How a travel allowance is taxed through payroll

How much of a South African travel allowance attracts PAYE, when the lower inclusion applies, why vehicle rental to staff counts, and what the IRP5 shows.

By Achekam · 11 October 2026 · 4 min read · For Running a business businesses in South Africa

A sales representative uses her own car to visit customers across the province, and the business pays her a fixed amount each month towards it. It is called a travel allowance, it appears on the payslip, and someone has to decide how much of it is taxed.

The answer is not "all of it" and not "none of it". SARS's rules tax a set share of the allowance through payroll, with a lower share where the employer is satisfied the car is used mostly for business. The full allowance still has to appear on the employee's tax certificate. This article explains the two inclusion rates, the business-use test, a rule about vehicle rental that catches some employers out, and how to set the allowance up so the payslip and the IRP5 agree.

Most of the allowance, or a fifth of it

SARS's guide for employers on allowances says 80% of a travel allowance is subject to employees' tax. Where the employer is satisfied that at least 80% of the vehicle's use for the year will be for business, only 20% is subject to employees' tax.

Read that carefully, because the two 80% figures mean different things:

Leaving part of the allowance out of PAYE is about what is withheld each month. It is not a promise that the rest is tax-free; the year's final position is settled on the employee's own assessment.

SARS's guide for employers in respect of allowances sets out how travel and other allowances are treated for employees' tax and how they are reported, and should be the reference for anything not covered here.

The business-use test sits with the employer

The lower inclusion rate depends on the employer being satisfied about the coming year's use of the vehicle. That puts a judgement on the business, not on the employee.

"Satisfied" should mean something you could explain later. Before applying the lower rate, ask yourself:

• What does this person's job involve, and how much of it is on the road?
• Is there a record of business trips, or only an estimate?
• Is the expectation about the whole year, not just a busy month?
• Would you be comfortable showing your reasoning to SARS?

If the answers are thin, use the normal rate. Applying the lower rate on a hunch understates PAYE every month, and the employee may face a bill on assessment that they did not expect.

Paying rent for an employee's vehicle

Some businesses try a different route. Instead of an allowance, they "rent" the employee's car for business trips and pay a monthly rental. SARS's allowances guide closes that door: rental paid by an employer for a vehicle owned or leased by the employee, the employee's spouse or child is deemed to be a travel allowance, not rental income.

So relabelling the payment does not change its treatment. If you pay an employee, or their spouse or child, for the use of a vehicle they own or lease, treat it as a travel allowance in payroll from the start.

A different arrangement again is where the business owns the car and lets the employee use it. That is a fringe benefit rather than an allowance, and SARS's fringe benefits guide says the employer must determine the cash equivalent of each taxable benefit and show its nature and value on the employee's IRP5 or IT3(a); failing to do so can attract a penalty of 10% of the cash equivalent or of the amount understated. That route is covered in the company car fringe benefit.

The full allowance on the IRP5

Whatever share is taxed through payroll, the certificate must show the whole allowance. SARS's allowances guide says the full travel allowance must be shown on the IRP5 under code 3701.

That fits SARS's wider rule that an employer must issue an employee with an IRP5 or IT3(a) where remuneration is paid or has become payable, showing the year's employment remuneration and the employees' tax deducted. The employee's own return relies on that certificate, so a travel allowance reported at only the taxed share, or not at all, puts the employee's assessment wrong.

Reimbursing actual business kilometres is a separate arrangement with its own rules, covered in per-kilometre and daily travel amounts without PAYE.

Setting the allowance up in Achekam

In Achekam, each employer has its own employees, earnings, deductions and pay settings, so the travel allowance is set up as an earning for the employer whose staff receive it. Pay runs can be monthly, fortnightly or weekly, and each period's overtime, commission, allowances, reimbursements and unpaid leave are entered as variable inputs, which suits an allowance that changes from month to month.

Year-end IRP5 and IT3(a) certificates are prepared from issued payslips and download as PDFs, and a certificate cannot be issued while an ID or tax number is missing. Because the certificates come from the payslips, a mistake in how the allowance is set up carries through to the IRP5.

So check before the first run, not at year end:

1. Set up the travel allowance as its own earning, not merged into salary.
2. Run a test payslip and confirm that the share included for PAYE matches the rate you decided on.
3. Record why you are satisfied, if you are applying the lower rate.
4. Before issuing certificates, confirm the full allowance shows under code 3701.

Deciding the rate before the first payment

Decide which inclusion rate applies before the allowance is first paid, write down why, and review it once a year when the employee's role or travel changes. A travel allowance that is set up correctly in month one will look after itself on every payslip and on the IRP5 that follows.

General guidance only, not advice on your own circumstances. Tax and payroll rules change: check the current position with the authority or your adviser.