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Car Allowance Or Company Car: Which Is Better?
Anyone who travels a lot for work is usually given a company car. A car allowance is also possible, but less common. What does the term mean? Which option is better? And what should you watch out for with a company car?
The Audi A4 is one of the most popular company cars in Germany.
Photo: Audi AG
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The so-called car allowance is a lump sum that your employer pays you if you, as an engineer or IT specialist, commit yourself to using your private car for business purposes. A car allowance covers the employee's claims from the business use of his private car - as far as the definition is concerned.
Much more widespread, but less legally defined, is the company car or company car. Tax law uses the terms for the private use of a car provided by the employer, whereby a company car with or without a driver (chauffeur) is possible. The employee is mainly on business trips with the company car, but is usually also allowed to use it for private purposes. As a rule, private use must be clearly documented.
- If the employment relationship is terminated, you have to return the company car.
- Damage Tuesdays the employer can oblige you to reimburse costs in accordance with the principles of employee liability.
Company car vs. car allowance - the direct comparison
Anyone who compares company cars and car allowances from an employee's point of view will find various advantages and disadvantages of a car allowance agreement compared to the classic use of a company car:
|Benefits for the employee||Disadvantages for the employee|
|With the Car Allowance, there is no taxation of the monetary benefit of private use of a company car provided by the employer.||In principle, you have to pay tax on the flat-rate usage fee for the Car Allowance, including any applicable social security contribution.|
|With the Car Allowance, you can keep the car even after changing employers.||You cannot take advantage of company discounts when buying or leasing a company car.|
|With the Car Allowance, you alone decide on the vehicle type and class, equipment, condition, color, etc.|
|Benefits for the company||Disadvantages for the company|
|The administrative burden of the car allowance is lower than that of the company car.||With the car allowance, the influence on the selection of suitable cars is limited. The company cannot decide on the replacement of older or otherwise unsuitable vehicles. This means that the impact on the external impact is less with the car allowance.|
|With the Car Allowance, the employee bears greater personal responsibility, which means more protection against careless treatment of the company car.||Only the company car creates a bond between the employee and the company. With the Car Allowance, no attractive company car is left that has to be returned after the end of the employment relationship.|
The bottom line is that the car allowance means more freedom than a company car, but also more personal responsibility. Which is better depends on personal preferences and the respective employment relationship. For the employer, it's usually one fully taxable grant to the employee's private car. However, such a “car grant” can be better than a company car from a company perspective.
The main advantage is that the Car Allowance saves the employer the hassle of getting and making the company car available - and avoids discussions with employees. In addition, there are no unnecessary company cars standing around. From the point of view of the employee (and the employer), decades of experience and clear tax regulations and customs for the use of the company car speak in favor of the classic company car.
Private use of the company car: Check whether this is permitted
First of all, it is common for a company car that you can also use it privately. To be sure, you should take a look at the employment contract. There it will be documented whether and, if so, to what extent you are allowed to use the company car.
If so, taxes will be due. Because the tax office sees a monetary advantage in the private use of a company car. He is therefore subject to income tax and social security obligations. To this end, the tax office adds the monetary benefit for taxation to your gross salary and deducts it from your net earnings.
Incidentally, the tax office generally assumes that you also use your company car for private purposes. If you are traveling with your company car exclusively for business purposes (because you only ride a bicycle or drive your own car), you must actively refute this so-called prima facie evidence from the tax office. In order to avoid financial disadvantages, you should contractually stipulate that you are not allowed to use the company car privately.
Company car: Clarify whether family members are allowed to use the carn
It is also important to clarify whether family members are also allowed to use the company car privately. This is usually documented in the employment contract or in the car policy. In principle, only you as an employee are allowed to drive the company car. If nothing of the kind is specified and you want family members to use it privately, you should have this recorded in writing.
Some companies also explicitly exclude vacation trips or trips abroad from private use of the company car. But that can also be regulated differently. And once the company has allowed you to use your company car for private purposes, it cannot simply withdraw your permission again.
Company car and tax: between the one percent rule and the driver's log
As soon as you use your company car privately, you have to pay taxes to the tax office. The basis for this is the so-called monetary benefit, which you can tax in two alternative ways:
The one percent rule: Here the tax office calculates 1% of the gross list price every month as a pecuniary benefit. For example, if the list price of the company car is 55,000 euros, the monetary benefit is 550 euros. Extrapolated to the year, that amounts to 6,600 euros, which must be added to income and therefore also taxed. The trips between home and work are also a pecuniary benefit, for which you have to pay tax on 0.03% per kilometer distance. The one percent rule is especially worthwhile for you if you also use the company car for business, but much more often for private use. The regulation covers all costs. They include:
As an employee, you should still make sure that the employer actually pays all vehicle costs.
The logbook: First of all, the logbook is not a tax trick, but simply a verification method. Here it is important that all actual costs and trips are documented. The logbook must be kept meticulously. To do this, you document both private and business trips, whereby only the number of kilometers must be noted for private trips. The full documentation program, i.e. date, mileage, destination and purpose of the trip, applies to business trips. If you do not keep your logbook correctly or incompletely, the tax office can charge you additional taxes. The logbook is particularly recommended if the company car is rarely driven privately. Because then the costs may be lower than those that would result from the one percent rule.
Important for the logbook and the one percent rule: as soon as you have decided on one of the two options, you can only change the mode at the turn of the year.
When is a company car even worthwhile?
As a rule, the company car is a bonus that has a number of advantages for you. On the other hand, there are certainly constellations in which the question arises as to whether the company car is worthwhile at all. For those who base their decision on the one percent rule, the two factors "cost of the company car" and "commute" are decisive.
The following applies here: the more expensive the car and the further the daily commute, the greater the monetary benefit and the higher the taxes that you have to pay. If the new company car is supposed to be an expensive luxury model, you should be aware of the fact that more taxes will be due than in previous years. Even a used car does not reduce the tax burden. Because the basis of the one percent rule is always the new price of the company car, regardless of whether it is new or used. So if you take over a company car with a used car value of 22,000 euros, but whose new value is 75,000 euros, you have to pay tax on a monetary benefit of 750 euros (and not of 220 euros).
With all the joy about the possible company car, you should clarify and calculate in advance what costs will ultimately arise for you. In case of doubt, it is important to decide whether the additional costs incurred are in proportion to the benefits or whether you want to afford them at all.
In this way, employees and employers save on company car costs
There is currently a model in which you as an employee and the employer benefit equally. For this, the employer must reimburse you for the cost of traveling between your home and work tax-free. In return, the tax office receives a flat rate of 15% of the wage tax. This eliminates the monetary benefit of the company car, for which you would have to pay taxes. This means that the gross salary is also lower. This means that both you and the employer save on social security contributions. Fuel vouchers or fuel cards are an alternative to reimbursement of travel expenses. They are tax-free up to a maximum of 44 euros per month. The advantage is that this variant saves you any formalities.
Company car: This is how an accident affects (tax)
You are privately driving your brand new company car and have an accident. This is of course uncomfortable and can be expensive for you as an employee. Incidentally, this also applies if the employer bears the costs of the accident. This is because the tax office evaluates the company's willingness to cater to accident costs as additional wages. And that in turn is a monetary benefit for which you have to pay income tax once.
If you are injured as a result of the accident and you are (temporarily) unable to drive the company car for health reasons, a modified rule applies. On the basis of a medically certified driving ban, there is no monetary benefit for the months of a complete driving ban. It is important that you make sure during this time that the company car is never driven by another family member.
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