Tax Free Amount

[Former Member]

Hello,

I am working with a UK based client. They have an issue which is related to the values to be maintained in table T706F. There is one field called Tax Free Amount. Please can someone tell me the concept behind the tax free amount? What exactly is this field expected to do? What is the meaning of tax free amount in context with Reimbursement Amount and Fuel/petrol Share? What value needs to be put in there? I know the obvious answer to the last question is whatever the govt has declared. But what I am really interested in finding out is the actual meaning and implication of the Tax Free Amount field and how it participates in the accounting document that gets generated when we post a trip.

I am not a HR consultant. I am a FICO consultant and hence would appreciate if someone can please explain in layman's language. The F1 documentation didn't help me at all.

Regards,

Suvarghya

[Former Member]

Just FYI u2013 When we charge anything in Travel management it hits an expense type. And the linkages between different entities in travel management are as follows:

Expense Type->Wage Type->Symbolic Account->GL account (posted to FI)

Some points on Tax-Free amount from the SAP help:

If Travel Management is integrated with HR Payroll, the travel expense results can be transferred from Travel Management and taken into consideration in Payroll. The transfer makes it possible to carry out payment of travel expenses via payroll.

Regardless of whether payment is to be performed via payroll, transfer is necessary if an enterprise gives its employees payment in kind in the form of meals, for example, or reimbursement rates that are higher than the statutory tax-free rates that must be entered in payroll for taxation.

Depending on country-specific legislation, travel per diems and rates are tax-free up to a certain amount. If a company pays its employees lower rates than those specified as tax-free, the employees can claim the difference amounts as income-related expenses in their income tax returns.

In order to claim incurred income-related expenses with the relevant tax authorities, the employee usually has to submit an income-related expenses statement. You can create these income-related expenses statements per employee and year via Travel Management.

Travel Expenses determines the difference between tax-free and enterprise-specific reimbursement amounts per employee and trip. If the enterprise-specific reimbursement amount is higher than the tax-free amount, the system calculates the difference as an additional amount for tax in Payroll. If the enterprise-specific reimbursement amount is lower than the tax-free amount, the difference amount can be claimed as income-related expenses in the employeeu2019s tax returns.

Tax-Free Amount

The tax-free amount is the maximum non-taxable amount of reimbursement, as stipulated by the Tax Department, for extra expenses in connection with a business trip.

Taxable Amount

The taxable amount is the part of the reimbursement amount exceeding the tax-free amount. The taxable amount is regarded and treated as taxable income.

Reimbursement Amount

A reimbursement amount is an amount paid by the company to cover the employeeu2019s expenses in connection with a business trip. This includes compensation for receipts and per diem rates.

Hope this helps you.

Thanks,

Vaibhav

[Former Member]

Hi Suvarghya,

As per my understanding, the Tax-Free amount is an amount till that no tax should be charged to employee. Letu2019s assume mileage rate reimbursement amount is 10 GBP and Tax-free amount is 3 GBP. In this case I will get the 3 GBP as tax free amount while taxation in payroll and 7 GBP will be taxable.

In the Customizing activity u2018Assign wage types to expense types for Per Diem ratesu2019 (view V_T706B4_A) we customize the wage types for particular expense type that if there is an Tax free amount than it should post it to different wage type and if it is above Tax free amount than post it to different wage type. For example for the trip expense type u2018VERP' (Meals per diems) controls whether the travel compensation will be reimbursed tax-free (MJ23 in the standard Customizing) or whether it will decrease the employee's taxable income (MJ24 in the standard Customizing).

So, if I assume that we have done the same configuration for mileage also, so as per our above example, 3 GBP will be posted to wage type MJ23 (Reimbursed tax free) and 7 GBP (reimbursed Taxable) will be posted to MJ24.

Edited by: vaibhav sharan on Jun 3, 2010 8:02 PM