The difference between business and private mileage is, in itself, quite simple. However, it comes with nightmarish prospects if both fleet managers and business drivers do not pay attention to the provisions of the law with regard to taxation.
In simple terms, business mileage is any distance covered by an employee while operating a vehicle in order to carry out any service or function on behalf of the company – and private mileage is everything else, whether the vehicle in question is a company car or a private one on a car allowance.
Fleet and company managers also need to bear in mind an employee ‘doing a favour’ by nipping down to the Post Office is then on company business and, in the event of an incident, could have their insurance invalidated if it emerged the vehicle was being used for business at the time but was insured for private use.
With company supplied cars the tax calculations are automatically done by the payroll department, based on the formula created by SARS.
Most of us use our personal vehicles for business purposes at some time. As the income tax system allows taxpayers who receive a travel allowance to claim a deduction for the use of their private vehicle for business purposes it is vital to log the total distance travelled for all for business trips in order to claim back these expenses
In order to claim a deduction, a record of all odometer readings from March 1 each year to the last day of February the following year need to be logged for each business trip. The actual distance travelled during a tax year and the distance travelled for business purposes substantiated by the logbook are used to determine the costs which may be claimed against a travelling allowance.
While the onus is on the employee to keep the logbook up to date, fleet bosses who are managing company car allowance schemes should also keep records of business mileage as part of their overall cost-to-company calculations.
It may seem obvious that travelling from home to work and back does not constitute business travel but, employees will often try and include it in their tax claims, so fleet managers should also have a record of where people are located in the event of any queries.
If the company leases a car for an employee, it does not have much control over how much mileage the employee puts on that car and many car lease terms have mileage restrictions. In terms of managing the costs of company cars, it is necessary for fleet managers to keep a tight rein and monitor the distances covered by each car in the fleet.
If the vehicle is being used by the allocated driver for long weekend trips and the mileage stipulation in the lease agreement is being used up rapidly, the company is not actually getting the best level of cost-efficiency out of the ‘business tool’.
Download our company car policy for a guideline on best practices for managing your company vehicles.
