NEW tax regulations for company cars and travel allowances in payroll legislation will come into effect this year and represent a significant problem for businesses.

In future the tax on both these allowances will be calculated in the same way, which was not the case in the ' past, says Ron Warren, executive chairman of NuQ.

"This will stop any arbitrage whereby employees decide .whether it is better to have a company car or a travel allowance," he says:

He says there has been a swing to company cars because it meant that employees did not have to record the kilometres they had travelled for business.

But now in either case employees have to keep a log book to show their business travel and there is therefore no benefit one way or another.

"SARS has also changed the percentage calculated for these fringe benefits," says Warren.  He says in future 80% of the benefit will be taxed per month on the assumption that the employee will submit a log book at the end of the year.  However, if employers are satisfied that certain employees' vehicles will be used 80% for business, as with salesmen, they can tax them at 20%.  "But these employees could find themselves having to pay in at the end of the year if their log books do not prove this.  "He says this raises problems, because the act says employers must either use 20% or 80% for the whole year, but this does not cover situations where certain employees' circumstances may change during the year and therefore they move from one category to another.

 These employees would therefore be overtaxed or under­taxed and would have to recover or pay in the difference at the end of the tax year.  Warren says it is likely that some top executives will consider filling in travel logs a menial task.  "I think many people will not want to keep logs and will end, up paying 100% tax on this fringe benefit."

He says the NuQ payroll system provides for 20% and 80%, as well as 100% to accommodate those who choose not to keep a log book.

The new tax legislation also requires that if employees receive a travel allowance and they have a company car the allowance must be taxed at 100%.  "So if they do have both the travel allowance must be reported as a normal allowance and taxed in full," says Warren.

He says another issue that will affect employers in the coming tax year is the ITA88, which requires employers to collect outstanding tax penalties from employees every month ort SARS' behalf for not submitting personal tax returns.  This came into effect last September, but the specifications have not been finalised and cannot therefore be included in payroll systems.  "So in the interim this has to be done manually, and it is very complex," says Warren.

He says another outstanding issue is that SARS was going to issue tax reference numbers to employers for those employees that do not have them, because these are now mandatory.  "But it has not done so yet, nor specified the file layout that must be used, which means we cannot start programming it.”

 Publication: Business Day

Date: 28/02/2011