How much is company car tax vs travel allowance?

By Chad Lückhoff 

This is a question that comes up rather frequently; which one is better to go for, a company car or a travel allowance? Sadly, the answer is a straight forward one or the other as it varies, depending on the circumstances and the value of both.

Thus, it is best to sit with your finance department at your company, or your own tax practitioner to assess your individual case and see which one will work better for you. Much of this will vary depending on the amount of travel for business and personal use (worth keeping in mind that travel to and from work is regarded as personal use – handy if you live far from your place of work), as well as the amount of travel allowance offered.

There are a few pros and cons to both though.

Company Car:

The company is responsible for the running costs for business use.

The company is the owner of the vehicle.

The company is able to claim back wear and tear, but not the employee.

Travel Allowance:

The employee is responsible for the running costs.

The employee owns the cars.

No wear and tear can be claimed back by either the employee or employer.

Company Car

A company car is regarded as a fringe benefit and is taxed accordingly. The employee will be liable for a tax on 80% of the fringe benefit but should the employer be satisfied that more than 80% of the use of the vehicle was for business purposes, may calculate the tax on 20% of the fringe benefit.

This will be 3.5% per month of the vehicle's determined value or 3.25% per month on the vehicle's determined value when a maintenance plan is included of more than 3 years / 60 000km. The rules are a little different for car manufacturers and dealers.

Business travel costs may be claimed back at the end of the tax year but is limited to the fringe benefit. Should it be found that not enough business travel occurred, the employee may be liable to pay in.

The fringe benefit is not applicable if the vehicle is a pool car made available to all employees if minimal private use is allowed, if the vehicle is not stored at the employee's residence after business hours or if after-hours business travel is required and no personal use is granted.

Travel Allowance

The employee is liable for PAYE tax on 80% of the travel allowance during the tax year. Travel costs can be claimed back at the end of the tax year (as per SARS schedule) but is limited to the travel allowance amount per annum

The SARS schedule uses the value of the vehicle to determine a deemed expenditure but if a comprehensive record of expenses is maintained and presented, this can be used to claim back tax at the end of the tax year.

If you didn't travel much for work you may be liable for a pay in, come tax return time.

This example from contadorinc.co.za shows how it is calculated:

“Say the cost of the vehicle you used for business purposes is R200,000 and you used it for 11 months during the year. Your total kilometres travelled were 60,000km of which 40,000km were for business.

Fixed Cost Rate:

The cost of the vehicle falls between 170,000 and 255,000 on the above schedule; thus, the fixed cost is 73,427.

If the vehicle was used for less than a year for business purposes, the fixed cost should be reduced proportionally: 73,427 x 11/12 = 67,308

Next, the fixed cost should be divided by the total kilometres travelled (private and business) to get the fixed cost rate: 67,308 ÷ 60,000 = 1.121/km

Deemed Expenditure:

Add the fixed cost rate as calculated, and the fuel and maintenance rates from the above schedule together: 1.121 + 1.106 + 0.454 = 2.681

Multiply the calculated rate with the kilometres travelled for business purposes: 2.682 x 40,000 = R107,280.

The deemed expenditure you can deduct from your income is R107,280, limited to your travel allowance.”