COIDA Return of Earnings (ROE) 2026: Compensation Fund deadline, Letter of Good Standing, ROE online

The South African National Budget for 2026/27 brings crucial adjustments affecting small and medium enterprises (SMEs). SARS has announced updates to key tax rates, providing welcome relief for both businesses and their employees. Understanding these changes is vital for accurate payroll, provisional tax calculations, and overall financial health.

For many small businesses, these adjustments mean a direct impact on cash flow and compliance. The government aims to ease the tax burden, particularly for lower and middle-income earners. This translates into more disposable income for employees, potentially boosting local economies.

PSS Group is here to guide you through these modifications. We will explain how the new rebates, medical credits, and travel rates affect your operations. Staying informed ensures your business remains compliant and maximises any available tax benefits.

Key 2026 Tax Changes and Their Impact

The 2026/27 tax year introduces specific adjustments designed to provide relief. These changes directly influence how you manage payroll and personal tax liabilities for your team. Here is a breakdown of the critical updates and what they mean for your cash flow.

Primary Rebate Increase: The primary rebate has been adjusted to R17 820. This is the amount of tax that all individuals under 65 are entitled to reduce from their annual tax liability. This change directly lowers the effective tax burden for many South African taxpayers. For your employees, this means they will pay less income tax overall. It effectively raises the tax-free threshold, putting more money directly into their pockets each month. Businesses should factor this into payroll calculations to ensure correct tax deductions.

Medical Tax Credit Adjustments: Medical tax credits have also seen an adjustment. For the 2026/27 tax year, the credit is R376 for the first two beneficiaries. Subsequent beneficiaries will receive a credit of R254 each. These credits are deducted from an individual’s tax liability, providing direct relief for medical aid contributions. If your business contributes to employees’ medical aid, or if employees claim these credits personally, their net tax payable decreases. This is a tangible benefit for employees, improving their take-home pay, especially those supporting larger families.

Reimbursive Travel Rate Update: The fixed rate for reimbursive travel has been updated to R4.95 per kilometre. This applies for the 2026/27 tax year. This rate is used when an employer reimburses an employee for business travel. If no travel allowance is paid and the employee uses their private vehicle for business, this rate is tax-exempt up to 12,000 km per year. For businesses, this impacts how you structure travel reimbursements. It ensures fair compensation for employees who use their vehicles for work. Proper record-keeping of business kilometres remains crucial for both parties.

Scenario Example

Consider an employee earning R30,000 per month in the 2026/27 tax year. They are under 65, contribute to a medical aid, and have two beneficiaries. They also travel 500 km per month for business purposes, reimbursed at the SARS fixed rate. The increased primary rebate and medical tax credits will directly reduce their Pay As You Earn (PAYE) deductions. Their taxable income will benefit from the higher tax-free threshold. The R4.95/km reimbursive travel rate means R2,475 (500 km x R4.95) will be paid tax-free each month. This combination results in a higher net take-home pay compared to previous years, directly improving their financial standing.

Action Plan for Businesses

Proactive management of these tax changes is essential for your business. Implement these steps to ensure compliance and optimise your financial planning.

• Review and Update Payroll Systems: Immediately adjust your payroll software to reflect the new primary rebate and medical tax credit amounts. This ensures accurate PAYE deductions for all employees from the start of the 2026/27 tax year.
• Communicate Changes to Employees: Inform your staff about how these adjustments affect their net pay and tax obligations. Clear communication fosters trust and helps employees understand their revised financial landscape.
• Audit Travel Reimbursement Policies: Update your internal travel policies to align with the new R4.95/km reimbursive rate. Ensure employees understand the requirements for logging business kilometres to maintain tax-exempt status.
• Assess Provisional Tax Obligations: If your business pays provisional tax, re-evaluate your estimates for the 2026/27 tax year. Factor in any changes to employee salaries or operational costs influenced by these tax updates.
• Implement Digital Logbook Solutions: Encourage or provide digital tools for tracking business mileage. Accurate, verifiable logbooks are critical for substantiating travel claims and avoiding potential SARS disputes.
• Consult a Tax Professional: Engage with a tax consultant from PSS Group. We can provide tailored advice and assist with complex calculations, ensuring full compliance and identifying further optimisation opportunities.

Frequently Asked Questions

Many small business owners have questions regarding these recent SARS updates. Here are answers to some common concerns.

Q: Will these changes automatically reflect in my payroll software?

A: Most reputable payroll software providers will release updates to incorporate these new rates. However, you must ensure your system is updated and verified. Always confirm the new primary rebate, medical tax credits, and travel rates are correctly applied.

Q: Do these tax credits apply to all employees?

A: The primary rebate applies to all individuals under 65. Medical tax credits apply to individuals who are members of a registered medical scheme. These credits are for the taxpayer and their registered beneficiaries.

Q: What if I pay my employees a travel allowance instead of reimbursing per kilometre?

A: A travel allowance is typically subject to PAYE based on an 80% or 20% inclusion rate, depending on usage. The R4.95/km rate applies specifically to tax-exempt reimbursive travel. If you pay a travel allowance, your employees must keep a detailed logbook. They then claim a deduction against that allowance at year-end based on actual business kilometres travelled.

Partner with PSS Group to navigate these tax changes effectively. We help you stay compliant and save money.