Understanding SARS Subsistence Allowances for Foreign Travel
When employees travel abroad for work, they incur additional expenses for food, transportation, and incidentals. Reimbursing these costs can be time-consuming if employees are required to submit receipts and detailed records. To simplify this, the South African Revenue Service (SARS) allows employers to pay a subsistence allowance. This allowance, if paid within SARS-approved limits, is tax-free and does not require employees to submit proof of expenses for the covered amounts.
Here’s a detailed guide on how this system works, how to handle it in your business, and how to treat it in your payroll.
What is a Subsistence Allowance?
A subsistence allowance is a daily payment an employer gives to employees who are required to travel for work. SARS sets specific daily rates for different countries, which are intended to cover the cost of meals and incidental expenses (e.g., tips, parking fees, etc.) during business trips. These rates are designed to be fair and easy to implement, eliminating the need for employees to keep detailed records for small daily expenses.
Key Points About Subsistence Allowances:
Tax-Free: Allowances are non-taxable up to the SARS-approved limits.
No Receipts Needed: Employees do not need to submit receipts for expenses covered by the allowance.
Daily Rates by Country: SARS publishes annual updates listing allowable daily rates for foreign travel. For example, for the 2024 tax year:
United States: $168 per day
United Kingdom: £114 per day
China: ¥803 per day
UAE: AED 699 per day
(A full list is available on the SARS website.)
Meals and Incidentals Only:
The subsistence allowance covers meals and incidentals only. If employees incur additional expenses like accommodation or transport, these need to be reimbursed separately based on actual receipts.
How Does It Work for Businesses?
Set Up a Policy:
Decide how your company will manage travel allowances. Most businesses stick to SARS’s prescribed limits for simplicity and compliance.
If you choose to pay above the SARS limits, be prepared to handle the tax implications on the excess amounts.
Calculate the Allowance:
Determine the number of days or part-days the employee will be traveling for business. Part-days are generally considered if an employee departs or returns on the same day.
Example:
If an employee travels to the United States for five days, they are entitled to a tax-free allowance of $168 × 5 = $840.
Paying the Allowance:
You can pay the allowance upfront (before travel) or as a reimbursement after the trip, depending on your business policy.
How to Treat it in Payroll?
Non-Taxable Allowances:
Allowances within SARS-approved limits are non-taxable and should be recorded separately in payroll.
Mark the allowance as a tax-free benefit in your payroll system. This ensures it is excluded from the employee’s taxable income.
Taxable Excess:
Example:
If the SARS limit for the United States is $168 per day and your company pays $200, the $32 excess is taxable. This must be reflected in the employee’s payslip.
Record-Keeping:
Maintain clear records of all allowances paid, separating the taxable and non-taxable portions.
Report these correctly on the employee’s IRP5 tax certificate at year-end.
Practical Example
Let’s say an employee travels to the United Kingdom for 7 days. The SARS allowance for the UK is £114 per day.
If You Pay SARS Limits:
The total allowance is £114 × 7 = £798.
This amount is non-taxable and can be paid directly to the employee. It doesn’t need to be included in taxable income.
If You Pay Above SARS Limits:
If you pay £130 per day instead of £114, the excess is £16 per day.
For 7 days, the taxable portion is £16 × 7 = £112. This excess must be added to taxable income, and PAYE should be deducted accordingly.
How to Manage Subsistence Allowances Efficiently
Use a Payroll System: Modern payroll software can help you categorize allowances as taxable or non-taxable, ensuring accurate calculations and compliance.
Stay Updated: SARS updates its allowance rates annually. Always refer to the latest SARS publications to avoid errors. You can find these on the SARS website.
Standardized Travel Policies: Implement a clear and consistent travel policy. Employees should know what expenses are covered, how allowances are calculated, and how the process works.
Educate Employees: Inform employees about the tax-free nature of allowances up to the SARS limits and the importance of reporting taxable portions correctly.
Why Compliance Matters
By adhering to SARS rules on subsistence allowances, your business avoids unnecessary penalties, ensures tax compliance, and simplifies the reimbursement process for employees. Correct treatment in payroll also helps streamline tax reporting, making life easier for both employees and employers during tax season.
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