A ruling by the North Holland District Court is receiving a lot of media attention, with headlines reporting that the Tax and Customs Administration is rejecting mileage records on the grounds of discrepancies in fuel consumption.
Private use of a company car
An employee who is allowed to use a company car (or van) for private purposes will have an additional amount added to their salary. Business owners must add this amount to their profits.
In most cases, this additional tax liability amounts to 22% of the list price of the (van) car. Only for 100% electric cars does a lower additional tax liability apply (4%).
For cars registered before 1 January 2017, the old additional tax liability percentages often still apply. See our article Taxable benefit for private use of a car – rules coming into force in 2017.
If you drive fewer than 500 kilometres for private use in your company car, you do not need to include this in your taxable income. The law places the entire burden of proof regarding your limited private use on you. What’s more, you must provide convincing evidence of this. The best way to do this is to keep a mileage log. If necessary, you can use electronic tools for this, such as a (Tax and Customs Administration-approved) black box system.
There are a few other ways to avoid the additional tax liability. Last week reported We also told you about a director and major shareholder who imposed a ban on himself regarding the use of the company’s delivery van for private purposes. That was rejected by the tax court.
Mileage records
The requirements for a mileage log (or journey log) are set out in Article 9 of the Income Tax Implementation Regulations 2001. We set out these rules in our article: Journey logging: do you meet the requirements?.
If you want to fall below the additional tax liability threshold, you must close your mileage log. This means you must record all kilometres driven in the car in the log. PLEASE NOTE: if you drive one (or more) company cars for the whole year, this must cover the entire calendar year! If you drive a company car for part of the year, you must apply the 500-kilometre private mileage limit on a pro rata basis (if you drive a company car for 1 month, you may drive a maximum of 1/12 * 500 = 41 kilometres for private use).
Average consumption
If the Tax and Customs Administration checks your mileage records, they are often subjected to a meticulous examination. And relatively minor discrepancies can have very serious consequences: an additional assessment of payroll tax, accompanied by a fine that can amount to 100% of the additional tax assessed. The heavy burden of proof clearly favours the tax authorities in this case!
The car’s fuel consumption is one of the factors assessed in such cases. In the case before the North Holland District Court, the car’s fuel consumption was supposed to be 1:18.9 according to the manufacturer’s specifications. In reality, fuel consumption of 1:10 / 1:11 was achieved. It is surely common knowledge that it is almost impossible to achieve the fuel economy figures stated in the manual. However, in a test carried out by the ANWB using the same model of car, a fuel economy of 1:20 was achieved.
The person concerned stated that he had deliberately entered incorrect mileage figures when refuelling. The reason for this was that he did not want his lease costs to rise. However, the Tax and Customs Administration also noted significant discrepancies between the mileage records and the odometer readings recorded by the garage during tyre changes and servicing.
The court ruled that the employee’s conduct made it impossible to verify the mileage records. Consequently, the mileage records did not prove that fewer than 500 kilometres had been driven for private purposes using the company car.
When is a journey considered a business journey?
The mileage log shows two occasions on which the employee drove to the Efteling theme park. As he first visited a client and then drove to the Efteling, he recorded only 11 kilometres of the journey as a private journey.
In December, the car was parked at Schiphol for a while. As the employee visits the office on his way to Schiphol, he records these journeys as business travel.
In both cases, the court concludes that the main purpose of the journeys is private. Consequently, all kilometres driven are classified as private kilometres.