80/20, 495c/km: 2026 Travel Allowance Tax for Employers & Employees

A fixed travel allowance is subject to PAYE on 80% of its value by default; the employer may withhold PAYE on only 20% if satisfied that at least 80% of vehicle use will be for business purposes. A reimbursive allowance stays tax-free up to SARS’s prescribed per-kilometre rate. Keep a valid logbook, check your IRP5 codes, and confirm your payroll is withholding correctly before the tax year closes.

TL;DR:

• Employers must ensure fixed allowances are either taxed at 80% or reduced to 20% withholding only with proper documented evidence of at least 80% business use.
• Reimbursive allowances are tax-free up to SARS’s rate per kilometre (495 cents in 2026/27), but any excess paid above that rate becomes taxable income.
• Accurate logbooks are essential, as SARS requires detailed trip records, and private home-to-work travel is always considered non-business mileage for deduction purposes.
• Payroll must correctly code allowances: 3701 for fixed allowances, 3702 for tax-free reimbursive allowances at or below SARS rate, and 3703 for taxable reimbursive amounts above the rate.
• Most errors stem from misclassifying allowances, incomplete logbooks, or failing to maintain proper documentation, risking employee tax bills and SARS audits.

Table of Contents

• Understanding Travel Allowance Tax in South Africa: The Core Rules
• How Does PAYE Apply to a Fixed Travel Allowance?
• What Is the SARS Per-Kilometre Rate for Reimbursive Allowances?
• What Records Does SARS Require for a Travel Logbook?
• Fixed-Cost Table or Actual-Cost Method: Which Should You Use?
• Payroll and IRP5 Reporting: What Employers Must Get Right
• Common Travel Allowance Mistakes That Trigger SARS Scrutiny
• Your Travel Allowance Checklist for This Tax Year
• Why Most Employers Get the 80/20 Rule Backwards
• How Expand to South Africa Simplifies Travel Allowance Compliance

Understanding Travel Allowance Tax in South Africa: The Core Rules

South African tax law treats travel allowances in two entirely different ways, and mixing them up is where most payroll errors start. A fixed travel allowance is a set monthly amount paid regardless of how far an employee actually drives. A reimbursive allowance pays back actual business kilometres, usually at a rate per kilometre. SARS taxes these two categories on opposite defaults, which is the single most important fact in this entire guide.

For fixed allowances, PAYE applies to 80% of the amount every month by default. Your employer can reduce that withholding to just 20% if satisfied that at least 80% of your vehicle use during the year will be for business purposes, according to SARS’s own guidance on travel expense treatment for PAYE purposes. That election is not automatic. It requires evidence, and weak evidence is a recurring audit trigger covered later in this guide.

Reimbursive allowances work differently. If your employer pays you back per kilometre at or below the SARS-prescribed rate, and pays no other travel allowance, that reimbursement is not taxed at all. Pay above that rate, and the excess becomes taxable income, reported separately on your IRP5.

Statistic Callout: For the 2026/27 tax year, SARS confirms that a reimbursive allowance based on actual distance travelled can remain fully tax-free up to 495 cents per kilometre. Anything paid above that rate is added to taxable income.

Here’s the quick reference most payroll teams actually need pinned above their desks:

• Fixed allowance: 80% taxed monthly by default; 20% only with documented employer satisfaction of business use.
• Reimbursive allowance: Tax-free up to the SARS rate per kilometre, provided no other travel allowance is paid.
• Above the rate: The excess portion is taxable and reported under a different IRP5 code than the tax-free portion.
• Both types: Depend on a credible logbook if the employee wants to claim a deduction on assessment.

Getting this classification wrong at the payroll level doesn’t just create an accounting headache. It shifts risk onto the employee, who ends up with an unexpected tax bill or an unnecessarily large one at assessment.

How Does PAYE Apply to a Fixed Travel Allowance?

Payroll treats a fixed travel allowance as part of remuneration from the first payslip, which means the 80% default withholding kicks in automatically unless your employer actively decides otherwise. Understanding the mechanics matters whether you’re the one running payroll or the one watching PAYE come off your allowance every month.

How the monthly withholding works

1. The employer adds the full fixed allowance to gross monthly remuneration.
2. PAYE is calculated on 80% of that allowance amount, combined with salary, using standard tax tables.
3. The remaining 20% is added without tax withheld, assuming the default treatment applies.
4. The full allowance amount is reported under IRP5 code 3701 at year-end.

Take an employee earning a $1,500 monthly fixed travel allowance (figures here are illustrative in USD for clarity of the mechanics; South African payroll runs the identical calculation in ZAR). Under the default rule, $1,200 of that allowance is added to taxable income every month and taxed at the employee’s marginal rate. The remaining $300 passes through untaxed. Over a year, that’s $14,400 taxed and $3,600 untaxed, purely as a function of the 80/20 default split.

