SARS has again started to focus on the allocation of travel allowances to taxpayers. This approach is closely linked to their efforts to close any remaining loopholes in the Employees Tax legislation. As part of this strategy the audit process now includes the following questions being asked to employers during the SARS reviews:
- Provide a detailed description of the employee’s position in the company and list the duties that they are required to perform.
- Does the employee’s position require that they do business travel in their own vehicle? If so please state the nature and frequency of such travel.
- Does the employer cover any costs incurred by the employee for business travel? If they do they are required to provide a list of expenses paid for.
- Provide details as to how the amount of a travel allowance is determined.
These questions are essentially designed to establish whether the travel allowances that have been allocated are legitimate and secondly whether the claims made by employees on their tax returns are a true reflection of their business travel obligations.
The most contentious issue that could be raised by such an investigation is whether the travel allowances allocated are realistic or justifiable. If SARS deem allowances not to be justifiable you can rest assured that the company will receive an in-depth PAYE audit in the near future. The implications for the employee could be direr as SARS could not only disallow that year’s claim but also open assessments relating to previous years.
SARS are now also using quite clever techniques to source information that can assist in the auditing of travel claims. One of these is requesting information relating to company fuel and maintenance card payments in cases where the employer is subsidising fuel and maintenance costs. With service providers regularly recording the current mileage on invoices, SARS would have reliable third party evidence to compare against the odometer readings reflected on the employees’ tax returns. You can imagine the embarrassment of having your tax return reassessed due to the uncovering of information of this nature.
This matter is made even more serious by the fact that employees are required to maintain logbooks in the format required by SARS. Any discrepancy identified by SARS would effectively mean that the log-sheets had been ‘manufactured’ for tax purposes. The consequences of this would certainly be catastrophic in terms of the administrative penalties levied against the taxpayer. On the topic of logbooks, it must be noted that SARS has recently published the format of the logbook that needs to be maintained for tax return reporting purposes. This logbook is available on the SARS website.
Whilst SARS are honing their audit and investigation skills, what happens in practice often makes it difficult to ensure legislative compliance and adherence to tax best practice. Employers are often pressured by employees or their tax consultants to allocate a travel allowance to an employee who is unlikely to leave the office for business purposes. If you as an employer cannot truthfully say that the employee is required to undertake business travel as a condition of their employment, then do not allocate a travel allowance to them. By allocating a travel allowance where it is not required, the employer is effectively assisting the employee to commit tax fraud.
Bearing in mind the increased SARS scrutiny in this area, employers need to take decisive action to limit their exposure to audit risk. It is suggested that employers draft a travel allowance policy detailing how travel allowances are allocated and in what situations employees are reimbursed for business-related travel. This will not only show SARS that the company has followed their guidelines in this regard, but also provide the employer with the strict parameters within which they must transact with employees. A clear policy and guidelines will also go a long way to limit the audit risk mentioned above.
If you have any questions regarding this article or need any assistance in this regard, please do not hesitate to contact Dave Beattie on 031 582 7410 or [email protected]. It is as good a time as any to make the necessary corrections, thereby avoiding the possibility of additional assessments being raised and encountering unpleasantness when dealing with SARS.