Financial Forum Q&A
Travel expenses: what to claim for and how it’s taxed
All those kilometres you drive in your privately owned car need to be reimbursed
Question: I freelance for a small beauty business where I travel long distances to clients at venues in my own car (sometimes a 600km round trip).
How should my employer reimburse me for the distance travelled? Should it be Automobile Association (AA) rates or the SA Revenue Service (Sars) rate of R3.61 per km?
I also do not know how she calculates the travel costs when quoting clients. Should it be from my home or from the business premises? — Angie, via e-mail
Answer by Rob Cooper, tax expert at Sage:
Without more information about what you mean by the term “freelance”, I am assuming you are an employee and not an independent contractor. As an employee, you are required to provide the beauty salon’s services for clients who can’t or don’t want to come to the company’s premises. Your employer compensates you for business travel in a privately owned vehicle.
What really matters is how your employer administers your travel reimbursement in the payroll, calculates and withholds PAYE (pay as you earn) if necessary, and reports the travel reimbursements on your tax certificate. This will determine whether it is being processed in a compliant (legal) manner.
The per-kilometre rate is not the salient point for compliance purposes, so it doesn’t matter if AA rates, the Sars prescribed rate, or any other rate is used. Nonetheless, there are many advantages for you and your employer to use the Sars-prescribed rate for travel reimbursement calculations.
This is simply because remuneration is used to calculate your PAYE, withholding tax, Unemployment Insurance Fund (UIF) contribution and the skills development levy. If the rate per kilometre used to calculate the travel reimbursement is:
- R3.61 (or lower), then there is no remuneration portion in the reimbursement amount.
- More than R3.61, then the portion of the reimbursement amount calculated above R3.61 is remuneration.
Sars generally increases the prescribed rate every tax year to cater for inflation, though it did not do so in 2019 because of economic conditions in the country.
While there is no need to keep a logbook detailing your business trips if the Sars prescribed rate is used for the reimbursement calculation, it is always advisable to do so.
The rate per kilometre your employer uses to invoice the client is a matter between your employer and the client. Its value has no bearing on the rate you and your employer agree on for your reimbursement calculation.
The kilometres you travel from home directly to your employer’s premises and back are personal travel kilometres. If reimbursed, the amount would be fully taxable as if it were an additional salary.
The business kilometres that may be reimbursed are:
- The kilometres you travel from your employer’s premises to the client, and back again; and
- The kilometres you travel from home directly to your client and back again.