When the employer can withhold at just 20%

If your employer is satisfied that you’ll use the vehicle at least 80% for business travel, they may elect to withhold PAYE on only 20% of the allowance instead of 80%. Using the same $1,500 allowance, that flips the math: only $300 a month gets taxed through payroll, and $1,200 passes through without withholding.

That election carries real administrative weight. Employers making it should keep a documented basis for the decision, not just a verbal assurance from the employee. A signed declaration referencing expected mileage, job function, and travel patterns gives payroll something defensible if SARS asks questions later. It resurfaces at the employee’s assessment.

Annual reconciliation: why the payslip number and the tax bill can differ

The amount withheld monthly is only an estimate. What an employee actually owes, or gets refunded, depends on the deduction they’re entitled to claim on assessment using their logbook and either the fixed-cost table or actual-cost method (covered in detail further down). Three scenarios show how differently this can play out:

• An employee taxed at 80% who genuinely used the vehicle 90% for business will typically show a refund at assessment, because their allowable deduction exceeds what was already taxed.
• An employee taxed at 20% whose actual business use turns out to be only 50% will likely face additional tax owed, since too little was withheld across the year relative to their real deduction.
• An employee taxed at 80% with modest business use close to the SARS-published benchmarks may see little movement either way, because the default withholding already approximates the correct outcome.

This is precisely why the fixed allowance system depends so heavily on a logbook. Without one, SARS has no basis to calculate a deduction, and the employee is stuck with whatever was withheld through the year, refund or not.

What Is the SARS Per-Kilometre Rate for Reimbursive Allowances?

The reimbursive allowance rule is simpler in concept but strict in application: pay employees back per kilometre at or below the official SARS per-kilometre rate, and that reimbursement is not taxed at all, provided it’s the only travel allowance the employee receives. Pay above that rate, and only the excess becomes taxable.

SARS publishes the current rate through its rates per kilometre page and confirms it annually in the eLogbook guidance. For 2026/27, that threshold sits at 495 cents per kilometre. Employers should verify the current figure directly on SARS’s site each tax year rather than relying on a number carried over from a prior year’s payroll setup, since the rate is reviewed and adjusted periodically.

Statistic Callout: An employee reimbursed at exactly the SARS rate for 1,000 business kilometres in a month receives the full amount tax-free. Reimbursed at even 10 cents above that rate for the same distance, the excess $100 (at the illustrative figures) becomes taxable income added straight to that month’s payslip.

Two conditions must both hold for the allowance to stay tax-free:

• The rate paid per kilometre does not exceed the SARS-prescribed figure for that tax year.
• No other travel allowance, fixed or otherwise, is paid to the same employee alongside it.

Break either condition, and the treatment changes. Pay a reasonable per-kilometre rate but also hand the employee a monthly fixed allowance on top, and the reimbursive portion loses its automatic tax-free status even if the rate itself is compliant.

IRP5 codes for reimbursive allowances

Payroll needs to separate reimbursive amounts by tax treatment when reporting to SARS, and this is where a surprising number of payroll systems get sloppy:

• Code 3702 covers reimbursive travel allowances that are non-taxable, meaning paid at or below the SARS rate with no other allowance involved.
• Code 3703 applies to reimbursive amounts that exceed the SARS rate and become taxable.
• Code 3722 is used for a taxable reimbursive travel allowance where the employer, importantly, is not the one liable for the excess treatment in certain structured arrangements. Payroll teams unfamiliar with this code should confirm its exact application with a tax practitioner, since misuse here is a common source of IRP5 correction requests.

A worked example makes this concrete. An employee who drives 2,000 business kilometres in a month and is reimbursed at 550 cents per kilometre, against a SARS rate of 495 cents, receives $110 for the tax-free portion (at 495 cents on the 2,000 km) and roughly $11 taxable for the 55-cent excess portion, using the illustrative currency scale. Payroll should split that reporting across codes 3702 and 3703 rather than lumping the full amount under one code, which is exactly the kind of shortcut that trips up a SARS verification request.

What Records Does SARS Require for a Travel Logbook?

A logbook is the single piece of evidence that determines whether an employee can claim any deduction at all, and SARS is specific about what it needs to see. Vague notes scribbled at year-end don’t hold up, and reconstructing months of travel from memory in March is a guaranteed way to lose a legitimate claim.

According to SARS’s travel eLogbook guidance, a compliant logbook must record, for every business trip:

• The date of travel.
• The kilometres traveled for that specific trip.
• The origin and destination points.
• The business reason for the journey.
• Opening and closing odometer readings for the tax year, establishing total distance traveled against business distance claimed.

