652 - Allowances for uniforms

The inclusion of any part of an allowance paid or payable in an employee’s taxable income is governed by section 8(1)(a) of the Income Tax Act, 1962 (the Act).

In terms of section 8(1)(a)(i), taxpayers are required to include, in their taxable income, an amount which is paid or granted by their principals as an allowance or advance, unless the allowance or advance is exempt from normal tax in terms of section 10(1) of the Act.

The types of allowances that may be paid by an employer to an employee include (but are not limited to) a travel allowance, a subsistence allowance and other allowances received by virtue of the employee’s office or duties, for example a uniform allowance or a cell phone allowance.

In October 2023 it was reported that the Department of Health has agreed to pay a temporary allowance to nurses in the public sector to enable them to buy uniforms. According to a news article, the nurses had threatened to work in their own clothes if problems over uniforms were not resolved.

According to the article, nurses had been receiving a uniform allowance since 2005. However, this changed on 31 March 2023 when the Public Health and Social Development Sectoral Bargaining Council agreed to the provision of uniforms as opposed to the payment of an allowance. The uniforms were supposed to be handed out to the nurses on 1 October 2023; however, the department was unable to deliver them in time, which resulted in the stand-off with the nurses and the threat to wear their own clothes to work.

In an effort to resolve the issue, the Department of Health agreed to temporarily reinitiate the allowance until it was able to deliver the uniforms, which has been estimated to be from January 2023 to January 2025. Until then, the department undertook to pay the nurses an allowance of R3,153 by 20 November 2023.

From a tax perspective, this amount will potentially not be subject to tax. In terms of section 10(1)(nA) of the Act, where an employee is, as a condition of their employment, required while on duty to wear a special uniform which is clearly distinguishable from ordinary clothing, the value of such uniform, or any allowance provided in lieu of any such uniform, given to employees by their employers, will be exempt from normal tax and therefore not subject to tax.

However, the value of the allowance must still be reflected on an employee’s IRP5/IT3(a) under source code 3714.

EXEMPTION CONDITIONS

In terms of section 10(1)(nA), in order to qualify for the exemption:

The wearing of a uniform needs to be a condition of employment. In practice, the relevant employee’s employment contract must incorporate this condition and may have to provide for disciplinary action in circumstances where the condition is not fulfilled.
The uniform must be a “special” uniform which is distinguishable from ordinary clothing. Therefore, requiring one’s employees to wear black jeans and a black top while on duty will potentially not qualify for a uniform allowance exemption as these items of clothing are likely not readily distinguishable from ordinary clothing, notwithstanding that wearing them may be a condition of employment. Examples of the types of uniforms that could qualify for exemption include nurses’ uniforms and firefighters’ uniforms.
The value of the uniform given and the amount of the allowance paid by the employer must be reasonable. This is a question of fact having regard to the circumstances.

Allowances that are not exempt from taxable income as contemplated in section 10(1) will likely be subject to employees’ tax as envisaged in the Fourth Schedule to the Act. The deduction of employees’ tax from various types of allowances is governed by the definition of “remuneration” in paragraph 1 of the Fourth Schedule. In this context, employees’ tax must be deducted from an allowance paid or payable by an employer that falls within the definition of “remuneration”, unless specifically excluded.

If one is uncertain about the tax treatment of a particular allowance or advance, one should obtain tax advice, as underdeclaring tax on an allowance or advance granted may result in the imposition of penalties and interest that could adversely impact the employer and employee.

Puleng Mothabeng

Cliffe Dekker Hofmeyr

Acts and Bills

· Income Tax Act 58 of 1962: Sections 8(1)(a) (also specifically subparagraph (i)), 10(1) (emphasis on paragraph (nA)); Fourth Schedule: Paragraph 1 (definition of “remuneration”).