At the end of the calendar year, the following must be done employers settle the work-related expenses scheme. The same applies at the end of 2017. This is done not not in the final tax return for the calendar year (the December 2017 tax return), but in the first tax return of the new year (the January 2018 tax return).
Working expenses scheme
First, let’s refresh our memories. What exactly is the work-related expenses scheme? In a broad sense, it refers to the tax treatment of the full range of (tax-free) allowances and benefits in kind provided to employees. In a narrower sense, it refers to the so-called “discretionary allowance” (also known as the ‘work-related expenses lump sum’), under which (almost) all allowances and benefits in kind not specifically listed may be included. Once per calendar year, you must settle this discretionary allowance and, if it is exceeded, pay the payable payroll tax.
Three steps
The process of settling the discretionary allowance involves the following steps.
- Determine which allowances and benefits in kind you have designated for the discretionary allowance.
- How do you determine the value of these allowances and benefits in kind?
- Work out how much free space you have.
Which reimbursements and benefits in kind are appropriate?
You won’t find the answer to this question in your payroll records alone. You’ll also need to consult your financial records. It is therefore a good idea to organise your financial records (or have them organised) in such a way that you can easily extract the information you need to administer the work-related expenses scheme.
Incidentally, you do not need to specify the allowances and benefits in kind very explicitly. It must be clear from the circumstances that this has been done. This may, for example, be evident from your terms and conditions of employment or staff handbook. It may also be evident from the way in which the allowances and benefits in kind have been processed administratively. If you wish to avoid any doubt, it is advisable to record the details in writing as far as possible.
There are certain elements of pay that you are not permitted to designate for the discretionary allowance:
- private use of the company car;
- the staff accommodation;
- fines.
This remuneration must always be subject to payroll tax at the level of the (individual) employee.
What is the value of the designated reimbursements and benefits in kind?
It is, of course, easy to determine the value of allowances. That value is equal to the amount in euros that you have paid the employee.
If you have purchased benefits in kind from a third party, the value of the benefit is equal to the amount you paid that third party (the invoice value). For payroll tax purposes, this is always the value including VAT (even if you have deducted the VAT). If there is no invoice value, you must determine the market value of the benefit in kind.
In addition, income tax is subject to a large number of flat-rate valuations. For example, a business meal that is no more than incidental, consumed at the employee’s workplace, is valued at €3.30 (€3.35 in 2018). The same meal, but consumed outside the workplace, is valued at the invoice amount.
How big is the free space?
The tax-free allowance for 2017 is: 1.2% of your company’s total taxable wage bill. This relates to wages from current employment. You may also include up to a certain amount of ancillary wages from previous employment in your total taxable wage bill (wages from previous employment may not exceed 10% of the total wage bill).
Of course, you can only determine the total payroll once you have finalised the payroll accounts for 2017. For this reason, the settlement of the work-related expenses scheme must be included in the payroll tax return for the period following the end of the calendar year.
Settlement
To apply the work-related expenses scheme, compare the result of step 2 (the total value of the allowances and benefits in kind that you have designated for the discretionary allowance) with the result of step 3: your discretionary allowance.
As the result of step 2 bearing In that case, as with step 3, you do not need to take any action. Your allowances and benefits in kind remain within your tax-free allowance. No payroll tax is payable on them.
As the result of step 2 higher If this amount exceeds that in step 3, you have exceeded your allowance. You must then pay payroll tax on the amount by which the allowance has been exceeded. This payroll tax is your responsibility. You may not pass it on to the employee(s). The rate is 80%. You must include this in your payroll tax return for January 2018 (if you file your payroll tax returns every four weeks: in the return covering the first four weeks of 2018).
Group scheme
If your business comprises several private limited companies, you can apply the group scheme. You must opt for this in the payroll tax return for January 2018.
The group then comprises all private limited companies in which your holding company has held a stake of 95% or more throughout the entire calendar year. If you apply the group scheme, you must carry out the steps described above for the entire group. The private limited company with the highest total payroll must include (and pay) the payroll tax due as a result of exceeding the tax-free allowance in its tax return.
VWGNijhof takes care of everything
The work-related expenses scheme is quite complex due to all sorts of special rules and exceptions.
Do you need help with your work-related expenses scheme: VWGNijhof is happy to take care of everything for you.