Retention runs for at least five years from the date the relevant tax return is submitted, matching SARS’s general recordkeeping standard for supporting documents. Digital logbooks are fully acceptable, and SARS actively encourages employees to use its own eLogbook tool rather than paper records that are easy to lose or backdate inconsistently.

One distinction trips up more employees than any other rule in this guide: travel between home and your regular place of work is private travel, full stop. SARS explicitly excludes it from business mileage, no matter how far the commute or how work-related the destination feels. Only travel beyond that baseline commute, client visits, site inspections, travel to a second work location, counts toward your business-use percentage.

Calculating that business-use percentage is straightforward once home-to-work trips are stripped out: divide total business kilometres (excluding the commute) by total kilometres driven for the year, based on your odometer readings.

Pro Tip: Export a snapshot of your eLogbook every quarter rather than waiting until tax season. A quarterly export gives you a clean paper trail if your car changes, your job changes, or you switch employers mid-year, and it means you’re never trying to reconstruct six months of travel from a hazy memory in March.

Fixed-Cost Table or Actual-Cost Method: Which Should You Use?

SARS gives taxpayers two distinct ways to calculate their allowable travel deduction, and the two methods can produce meaningfully different outcomes for the same set of trips. Choosing the right one comes down to how much documentation you’re willing to maintain and how your actual vehicle costs compare to the standard SARS scale.

Method one: the fixed-cost scale table

The SARS travel allowance leaflet publishes an annual fixed-cost table based on vehicle value, covering estimated fuel, maintenance, and wear-and-tear costs per kilometre. This method is administratively lighter: you don’t need to keep every fuel receipt or service invoice. You apply the published cost-per-kilometre figure for your vehicle’s value band against your logged business kilometres, and that produces your deductible amount.

Method two: the actual-cost method

This requires tallying real expenses: fuel, maintenance, insurance, licensing, and either wear-and-tear or finance charges depending on how the vehicle was acquired. It demands considerably more paperwork but can produce a larger deduction for employees with genuinely high running costs or an expensive vehicle.

Under the actual-cost method, taxpayers can claim wear-and-tear spread over seven years, or annual finance charges (interest) on a lease or hire-purchase agreement, but not the capital repayment portion of those installments, per the SARS leaflet’s own guidance on substantiating costs. Leased or financed vehicles need the lease or purchase agreement retained as supporting documentation, since SARS will request it directly during any verification.

A worked comparison

1. An employee drives 20,000 business kilometres in the year and receives a $6,000 fixed travel allowance.
2. Under the fixed-cost table method, applying a published rate for their vehicle’s value band might produce a deductible cost of $5,200 for those kilometres.
3. Under the actual-cost method, tallying real fuel, insurance, maintenance, and wear-and-tear for the same vehicle and mileage might total $5,800, once genuine expenses are added up and apportioned by business-use percentage.
4. The employee compares both, deducts whichever produces the larger legitimate claim against their $6,000 allowance, and reports the remainder as taxable income (or claims a refund if more tax was withheld than the deduction ultimately required).

That gap between $5,200 and $5,800 in the example above is exactly why the fixed-cost table, while administratively simpler, can leave money on the table for employees running higher-cost vehicles or facing a year of unusually heavy maintenance.

A few adjustments apply regardless of method. If a vehicle was only owned or used for part of the tax year, both the allowance and the deduction should be pro-rated to that period rather than calculated as if the vehicle were available all twelve months. SARS also caps any travel deduction at the value of the travel allowance actually received. You cannot inflate a claim to offset unrelated income, since SARS explicitly limits the deduction to the allowance amount.

Payroll and IRP5 Reporting: What Employers Must Get Right

Correct payroll coding is what separates a clean assessment season from a flood of employee queries in March. Get the codes wrong and every downstream number, from PAYE withheld to the employee’s final tax outcome, is built on a shaky foundation.

The codes payroll teams need on hand:

• Code 3701: The full value of a fixed travel allowance, reported regardless of the withholding split applied.
• Code 3702: Non-taxable reimbursive travel allowance, paid at or below the SARS rate with no other allowance in play.
• Code 3703: Taxable reimbursive travel allowance, the portion paid above the SARS rate.
• Code 3722: A specific taxable reimbursive code used in defined arrangements; confirm its use with a payroll or tax specialist rather than defaulting to it.

Monthly payslips should distinguish clearly between fixed and reimbursive components, even when an employee somehow receives both in the same pay period (a scenario that itself changes the tax-free status of the reimbursive portion, as covered earlier). Employees reading a payslip should be able to see, at a glance, which portion was taxed and which code it maps to.

