Author: Ian Hurst — Managing Director, Paymaster People Solutions
Travel is a part of working life. Traveling costs money and all companies that I know, either pay for the accommodation and meals (and reimburse the incidental expenses), or they pay the employee an allowance that will cover the expenses.
At Paymaster People Solutions, we routinely receive at least one “Please explain subsistence allowance?” question from our clients (who usually send us their questions using our live website chat-facility, or by standard email). Based on our clients’ questions, seemingly the deemed rate and actual payment of expenses (against receipts submitted) causes a great deal of unhappiness.
Mostly, employers consider processing travel-claim reimbursements (in excess of the deemed rate) to be far too beneficial for the employee, even though this is tax-deductible claim for the employer. On the other hand, more often than not, employees are of the view that they deserve to be reimbursed with the full amount, owing to the added inconvenience of being ‘away from home’.
The confusion seems to arise from the fact that SARS has a subsistence allowance document that creates a great deal of confusion.
Clearing confusion — start with definitions
To clear this confusion, let us start at the beginning :
- Allowance An allowance is an amount of money granted by an employer to an employee to incur business-related expenditure on behalf of the employer, without an obligation on the employee to prove or account for the business-related expenditure to the employer. The amount of the allowance is based on the anticipated business-related expenditure.
- Advance An advance is an amount of money granted by an employer to an employee to incur business-related expenses on behalf of the employer, with an obligation on the employee to prove or account for the business-related expenditure to the employer. The amount of the advance is based on the anticipated business-related expenditure. The employer recovers the difference from the employee if the actual expenses incurred are less than the advance granted and vice versa.
- Reimbursement A reimbursement of business-related expenditure occurs when an employee has incurred and paid for business-related expenses on behalf of an employer without having had the benefit of an allowance or an advance, and is subsequently reimbursed for the exact expenditure by the employer after having proved and accounted for the expenditure to the employer
What does company policy say?
What does your company policy say and what is in the contract of employment? This will form the basis for paying the employee whilst away from home on work-related business activity. For example, does your company pay for hotels, meals (please stipulate a maximum value) and incidental expenses? In all cases, be sure to clarify meaning. For example, are parking-related costs considered an incidental expense? Another example: how does your company view the purchase of a cooldrink and/or a chocolate? Make this very clear so as to avoid problems arising during the claim reimbursement process.
A possible company policy clause might resemble the following:
You will be required to spend some nights away from home. The company will pay for your accommodation (up to the value of Rxxxx,xx) and meals (up to a value of Rxxx,xx). In addition, an allowance of R122 (per night) will be paid to cover incidental costs (like chocolates, cooldrinks, etc.). No additional reimbursement claims will be paid out. No reimbursement claim-document needs to be completed.
Another likely company policy clause might resemble the following:
You will be required to spend some nights away from home. The company will pay for your accommodation (up to the value of Rxxxx,xx) and meals (up to a value of Rxxx,xx). In addition, all receipts from any incidental expenses needs to be submitted to the company. You will be reimbursed by no later than 7 days after your reimbursement claim has been submitted.
What does the law have to say?
- A subsistence allowance is an allowance given to an employee in respect of incidental costs incurred when away from home and doing company business and for at least one night (sunset to sunrise).
- Where the employer pays for the hotel and meals and subsistence allowance of R 122 per night may be claimed (deemed rate).
- Where the employer only pays for accommodation the allowance is R397 per night (deemed rate). Where breakfast is included in the rate, then the breakfast is regarded as part of the accommodation rate.
How to pay a subsistence allowance
Before providing an explanation of the process to be followed when paying a subsistence allowance, take note of the following warning: a subsistence allowance will not form part of the employee’s remuneration package and should therefore be paid over and above the employee’s normal remuneration, and no employee’s tax should be deducted from this amount, even if the amount exceeds the deemed rate. This should be indicated on the IRP5 and SARS will make the required adjustments. Only two ways:
- Ask your employee for the expense slips and reimburse your employee. These are not subject to employee’s tax.
- Pay out the subsistence amount as prescribed by SARS – no expense slips required. These are not subject to employee’s tax unless the amounts exceed the deemed rate. Then the employee will be taxed on the difference unless receipts for the full amount can be produced.
There is nothing I can find that prevents the employer and employee from determining their own method/s of processing claims for each trip. However, this might result in an administrative nightmare if employees are left to decide on their preferred method of submitting reimbursement claims. Therefore, it is suggested that the following payslip codes be used:
- When the deemed (claimable rate) is exceeded, make use of code 3704 (local) and code 3715 (international).
- Where the deemed (claimable rate) is not exceeded, make use of code 3705 (local) and code 3716 (international).
The employee will then complete the IRP5 and submit their annual return. Based on the IRP5, SARS will then make the required adjustments.
Note — the supporting documents for any expense claim should be archived for a period of 5 years.
A final question …and the answer
Question: if my expenses claim is less than the deemed rate, or if my company reimburses me less than the redeemed rate, what happens?
Answer: on your annual return you need to submit the details to SARS. They will then make the required adjustments to your return. The company cannot make any adjustments or give you any tax relief (via the company-payroll system) for any unclaimed or under-claimed subsistence allowances.
 Source: Juta’s Compendium of Tax Legislation (2014 Edition, Volume 2)
 Download the SARS guide here: http://www.sars.gov.za/AllDocs/LegalDoclib/Notes/LAPD-IntR-IN-2012-14%20-%20Allowances%20Advances%20Reimbursements.pdf
 Download international deemed rates here: http://www.sars.gov.za/AllDocs/Documents/PAYE%20tables/2018%20tables/SUBSISTENCE%20REGULATIONS%202017.pdf
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