tax, there is pressure to get this issue right.

During the employees’ tax reviews that we do, we have noticed that many employers are still ignoring the fact that SARS does not accept the principle of travel allowances being allocated based on employment grade or a percentage of total cost to company. SARS applies the logic that travel allowances should only be paid to those employees who are expected to use their own vehicles for business purposes, and that the amount of the allowance be based on the expected business-related expenditure. In a nutshell, there must be a logical approach to the allocation of a travel allowance. This approach must include a justification of the travel allowance value before it is contractually accepted and processed through the payroll. It is also recommended that a company draft a policy clearly explaining how they deal with the travel allowance issue. This policy would carry a lot of weight at the audit stage.

It is important that employers do not take unnecessary risks when offering salary structuring flexibility to a prospective or current employee. Take a look at the salary structures of your staff while keeping in mind the issues we have raised above. If you have any questions, or are uncertain and require an opinion on their legality, please reach out. We would love to assist! Chat to Dave on 031-5827410 or [email protected].