Maximise Your Business Travel Tax Deduction

“Without a logbook, you will not be able to claim a travel deduction.” (SARS Travel Logbook 2022/23)

Even while recovering from the economic impact of COVID and facing the challenges of power blackouts, businesses and their employees are also contending with the costs of travel that have reached historic highs. Thankfully, expenses related to business travel can be deducted from taxable income – reducing the tax liability for taxpayers, including businesses, employees, commission-earners and independent contractors. All these taxpayers should prioritise maximising the available tax deductions by ensuring they can claim for every actual business travel-related expense.

This is increasingly important given the rapidly rising costs of travel, fuel and vehicle ownership. Fuel prices have more than doubled over the last five years and continue to set new records. In addition, Wesbank recently reported that the monthly cost of vehicle ownership for an average entry-level vehicle is 33% higher than five years ago and has increased 32% between November 2021 and November 2022.

To claim any business travel expenses, it is compulsory to keep an accurate and up-to-date SARS-compliant logbook for each vehicle. In addition, there are other tax implications related to travel expenses, travel allowances and travel reimbursements, some of which are briefly highlighted below.

Claiming the business travel deduction – fast facts 

  • Businesses can claim business travel expenses incurred in the production of income.
  • Employees who receive a travel allowance can claim a deduction for the use of their private vehicles for business purposes.
  • Employees may also be entitled to claim a reduction on the fringe benefit in respect of business kilometres travelled in a company car.
  • To claim any travel deduction, an accurate, up-to-date logbook detailing all business kilometres travelled is required. SARS accepts electronic logbooks.
  • There is no deduction allowed for private travel, which is any travel not for business purposes, such as travelling between home and work.
  • In addition to a logbook, taxpayers who want to claim actual travel expenses should keep accurate records and proof of all travel expenses, such as fuel and maintenance, incurred during the year.
  • A separate logbook and records must be kept for each vehicle used for business purposes.
  • SARS reserves the right to query and audit the content or information recorded in any logbook by the taxpayer.
  • Logbooks and other records must be kept for at least five years as taxpayers may be required to submit them to SARS for verification of travel claims.


How to claim a business travel tax deduction

  1. Record the vehicle’s odometer reading on the first day of a tax year (1 March for individuals and also for companies).
  2. Maintain the logbook all year – SARS requires the following minimum information for every single business trip: date of travel; kilometres travelled; and travel details including where the trip started, the destination and the reason for the trip. It is not necessary to record details of private travel.
  3. Keep records of all related travel expenses such as fuel, oil, repairs and maintenance, car licence, insurance, vehicle tracking costs, wear-and-tear, and finance charges or lease costs to claim the actual travel costs incurred.
  4. Record your motor vehicle’s closing odometer reading on the last day of the applicable tax year (end of February for individuals and also for many companies). The difference between the opening odometer reading and the closing odometer reading equals the total kilometres (business and private) travelled for the full year.
  5. Calculate the total business kilometres for the year using the detailed logbook.
  6. The travel deduction can then be calculated in one of two ways:
    • Use the cost scale table supplied and updated annually by SARS, if you have not kept an accurate record of all travel expenses – the table simply provides a rate per kilometre based on the value of the vehicle, or
    • Calculate the claim based on actual costs incurred, determined by the accurate records and proof of all business travel expenses during the year, in addition to the logbook.


Tax implications to beware of

  • If an employee receives a travel allowance as part of his/her remuneration, 80% of the travel allowance must be included when calculating PAYE. This percentage is reduced to 20%, where the employer is satisfied that at least 80% of the motor vehicle use during the tax year will be for business purposes.
  • However, if there is any underpayment of PAYE on the travel allowance due to incomplete or incorrect information, the employer is liable for any shortfall, so obtain professional advice before providing travel allowances and ensure employees with travel allowances keep detailed logbooks.
  • Fuel costs can only be claimed if the employee pays the full cost of fuel used in the vehicle, and similarly, maintenance costs can only be claimed if the employee carries the full cost of maintaining the vehicle, for example, if the vehicle is covered by a maintenance plan.
  • Where a travel allowance or advance is based on the actual distance travelled by the employee for business purposes (reimbursive travel allowance), it is non-taxable (i.e. no  employee’s tax must be deducted) provided that two criteria are met: the rate per kilometre is not higher than the rate published by SARS, and no other compensation in the form of an allowance or reimbursement (except parking or toll fees) is received in respect of the vehicle.
  • If the two criteria mentioned above are NOT met, the reimbursive travel allowance is taxable and employees’ tax must be deducted from any amount that exceeds the prescribed rate per kilometre.

