An empty street during a Covid-19 lockdown
(Getty)
  • If you get a travel allowance, and normally use a lot of it, you may benefit from a built-in tax break every month.
  • But if lockdown has curbed your driving – and you haven't adjusted your salary package – you may be building up a tax debt.
  • Here's how to prevent a nasty surprise of a tax bill after your next assessment.
  • For more stories go to www.BusinessInsider.co.za.

If you get a travel allowance because you drive for work, and if lockdown means you've stopped driving as much, you may just be in for a nasty surprise after your next tax assessment.

For those who don't travel all that much on business, employers are required to withhold pay-as-you-earn (PAYE) tax on 80% of a travel allowance every month, says Yolandi Esterhuizen, a registered tax practitioner at accounting-systems company Sage.

But if an employer is satisfied that the vehicle will be used for private travel only 20% of the time or less, the employee can get a break, with PAYE withheld only on 20% of the travel allowance, to cover an eventual tax bill.

That means more cash in the pockets of those well-travelled employees every month – unless they stop travelling as much. Say during a national lockdown to curb the spread of the novel coronavirus.

"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," says Esterhuizen. "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 the employee in that example uses the flat per-kilometre rate to calculate travel expenses, currently set at R3.98, that would mean nearly R40,000 of taxable income added to the assessment – on which no tax had been paid during the year.

Employees who may be in such a position should review their travel allowances, Esterhuizen recommends.

"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."

(Compiled by Phillip de Wet)

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