Travel Allowance vs Company Car: Which Is Better for Your Tax?

A travel allowance suits you when you own the car and drive a lot of business kilometres in a modestly priced vehicle. A company car tends to work out better when the employer wants to own an expensive vehicle and your business mileage is low. The split comes down to three things: who owns the car, who carries the running costs, and how each option is valued for tax.

Both are taxed on the private-use portion, and both need a logbook to reduce the taxable amount on assessment. The mechanics differ enough that the same driver can land in very different positions depending on which one the employer offers.

The core difference

A travel allowance is a cash amount your employer pays so you can use your own car for work. You buy the car, you insure it, you fuel it, you maintain it. The allowance is taxed under section 8(1)(b), and you reduce the taxed portion by claiming your actual business travel on assessment.

A company car is the employer's vehicle that you get the right to use. The employer owns it and usually carries the running costs. The private use of that car is a fringe benefit under the Seventh Schedule, and it is valued as a percentage of what the car cost the employer.

The first thing to settle is who is buying and running the car. If the car is yours, you are in travel-allowance territory. If it belongs to the employer, you are dealing with a company-car fringe benefit.

How each is valued

Company car. The monthly taxable value is 3.5% of the vehicle's determined value. It drops to 3.25% per month if the car was under a maintenance plan when the employer acquired it. The determined value is broadly the cost to the employer including VAT, and it is not reduced by anything you contribute. If your right of use starts more than a year after the employer bought the car, the determined value reduces by 15% per completed 12-month period on the reducing-balance method. The full mechanics of this benefit are set out in the company car fringe benefit tax article.

Travel allowance. There is no percentage of a determined value. The whole allowance is on the table, and you cut it down by claiming business travel. Home-to-work travel is private and does not count; only genuine business kilometres qualify. A logbook is compulsory, and without one the business claim is disallowed entirely. The business deduction is worked out on a deemed-cost per-kilometre basis from the SARS tables. Those rates change each year, so use the travel allowance calculator for the actual figure rather than a number from memory.

PAYE while you earn, versus tax on assessment

Both options are trimmed at the payroll stage, then settled properly when you file.

	Company car	Travel allowance
Monthly PAYE base	80% of the fringe-benefit value	80% of the allowance
Reduced base if 80%+ business use	20%	20%
On assessment	Reduce private value by business km via logbook	Claim business km at deemed cost via logbook
Logbook	Needed to reduce value on assessment	Compulsory, or the whole claim falls away

For the company car, the 80% or 20% split for PAYE comes from Interpretation Note 72. The employer applies 20% only if it is satisfied that at least 80% of your use will be for business. The full 100% remains potentially taxable on assessment, where the business-use reduction is business km divided by total km, applied to the value of private use. How the monthly deduction flows through is covered in the PAYE calculation walkthrough.

Worked example

Take a car with a determined value of R400,000 and, separately, a travel allowance of R7,000 a month, so you can see each side.

Company-car side. The monthly fringe-benefit value is 3.5% x R400,000 = R14,000. Over a year that is R14,000 x 12 = R168,000. For monthly PAYE, the employer includes 80% x R14,000 = R11,200 in your remuneration, or 20% x R14,000 = R2,800 if it is satisfied at least 80% of use is business.

On assessment your logbook shows 60% business travel. The private portion is 40% x R168,000 = R67,200, and the business reduction is 60% x R168,000 = R100,800. If your marginal rate is 31%, the tax on the private portion is R67,200 x 31% = R20,832 for the year.

Travel-allowance side. The R7,000 allowance is R84,000 a year. For PAYE, 80% x R7,000 = R5,600 is subject to tax each month, or 20% x R7,000 = R1,400 if at least 80% of your use is business. On assessment you claim your business kilometres at the deemed cost from the SARS table. Because that per-kilometre value is not fixed here, run your business km through the travel allowance calculator to see the deduction and where you land.

The two sides are valued on completely different bases. A company car is priced off what the vehicle cost the employer, while a travel allowance is measured against how much of your driving is for work. That is why the same person can come out ahead under one and behind under the other.

A rule of thumb

• High business mileage, cheaper car: a travel allowance usually wins, because a large business-km claim can wipe out most of the taxed allowance, and you are not tied to a percentage of an expensive vehicle.
• Low business mileage, expensive car: a company car often wins, because you are not funding the purchase yourself, and low private-versus-total ratios only help so much when the allowance side gives you little to claim.
• Either way: keep a logbook from day one, because both options stay fully taxable if you cannot prove your business kilometres.

If you are reimbursed per kilometre rather than given a fixed monthly amount, that is a different mechanism again, set out in the reimbursive travel allowance article. For the wider rules on claiming against an allowance, see the travel allowance guide.