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Travel is, once again, becoming part of the work place. Since travel involves expenses, companies can either pay for accommodation and meals ( and reimburse incidental expenses) or pay the employee an allowance that covers all these expenses.
At Paymaster People Solutions we regularly receive queries from our clients (either via email or our live website chat facility), to explain Subsistance Allowances. Based on these questions, the deemed rate and actual payment of expenses ( against submitted receipts) is the cause of much unhappiness.
It seems many employers consider processing travel-claim reimbursements (in excess of the deemed rate) as favouring the employee, even though this is tax deductable for the employer.
It seems SARS’s Subsistance Allowance document is the source of the confusion around this subject.
Definitions to clear the confusion
- Allowance: an amount of money granted by the employer to the employee when business-related expenses are incurred ( without obligation for the employee to prove/account for these expenses to the employer). The amount of the allowance is based on the anticipated business-related expenses.
- Advance: 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/account for the business-related expenditure to the employer. The amount for this advance is based on the anticipated business-related expenditure. The employer recovers the difference from the employee if actual expenses are less than the advance paid (or vice versa).
- Reimbursement: this occurs when an employee has incurred and paid for business-related expenses on behalf of the employer, without receiving an allowance or advance. Therefore they are reimbursed the exact amount by the employer (after having proved and accounted for these expenses, to the employer).
Establish your company’s policy
What is in your contract of employment, and what is your company’s policy regarding Subsistance Allowances. This will shape the basis on which payment is made to the employee for their away-from-home work-related expenses. For example, does your company pay for hotels, meals ( stipulating a maximum value) and incidental expenses. Be sure to clarify details, such as : do they consider parking costs as incidental expenses. And what is there policy on the purchase of cooldrinks and/or chocolates? Making this clear will avoid problems during the reimbursement process.
Here follows 2 examples of possible policy clauses:
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 the value of Rxx,xx). In addition, an allowance of R 152 (per night) will be paid to cover incidental costs (eg, chocolates, cooldrinks etc). No additional reimbursement claim-documents need to be completed.
Another possible policy clause may look like this:
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 the value of Rxx,xx). In addition, all receipts from any incidental expenses need to be submitted to the company. You will be reimbursed no later than 7 days after reimbursement claims are submitted.
What the law says
A Subsistance Allowance is given to an employee in respect of incidental costs incurred when away from home, on company business, for at least one night (sunset to sunrise).
- Where the employer pays for the hotel and meals, a Subsistance Allowance of R152 per nght may be claimed( deemed rate).
- Where the employer only pays for accommodation, the allowance is R493 per night (deemed rate). If breakfast is included in the rate, it is regarded as part of the accommodation rate.
How to pay a subsistance allowance
PLEASE note the following WARNING: a Subsistance Allowance WILL NOT form part of the employee’s remuneration package and should therefore be paid over and above their normal remuneration. And no employee’s tax should be deducted from this amount (even if it exceeds the deemed rate). This should be indicated on the IRP5, and SARS will make the required adjustments. There are 2 ways to pay this allowance:
- Ask the employee for the expense slips, and reimburse them. This is not subject to the employee’s tax.
- Pay out the Subsustance Allowance as prescribed by SARS – no expense slips required. This is not subject to employee tax UNLESS the amounts exceed the deemed rate. In that case, the employee will be taxed on the difference, unless receipts for the full amount are produced.
There is nothing to prevent the employer and employee developing their own method to process claims for each trip. But to prevent an administrative nightmare, we suggest using the following payslip codes: when the deemed (claimable) rate is exceeded, use the code 3704(local) and code 3715(international). Where the deemed (claimable) rate is NOT exceeded, use code 3705 (local) and 3716(international). The employee can then complete the IRP5, and submit their annual return. Based on the IRP5, SARS can make the necessary adjustments.
(Please note: supporting documents for any expense claim must be archived for 5 years.)
What if my expense claims are less than the deemed rate, or if my company reimburses me less than the deemed rate?
ANSWER: On your annual return, you need to submit the details to SARS. They will then make the necessary adjustments to your return. The company cannot make any adjustments, or give any tax relief (via the company payroll system) for any unclaimed or under claimed Subsistance Allowances.
Alternatively, you are welcome to email Ian Hurst, for more information.
Article by Ian Hurst