Retain the documented basis for that decision: job description, expected travel patterns, any signed employee declaration, and ideally periodic logbook check-ins rather than a one-time assumption made at hiring. That file is what protects the employer if SARS opens a verification and questions why less tax was withheld than the default rule requires.

Year-end reconciliation is where all of this either pays off or unravels. Employees who were under-withheld relative to their actual deduction entitlement face a tax bill on assessment. Those over-withheld see a refund. Employers can soften the surprise considerably by communicating ahead of tax season that payslip withholding is an estimate, not a final number, and that the ITR12 assessment is where the real reconciliation happens. For a fuller view of how travel allowances fit into overall employer withholding obligations, see how PAYE thresholds shape payroll decisions more broadly.

Common Travel Allowance Mistakes That Trigger SARS Scrutiny

Most travel allowance problems trace back to five recurring mistakes, and every one of them is preventable with a bit of process discipline.

• Counting home-to-work travel as business mileage. SARS treats this as private travel without exception, and it’s the single most common logbook error.
• Reconstructing a logbook after the fact. A logbook built from memory in tax season, rather than logged trip by trip, invites SARS to disallow the entire claim.
• Applying 20% withholding without documentation. Employers who elect reduced withholding based on a verbal assumption, rather than a recorded basis, leave both themselves and the employee exposed if actual business use falls short.
• Reimbursing above the SARS rate but reporting it all under one code. Splitting taxable and non-taxable reimbursive amounts across the correct codes (3702 versus 3703) isn’t optional; lumping them together generates IRP5 correction requests.
• Claiming actual costs without invoices. Fuel, maintenance, and insurance claims under the actual-cost method need real receipts and agreements on file, not estimates.

Pull a sample of employee logbooks at the six-month mark rather than waiting until year-end to discover the business-use assumption was wrong all along.*

Your Travel Allowance Checklist for This Tax Year

For employers, before your next payroll run:

1. Confirm every travel allowance is coded correctly, fixed under 3701, reimbursive split across 3702 and 3703 as applicable.
2. Document the basis for any 20% withholding election in writing, tied to a specific employee and role.
3. Verify payroll is using the current SARS per-kilometre rate, checked directly against the SARS rates per kilometre page each tax year.
4. Store logbooks and supporting evidence centrally, not scattered across individual employee files, so they’re retrievable if SARS requests them.

For employees, before you file your ITR12:

1. Start or maintain your eLogbook now rather than waiting for filing season.
2. Keep every fuel, maintenance, and insurance receipt if you plan to use the actual-cost method.
3. Record opening and closing odometer readings for the full tax year without gaps.
4. Review your IRP5 the moment it’s issued and query any code that doesn’t match what you actually received.

If either side of this checklist raises questions your usual processes can’t answer, particularly around the employer election or lease documentation, it’s worth routing the query to a payroll specialist or directly to SARS rather than guessing and hoping it holds up at assessment.

Why Most Employers Get the 80/20 Rule Backwards

It isn’t.

It’s the position that requires zero justification. Employers who treat it as a perk to dangle in job offers, without the mileage evidence to back it, are setting their employees up for a tax bill they won’t see coming until assessment, long after the goodwill has worn off.

The other pattern worth naming: employees fixate on the fixed-cost table because it’s simpler, without ever running the actual-cost numbers to see if they’re leaving a larger deduction on the table. For anyone driving a higher-value vehicle with real running costs, that gap can be the difference between a modest deduction and a genuinely useful one.

None of this is exotic tax planning. It’s basic recordkeeping applied consistently, which is precisely why so few employers and employees actually do it well.

— Roel

How Expand to South Africa Simplifies Travel Allowance Compliance

Getting travel allowance treatment right depends on payroll infrastructure that codes allowances correctly the first time, not on catching errors after an IRP5 goes out. That’s the piece Expand to South Africa handles for employers hiring across borders: South Africa-native payroll built around PAYE, UIF, SDL, and COIDA filings, run by a licensed local partner who already knows how SARS expects 3701, 3702, and 3703 codes applied.

We can’t file your specific travel allowance election for you sight unseen, but our payroll process is built to flag the documentation an employer election requires, keep logbook-linked records retrievable if SARS asks, and prepare IRP5 data that matches what actually happened on the payroll ledger all year, not a reconstruction at deadline. For an international company without a South African entity, that infrastructure gap is usually the real risk, not the tax rule itself.

If you’re hiring in South Africa and want payroll that handles PAYE coding and statutory filings correctly from the first payslip, look at our EOR services in South Africa or get a direct breakdown of ongoing costs through our payroll services page to see what compliant administration actually involves before your next hire starts.

This article is general information, not a substitute for advice from a qualified financial advisor. Consult a qualified financial professional about your own circumstances before acting on anything here.

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