We’re kicking off this year’s round-up of end-of-year tips well in advance, as usual. That way, you can get started on them straight away after your summer holidays. That will give you plenty of time to plan ahead. Earlier this week, we mentioned that it’s worth checking – or having someone check – whether your private limited company is still in 2019 dividend should pay out. Before you self-administered pension scheme 2019 offers what is (probably) the last chance. And on the introduction of the WAB You can already start preparing for this in 2019.
Free space
A standard end-of-year tip that has been in place since the introduction of the work-related expenses scheme is to check whether you have utilised your discretionary allowance in line with your requirements. Your discretionary allowance is 1.2% of the taxable wage bill in your company. Within that amount, you can designate salary components on which you do not pay payroll tax. Research shows that the total discretionary allowance for all employers in the Netherlands is far from being fully utilised.
You’ll need two pieces of information to carry out your check. You need to work out how much free allowance you have left. Now that we’re well over halfway through the year, you should be able to estimate this fairly accurately. And you need to check how much of your salary you’ve already designated as subject to final deduction. That’s a piece of cake too, provided your records are properly organised for this.
Common
Can you designate all salary components as ‘final levy’ pay? No, but the scope is certainly quite broad (a number of obvious cases are strictly excluded). However, it must not be significantly (30% or more) unusual to designate a particular salary component. The burden of proof in this regard rests with the Tax and Customs Administration.
The Supreme Court has recently confirmed that it is not only purely business-related or mixed salary components that can be designated. For example, in principle, you may also include a cash bonus within the discretionary allowance under the work-related expenses scheme. However, you should bear in mind the risk that the Tax and Customs Administration may challenge the unusual nature of this arrangement.
There is a safe harbour provision for the customary practice test. Where the value of designated wage components does not exceed €2,400, the Tax and Customs Administration assumes that it is not significantly unusual to designate them as components subject to withholding tax.
More open space
Incidentally, the tax-free allowance is being increased. However, this will not come into effect until 2020. This still needs to be incorporated into the tax plans for 2020.
The tax-free allowance is 1.7% on the first €400,000 of your taxable wage bill. Above that amount, the tax-free allowance remains at 1.2%. Suppose your taxable wage bill in 2020 is €1,000,000; in that case, your tax-free allowance is €14,000 (1.7% * €400,000 + 1.2% * €600,000).
Further optimisation
There may well be other ways to reduce the tax burden on the allowances and benefits in kind you provide to your employees. Payroll tax involves a complex web of exemptions and valuation rules, in which VWG I’d be happy to show you the way.