The Department of Finance has, in the latest version of the Decree on emergency measures relating to the coronavirus crisis an expiry date linked to the approval(s) relating to fixed (travel) expense allowances: 1 January 2021 (This deadline has since been extended, as regards travel expenses, to 1 February 2021, then to 1 April 2021, to 1 July 2021, to 1 October 2021 and, most recently, to 1 January 2022). Employers would be well advised to review – or have reviewed – in the final months of 2021 how these allowances are to be handled from 2022 onwards.
128 days
Many fixed travel allowances are based on the 128-day scheme. An employee who, in a calendar year, travels from their home to a fixed place of work on at least 128 days may receive a tax-free fixed travel allowance as if they had travelled to that place on 214 days.
For part-time workers, the scheme must be applied on a pro rata basis.
The tax-free allowance is, of course, capped at €0.19 per kilometre. This brings the fixed annual allowance to:
214 * distance (return) * €0.19.
Working from home
The figure of 128 travel days allows the employee to work from home for approximately two days a week. However, if working from home becomes more regular (for example, due to the coronavirus crisis), the employee will not reach the 128 actual travel days and the fixed travel allowance will need to be adjusted.
If the allowance is not adjusted, it constitutes a benefit subject to payroll tax. The employer has designated this benefit as a final levy component. As a result, the benefit forms part of the so-called ‘discretionary allowance’ under the work-related expenses scheme. To the extent that this discretionary allowance is exceeded, the employer pays payroll tax at the final levy rate of 80%.
The allowance under the work-related expenses scheme will be reduced slightly from 2% to 1.18% of the total wage bill with effect from 2021. A higher allowance applies to the first €400,000 of the total wage bill: 1.7% (the one-off increase to 3% that applied in 2020 as a result of the coronavirus crisis will not be extended to 2021).
Alternative arrangement
As an alternative to the 128-day scheme, you, as an employer, can opt for:
- a fixed travel allowance subject to subsequent reimbursement;
- the reimbursement of travel expenses upon submission of an expense claim.
Both schemes involve more administrative work than the 128-day scheme.
Fixed expense allowances
Fixed allowances for costs other than travel expenses must also be reviewed for 2021. This is because these allowances must be based on the actual expenditure patterns of the employee(s) concerned.
If that cost pattern changes – for example, as a result of the coronavirus crisis – the fixed allowance must be adjusted (or the excess portion of the allowance will be subject to payroll tax).
Action required
For the time being, it does not look as though things will return to the way they were in the near future. This is reason enough to take a close look at the (fixed) expense allowances paid to employees. Do not forget the employment law aspects associated with changes to terms and conditions of employment.
Need help? The VWG advisers are happy to assist you.