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Travel Allowance and Code 3701: How the SARS Claim Actually Works

Most people who receive a travel allowance have a vague sense that they are being taxed on it and an even vaguer sense that they might get some of it back. Both are true, and the mechanism connecting them is worth understanding, because it is the reason a logbook is worth real money.

What code 3701 is

3701 is the IRP5 source code for a fixed travel allowance — a set amount your employer pays you every month towards the running costs of your own vehicle. The full amount for the year appears on your IRP5 under 3701.

It is not a reimbursement of specific trips. It is a standing allowance, paid whether you drive 400 km or 40,000 km in a given month. If your employer pays you per kilometre actually travelled instead, that is a reimbursive allowance and lands under a different code — see the guide to 3701 vs 3702 vs 3703.

The 80/20 rule: why it is taxed before you have driven anywhere

Your employer has to deduct PAYE on the allowance as it is paid, long before anyone knows how much of your driving was business. The law resolves this with an assumption:

80% of the travel allowance is subject to PAYE — the default position, on the assumption that only 20% of your vehicle use is for business.

There is an exception. If the employer is satisfied that at least 80% of the vehicle's use will be for business, only 20% of the allowance is subject to PAYE. This is for people who genuinely live in the car — sales representatives, field technicians, area managers.

Either way, this is provisional. It is a withholding estimate, not the final answer.

Where the money comes back

The final answer is worked out when you file. Under section 8(1)(b) of the Income Tax Act, you are allowed to deduct the cost of using your own vehicle for business against the allowance you received.

The full allowance goes into your income. Your calculated travel deduction comes off. If the deduction is larger than the 80% that was already taxed through PAYE, the difference comes back to you as a refund. If your business travel was minimal, the deduction is small and the tax already withheld broadly stands.

And here is the pivot: the deduction is only allowed if you have a logbook. Without one, SARS disallows the claim entirely. Not reduced, not estimated — disallowed. The whole allowance stays taxable and the PAYE you paid is simply the tax you owed.

The two ways to calculate the deduction

Once you have your business kilometres, there are two routes. You can use either, and it is worth calculating both.

1. The deemed cost method (most people)

SARS publishes an annual rate-per-kilometre schedule based on the value of your vehicle. For your value bracket it gives three components:

• Fixed cost — an annual rand amount (depreciation, insurance, licensing, finance)
• Fuel cost — cents per kilometre
• Maintenance cost — cents per kilometre

The fixed cost is converted to a rate per kilometre by dividing it by your total kilometres for the year, then the three components are added and multiplied by your business kilometres. If you only held the vehicle for part of the year, the fixed cost is apportioned accordingly.

The attraction of this method is that it needs no receipts. You need the vehicle value, the total kilometres and the business kilometres — all of which come from your logbook.

2. The actual cost method

Here you use what the car really cost you over the year: fuel, maintenance, insurance, licence, finance charges, plus wear-and-tear on the vehicle spread over its write-off period. That total is apportioned by the ratio of business kilometres to total kilometres.

This method can produce a bigger deduction for expensive, heavily financed or unusually costly vehicles — but it requires you to have kept every invoice, and there are caps on the vehicle value you may use. If you are considering it, work it out with a practitioner.

Both methods have the same gate in front of them. Both need the business kilometres, and the business kilometres need the logbook.

A rough sense of the numbers

Take someone on a R6,000 per month allowance — R72,000 for the year. Under the default rule, R57,600 of that is run through PAYE during the year.

At assessment, the full R72,000 is included in income and their travel deduction is subtracted. Someone who drove 22,000 km in total with 9,000 km of it on business will produce a materially different deduction from someone who drove 22,000 km with 1,500 km on business — and the person with no logbook at all produces a deduction of zero.

The exact figures depend on your vehicle value and the year's published rates, so use the current SARS schedule or a calculator rather than a rule of thumb. The point is the shape: the logbook is what converts kilometres into money.

What to do about it

If you are filing now and don't have a logbook, you are not necessarily stuck — a logbook rebuilt from real records is legitimate, and we've written about how to do that properly.

If you are starting a new tax year, two habits make this permanently easy: photograph your odometer on 1 March and again at the end of February, and capture business trips as you go instead of trying to remember them in October.

LogBoek turns those inputs into the finished document. Two odometer readings and your business trips in; a complete, reconciled, SARS-ready PDF logbook out — with the daily odometer chain balanced to your closing reading exactly.

Try LogBoek free →

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