Employees who have the use of a company car may sometimes use the vehicle for personal use – this is a fringe benefit which must be taxed by adding it to the employee’s PAYE each month. If you have an employee who has been assigned a company car this taxation process is essential in order to comply with SARS regulations. Here is a quick guide to the taxation of personal use on company vehicles:
Defining Personal Use
Before any calculations can be made, it is important to understand what personal use of a company car means as far as SARS is concerned. If an employee uses the vehicle for any purpose which does not involve the business, for example driving from home to work, fetching his or her children from school during lunch hour, or collecting a personal package from the post office, the vehicle is understood to have been used for personal purposes.
Personal Use and PAYE
The PAYE taxation for personal use of a company vehicle is calculated according to the number of kilometres that were used up on personal trips during a given month. The PAYE calculation works as follows:
- Calculate the fringe benefit value: The determined value of the car x 3.5% per month.(The determined value of the car is the full price paid including VAT plus the value of the motor plan, if there is one. Finance charges are NOT included).
- PAYE is equal to 80% of the fringe value.
- The PAYE is deducted monthly from the employee’s salary
(For example, a company vehicle valued at R500 000 would have a monthly fringe value of R17 500. 80% of this amount is equal to R14 000.
If an employee uses the vehicle for unlimited personal use, the full amount (R14000 in this case) should be deducted monthly. However, if the vehicle is used for personal purposes very rarely, the employee should keep a log book to prove this, and the amount deducted will be calculated according to the % of monthly kilometres used for personal use.