Where an employer makes a passenger car or van available to an employee for private use, an additional tax liability must be added to the employee’s salary. This additional tax liability may only be waived if the employee can demonstrate that, on an annual basis, they do not use the car for private purposes for more than 500 kilometres (private mileage) have been driven.
What we describe in this note cannot be applied directly to an entrepreneur’s company car.
Mileage records
Proof that no more than 500 kilometres have been driven for private purposes can be provided by means of a comprehensive mileage log. This mileage log must meet the relevant requirements. A comprehensive mileage log means that it must account for all kilometres driven in the car during a calendar year.
The Tax and Customs Administration checks mileage records by, amongst other things, comparing them with:
- fuel consumption (number of refuelling stops);
- the service intervals;
- the places where the rider has been issued with fines;
- the rider’s schedule.
Kilometres
In the mileage records, a distinction is made between:
- private mileage
- business mileage
- kilometres travelled as part of a regular commute (these commuting distance are treated as business mileage for the purposes of payroll and income tax, but as private mileage for VAT purposes)
Several cars
If an employee has been provided with several cars in a calendar year, the value of all the cars must be added together. This applies even if the cars were made available to the employee at the same time.
Having several cars at one’s disposal is, of course, a common occurrence when the employee, as a director and major shareholder (DGA), has control over the employer. Generally speaking, the number of cars to be included in the calculation is then limited to the number of driving licences held by members of the DGA’s family.
For regular employees, having access to several cars is common, for example:
- in a year in which the employee starts driving a different (new) car;
- when the employee is temporarily driving a replacement car (for example, to have a more spacious vehicle at their disposal whilst on holiday).
500 kilometres per year
The maximum of 500 private kilometres applies per calendar year. If an employee has a company car at their disposal for only part of a calendar year, the number of private kilometres shown in the mileage records is adjusted proportionally to the time period (example 1, below).
If a car is available for the whole year, the mileage records for the entire year must be kept in a consistent manner. Mileage records kept for only part of a calendar year cannot be used to prove that fewer than 500 private kilometres were driven during that calendar year (example 2, below).
Example 1
An employee is provided with a car on 1 September. The mileage records show that 350 kilometres were driven for private purposes up to 31 December.
Extrapolated to the calendar year, the number of private kilometres is: (12/4) * 350 = 1,050. That is more than 500. The employee must include this in their total.
Example 2
On 1 August, an employee will exchange the company car provided to them for a new one.
- 1–1 to 1–8: mileage records (private mileage: 50), not thereafter;
- 1–1 to 1–8: no mileage records, but records were kept thereafter (private mileage: 75);
- He keeps a mileage log throughout the year, which shows that fewer than 500 kilometres were driven for private purposes.
Only in the latter situation may the employee omit the additional tax liability. In the other two situations, the employee must include both cars in the additional tax liability.
Several cars at the same time
An employee who has several cars at their disposal at the same time may be able to keep accurate mileage records for one car but not for another.
Example 3
An employee (director and major shareholder) drives two cars belonging to his private limited company. There is no mileage record for car A. For car B, there is a complete mileage record covering the whole year, showing fewer than 500 private kilometres. This employee only needs to include car A in his tax assessment.
Example 4
If car A is traded in for car C, the situation outlined above in example 2 applies to both car A and car C.
Replacement car
The value of the replacement car must be added to the ongoing tax liability for the employee’s regular car. This only applies differently if the employee’s regular car is no longer available to them during the replacement period. If the car is available, it is irrelevant whether the employee actually drives it.
TVL Sector Scheme
The Tax and Customs Administration has reached an agreement with the Association of Dutch Car Leasing Companies (VNA) on the Industry Scheme for Temporary Replacement Lease Vehicles (TVL) excluded. The cost of the replacement vehicle must be added only if:
- during the replacement period, the car’s documents and keys must be handed in to the employer (or the leasing company);
- the non-assignment is set out in writing between the employer and the employee, and which;
- is kept on the payroll records.
This scheme may only be applied within the sector with which the agreement has been made. The scheme does, of course, provide a good indication of the conditions under which the Tax and Customs Administration is prepared to reach agreements on waiving additional tax liabilities in similar cases.
Due to the close links with the private limited company, a director and major shareholder cannot apply this scheme.