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Thread: 2 x business - how to allocate petrol expense between the two businesses?

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    Smile 2 x business - how to allocate petrol expense between the two businesses?

    Probably another stupid question - but ..... I am running two businesses at the same time and both incur petrol expense. How do I allocate the costs between the two businesses if I fill up with petrol and use that petrol for both businesses? I know I must keep a log book of kms travelled but how do I split the cost of the petrol (i.e - to which business do I enter the petrol as an expense?)

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    Site Caretaker Dave A's Avatar
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    If they are related parties, I'd have one company paying the petrol, and then billing the other their share.

    If they are not connected businesses, perhaps you will need to split the vouchers between them in rough proportion to their estimated share.

    I'm also mindful of your previous question about handling expenditure incurred as part of a travel allowance. If you are getting a travel allowance from both companies, this fuel expense issue is going to get tricky if you are doing significant business milage. In that case you would probably do best to keep track of the fuel as a seperate record in your personal capacity and make sure your travel allowance covers. It's rather cashflow inefficient though as you'll be paying tax on 80% of your travel allowance and only be able to redeem the "expenditure incurred for the business" portion when you are assessed - effectively well after the end of financial year. You should be in for quite a healthy tax refund, mind you.

    Here's a suggestion if you have control of both businesses - get paid your salary or directors emolument entirely by one and raise an admin fee from that company to the other as a fair portion of your salary and costs. I've been down this road and there are a whole horde of issues that go with getting a salary from two sources.
    The trouble with opportunity is it normally comes dressed up as work.

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    Thank you - that really helps. The one is a sole proprietorship and the other is registered as a PTY Ltd - so I was thinking of claiming all petrol expense from the (PTY) Ltd and then pay a portion to the PTY LTD from the Proprietorship which will cover our private use and the sole proprietorship use? Would that work? Can I express it as a percentage as that will not be 100% accurate. I am keeping a travel log so I can try to work out from there how much to allocate for each portion. Would I then be able to "label" the monies paid from the SP to the PTY Ltd as a petrol payment and if the tax man ever wants to know where the supporting documentation is - then I could show him the original petrol slips? I was thinking of only getting a salary from the (Pty) Limited. Here it gets a bit confusing again though cause will I need to "get a salary from the SP? or once I have paid for the SP tax - am I entitled to utilise the funds there or must I then again have that taxed as a salary. It would have been really easy to do my tax if I only had one company!!! but two makes it really complicated.

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    Site Caretaker Dave A's Avatar
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    This is getting complicated.

    Let's clear up one thing - you are going to get taxed on the taxable profit of the sole proprietorship; drawings have no influence on the tax calculation there.

    Now by clarifying taxable profit as gross income less allowable expenses...

    If you own the vehicle in your personal capacity (or even in the sole proprietorship which is pretty much the same legal person), I suggest it makes the most sense to capture the business related portion of the motor vehicle expenses in the sole prop books, and bill the company for its share from the sole prop. Doing it via a vehicle allowance through the company is going to be much more complex.

    Up to you, though.

    The most critical part in all this is that you keep track of all the expenses involved and be able to show how you arrived at a fair split between business and private costs.
    The trouble with opportunity is it normally comes dressed up as work.

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    Okay - we have two vehicles so we will maintain a logbook for both. My husband and I have equal shares in the PTY Ltd company and we will both be getting a salary from there. So I could charge expenses etc on my vehicle to my sole proprietorship (and charge the PTY LTD) their share and then for my husband's vehicle I could put that through the PTY LTD books less my husbands private use. Now I am still confused as to whether its best to just allocate petrol and vehicle expenses as we incur them and forget about adding a travel allowance onto our salaries as this may be the easiest way??? The company is SERVICE related which means there will be a lot of travelling to clients homes and a lot of petrol expense incurred....... Also with both vehicles being privately owned - I would lose out on claiming the vehicles as an assets? Sorry if it sounds like I'm talking in circles but I'm just trying to get through this huge fog and find the bright lights!

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    Site Caretaker Dave A's Avatar
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    Quote Originally Posted by Ice View Post
    Now I am still confused as to whether its best to just allocate petrol and vehicle expenses as we incur them and forget about adding a travel allowance onto our salaries as this may be the easiest way???
    That was roughly my thinking at this stage. It'll probably need to get converted to a travel allowance at some point, before you get around to drawing up IRP5's and the like - but it helps if you've got some data to work with when you sit down with an accountant to finalise how to handle this going forward. The tricky bit is the "default" version of a vehicle allowance is very cash flow inefficient when the bulk of the milage is for business use. You'll end up paying a lot of extra tax upfront and only get a refund from SARS a long way down the line. However, as I recall there is a provision that allows for a tax directive if you can show that the bulk of the milage is for business use. The trick at this stage is getting some hard data down.

    I think once you've got six months data in would be a good time to get this aspect straightened out. But it is going to take sitting down with an accountant to run over your specific circumstances to finalise (I don't recommend releasing the kind of information needed to give exactly the right guidance for this on a public forum to an absolute stranger ).

    Quote Originally Posted by Ice View Post
    Sorry if it sounds like I'm talking in circles but I'm just trying to get through this huge fog and find the bright lights!
    Don't sweat it. Helping people learn from other people's experience is one of the goals of this site. And I think many of us remember that "feeling our way in the dark" period all too well.

    I'm quietly hoping that someone might chip in who has gone through this stage recently. I went through it a long time ago, and back then the tax effect of vehicle allowances was minimal. But at 80% taxable nowadays by default... it's a heavy penalty if there's a better way.
    The trouble with opportunity is it normally comes dressed up as work.

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    Quote Originally Posted by Dave A View Post
    I've been down this road and there are a whole horde of issues that go with getting a salary from two sources.
    Oh no, don't say that. I'm busy planning on doing just that. What were the main issues you had?

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