11. Company Cars – Miscellaneous Matters of Interest
Company Cars plus Travel allowances
If the employee is paid a travel allowance –
1. In respect of a company car, the company car is taxed as described in the rules above, but the travel allowance is not administered as a travel allowance and is taxed in full and reported on the tax certificate as either code 3601 (salary) or perhaps better, as code 3713 (taxable general allowance).
2. In respect of another vehicle that is not a company car, then the company car is taxed as described in the rules above, and the travel allowance is taxed and reported as a code 3701 travel allowance. Business travel expenses in respect of the other vehicle can be claimed on assessment against the travel allowance.
VAT on Company Cars
The current calculation is based on a VAT regulation issued in 1991 by the Minister of Finance at the time, Barend du Plessis. This regulation is outdated and has not been aligned with the changes made to the company car provisions in the Seventh Schedule effective from March 2011.
For example, the determined value for the VAT calculation excludes VAT, whereas VAT is included for the fringe benefit calculation. Then the reduction for maintenance costs paid by the employee is based on the outdated 0,18% pm, and further, there is no provision for a reduction if the employee pays for fuel, insurance, or licence expenses.
Assuming that the employer is a registered VAT vendor, the use of a company car is deemed supply, and VAT is payable. The value of the deemed supply is generally determined with reference to the cash equivalent of the benefit. The value of the deemed supply in respect of a company car is 0,3% pm of the determined value of the motor vehicle where the employer was denied a deduction of input tax on the purchase of the vehicle (for example, a passenger motor vehicle). Otherwise, 0,6% must be used.
The VAT portion of the fringe benefit value is calculated as follows:
1. Determined value (currently excluding VAT) x 0,3% pm x 15 / 115
2. If the vehicle is a commercial vehicle, use 0,6% instead of 0,3%.
3. If the employee bears the full cost of maintaining the vehicle, the value of the VAT supply is reduced by the amount by which the value of the fringe benefit is reduced (currently 0,18%).
Typically, the monthly output VAT on a company car purchased by the employer for R228 000 (including VAT) will be calculated as R73.68 ((R228 000 x 100/114 x 0,3% ) x 15/115).
It is very important to note that the output VAT expense of R73.68 per month may be claimed by the employer as a deduction for income tax purposes.
Ensure that your accounting system allocates this to a tax-deductible expense account.