30. May 2021 | By Tim Ruhoff
An employer can compensate the work performance of his employees not only in the form of money. Likewise, benefits in kind such as the free offer of drinks and fruit or a company car for private use are also possible. These benefits are referred to as non-cash benefits.
Tax pecuniary advantage
If the company provides the employee with benefits in kind, this is initially free of charge for the employee. However, there are exceptions and upper limits, so that under certain circumstances the non-cash benefit must be taxed like the wage or salary. The limits vary depending on the benefit. Food vouchers or restaurant vouchers are tax-free up to a value of €6.33. For other gifts from the employer on special occasions, the limit is €60. Employers are allowed to give their employees monthly benefits in kind, e.g. in the form of petrol vouchers, up to an amount of €44. Anything in excess of this must be made more expensive. Health promotion measures are tax-free up to an amount of €500 per year. Staff discounts granted, e.g. for products/goods of the employer offered to the employee at reduced prices, are tax-free up to a limit of €1,080 per year. This limit also applies to bonus miles collected on business trips and where there is permission from the employer that the bonus miles may be used for private purposes. If the employer involves its employees in assets, e.g. share schemes, €360 per year is tax-free.
Should the employee exceed the limits for tax-free non-cash benefits, the non-cash benefit must be taxed at the employee's individual tax rate. This is taken care of by the personnel department as part of payroll accounting.
The employee does not have to pay tax on drinks, fruit or vegetables provided free of charge by the employer. Further training that the employee needs to carry out his/her professional activity is also tax-free. Likewise, the employer can grant his employee a tax-free allowance for childcare costs or even pay for them completely. The prerequisite for this is that the child is not of compulsory school age and that the other parent does not receive an allowance from his/her employer. If an employee buys hand tools that he or she needs to carry out his or her professional activities, he or she can have the costs reimbursed by the employer without incurring any tax.
Some employees also ask their employer to grant them an interest-free or low-interest loan. This is tax-free as long as the amount remains below €2,600.
It should be noted that in the case of all the above-mentioned benefits in kind, tax exemption only applies as long as they are paid in addition to the contractually owed wage and salary. If, for example, the employer grants his employee a kindergarten subsidy and the child then starts school, this previously granted subsidy may not be converted into a salary increase.
A special case of imputed income is the company car. This will be dealt with in more detail below.
A company car is taxable if it is used privately. The employee must pay tax on the non-cash benefit of the vehicle at his or her individual tax rate. The tax is paid via payroll accounting. A pool vehicle that is used exclusively for business purposes and this is also documented in a driver's logbook does not have to be taxed.
For the taxation of a company car there are two methods: 1. the 1 percent rule 2. logbook method
1 percent rule
Under the 1 percent rule, 1 percent of the gross list price of the vehicle is taxed for private use at the employee's individual tax rate. It does not matter whether the car is new or used. The gross list price is the same for both because the basis is the date of initial registration. This means that the employee cannot save any costs by taking an older car as a company car. In addition, any special equipment such as an on-board computer or sports seats drives up the price. Changes made to the vehicle after initial registration are no longer taken into account in the gross list price. In addition, in the case of a company car, the kilometres between home and place of work must also be taken into account for taxation purposes at 0.03 percent of the gross list price per kilometre of distance.
Under the 1 percent method, an expensive vehicle can quickly become a cost factor for the employee. The advantage, however, is that the employee can have the costs of maintaining the car, such as petrol or maintenance costs, reimbursed in full by the employer. One way for the employee to reduce his tax burden is to pay a lump-sum tax on the driving costs as part of the income-related expenses, so that no social security contributions are incurred. Similarly, the lump-sum distance allowance can be reduced to 0.002 percent of the gross list price if the employee commutes less than 15 days a month between home and work. For those who make little private use of their company car, taxation on the basis of a driver's logbook is an option.
With the driver's logbook method, only those kilometres that were driven privately are taxed. In order for the logbook to be recognised by the tax office, it is necessary to document the journeys without gaps. If individual journeys are noted outside the logbook, these are not taken into account. The logbook must be bound in the original and may not contain any added sheets or supplements. For private journeys, it is sufficient to note the number and kilometres driven. For journeys for business purposes, on the other hand, the following must be noted
- the date
- the driver
- the purpose of the journey
- the place of departure and the mileage
- the place of arrival and the mileage
In order to save this paperwork, there is an electronic logbook in addition to the manual logbook. With an electronic logbook, the journeys are recorded via an OBD2 plug and sent to a smartphone or an app. Before starting the journey, the driver must specify whether it is a business or a private journey. In the meantime, there are also software solutions that automatically recognise and correctly categorise destinations that have already been driven to or automatically assign the return journeys.
If the employee is temporarily unfit to drive due to illness, the taxation of the vehicle can be suspended for this period. A medical certificate is also required for this. This is particularly important for the 1 percent method. In the case of the logbook method, no entries would be made for the period of unfit driving. In both methods, care must be taken to ensure that the vehicle is not used by other persons of the employee for private journeys. In the event of the loss of the driving licence, the taxation can also be suspended. It is best in this case to park the vehicle on the company premises for the period.
Conclusion: 1 percent rule vs. driver's logbook method
The 1 percent rule is the better choice for drivers who use their company car predominantly for private purposes. However, other factors such as the length of the commute or the amount of the gross list price must also be taken into account when assessing which method is the better one. If the journeys by car are predominantly business-related, the employee can save considerable tax by keeping a logbook.
Employer-provided benefits in kind can save employees money, which is why companies like to use them as a retention tool in order to be an attractive employer. A company car, in particular, is an attractive lure for attracting employees to the company in the battle for the best workers.