To maximise the tax deductions related to business travel, make sure that an accurate and up-to-date SARS-compliant logbook is kept current for each vehicle and each employee with a travel allowance, and that you consult with your accountant to understand the many tax implications for all concerned before making decisions regarding business travel.

Your Tax Deadlines for January 2023

  • 6 January – Monthly Pay-As-You-Earn (PAYE) submissions and payments
  • 30 January – Excise Duty payments
  • 31 January – Value-Added Tax (VAT) electronic submissions and payments & CIT Provisional payments where applicable.

The Importance of Maintaining Your Tax Compliance Status in 2023

“Being tax compliant… is not just good for you, but also contributes to the positive growth of our country’s economy which in turn benefits all South Africans.” (SARS)

Businesses are often required to provide, confirm or share tax clearance information to another entity. This is because proof of tax compliance is an indicator of a company’s good standing in terms of its legal obligations and how well it is managed. There may be instances when an individual, another company, or a government entity needs to verify your tax compliance status, for example, during a prequalification as a supplier; for a tender application or bidding process; to confirm good standing and that your tax matters are in order with SARS; or for foreign investment allowances.

Tax clearance information is no longer confirmed via Tax Clearance Certificates – these have been replaced by SARS’ Tax Compliance Status (TCS) system, which verifies your tax status online and in real-time, and makes it very important to ensure you and your company are always compliant.


How it works now

Instead of a manual tax certificate being issued as in the past, SARS’ new system allows individuals and businesses to obtain a TCS PIN (personal identification number).

Your accountant will be able to assist with the process of applying to SARS to obtain this PIN through eFiling which requires, for example, activating the TCS for the business or individual, merging all the tax types into one registered profile, completing the Tax Compliance Status Request and selecting the correct type of TCS: good standing, tender, or – for individuals only – emigration and foreign investment allowance.

If all your tax affairs are in order, your PIN should be issued immediately via SMS or email. A unique PIN is issued for each TCS request submitted to SARS.

This PIN, along with your tax reference number is then sent to the third-party that requires confirmation of your or the company’s tax compliance status. To verify tax compliance status, the third-party will go to eFiling and submit your tax reference number and PIN under “New Verification Request.”

Your current tax compliance status will appear and will be colour-coded, indicating if your tax affairs are currently in order or not:

– green indicates that all tax affairs are in order and the taxpayer is tax compliant;

– red means the taxpayer is not tax compliant.

Click here to see full size screenshot

Source: 
SARS

It is important to note that the PIN is valid for a year and will reflect the current tax status at the date and time the PIN is entered into the TCS system (not the compliance status at the time the PIN was issued).

This means your tax compliance status on the system can change during the year in line with your tax behaviour, which might include, for example, an inadvertent late submission or missed payment. For this reason, it is crucial to continuously monitor your tax compliance status to ensure a non-compliant tax status does not impact business and other opportunities.


What is required to be tax compliant?

SARS says that the compliance status displayed reflects the following compliance requirements:

  • Registration for all required tax types
  • Submission of all required tax returns on time
  • All tax debt settled on time
  • Relevant supporting documents submitted.

To meet these requirements consistently across all the relevant tax types over the tax year, taxpayers should consider professional assistance.


Why it is so important to maintain compliance all year round?

  • Remember that a TCS PIN is valid for a year and third parties with whom you share the PIN will always see your current tax compliance status, so it is crucial to ensure that status is continuously monitored and is compliant at all times during the year, to avoid a negative impact on reputation and opportunities.
  • A non-compliant status can affect the confidence of potential clients, stakeholders and investors, as well as competitiveness in the market.
  • Continuous compliance does involve costs or resources but will never be as expensive as the costs associated with non-compliance, which generally involve both penalties and additional fees to rectify.
  • Non-compliance exposes taxpayers to wide and harsh collection or enforcement measures such as the confiscation of property, business closure, garnishee orders and agency notices. Some tax offences are also subject to custodial sentences.
  • Ongoing and consistent compliance all year means that when there is an instance of non-compliance, SARS will likely be more accommodating, because a taxpayer’s track record is one of the factors SARS considers when making determinations.
  • Maintaining a compliant tax status prevents tax surprises and enables lawful tax planning as well as the ability to take advantage of relevant rebates and incentives.