Taxing company cars - Christina Cherry

Use the logbook or the one percent rule for company cars

tax lawyer and business graduate udo reub is responsible for tax topics at finanztip. Previously, he worked for various business and trade publications such as handelsblatt, F.A.Z.-publishing group, haufe-lexware and vogel business media – 14 years of which he worked as editor-in-chief of trade magazines. From the complex tax law, he draws the relevant rulings for tax savers.

The private use of a company car is a non-cash benefit that you have to pay tax on as an employee. Knowing how, you can reduce your burden.
There are two ways of taxation: one percent regulation or log book. you can choose the method that is more convenient for you.
If you drive a lot privately, the flat-rate one percent taxation is often more favorable. If your company car is an expensive used car, then the logbook can be more attractive.
electric cars now get even better tax treatment. For e-cars purchased or leased since 2019, you do not have to pay tax on the entire price. part of this subsidy also applies to plug-in hybrids.

Determine which type of taxation is more favorable for you.
For this it can be good to first keep a logbook. In the course of a year you should recognize which kind of taxation is more favorable for you. If you decide on the one percent taxation, you can change without any problems.
If you decide to use a logbook, it must meet the strict requirements of the tax office. in the driver’s logbook guide we recommend vimcar, driverslog pro 2 and kfz-fahrtenbuch as electronic solutions.

In this guide

If your employer provides you, as an employee, with a company car that you are also allowed to use privately, then you must pay tax on this private use. because the tax office considers the free use of the car as a benefit in kind. Income tax is due on this non-cash benefit.

How is the private use of a company car taxed??

You have two options, you have to pay tax on the private use: either as a lump sum via the so-called one percent rule or by keeping a logbook. You or your employer must continue to use the chosen option throughout the year. It is therefore not possible to change from one method to the other during a calendar year.

For your income tax return, however, you are not permanently bound to the previously selected variant: you can change it at the beginning of the year if the other calculation method is more favorable for you. You can also change the taxation method if you use a different vehicle during the year.

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How does the one percent rule work??

Most company car drivers use the flat-rate one percent rule.

Monetary advantage – according to income tax law (§ 6 abs. 1 no. 4 S. 2 estg), you can deduct the private use of a motor vehicle for each calendar month at a rate of 1 percent of the domestic list price. The one percent flat rate applies not only to purchased vehicles, but also to leased or rented cars. If, for example, you drive a car with a value of 50.000 euros, then the imputed income resulting from the private use is 500 euros per month. On this amount you must monthly pay wage tax, solidarity surcharge, church tax if applicable, and social security contributions.

If an accident happens and you can’t use the car at all because of a medical driving ban, the pecuniary advantage does not apply at least for the full months in which this driving ban applies. It is also important that the company car was not used for any other purpose – for example, by a family member – during the period in which you were unfit to drive.

This is how the fiscal court of dusseldorf ruled in the case of a taxpayer who, after suffering a brain stroke, was certified by a doctor as unfit to drive for more than five months. Only after the man had proven his renewed fitness to drive at a driving school did he again have to pay tax on a monthly pecuniary benefit (ruling of 24. January 2017, az. 10 K 1932/16 E).

However, the court accepted only the full months of driving incapacity. the driver suffered the brain stroke on 23. February, 29. July of the same year the medical driving ban was lifted. He had to pay tax on the non-cash benefit for the whole of february and july.

List price – the list price as of date of first registration. The list price is the manufacturer’s recommended retail price plus the cost of the following items special equipment including sales tax – even if no sales tax was incurred at the time of purchase.

Tip: if, for example, a navigation device or a tank of liquefied petroleum gas is subsequently If the employer has built in a car, this does not increase the imputed income.

The list price also applies if your employer paid less because of a discount or purchased a used car for you as a company vehicle. If your company has paid for the used car 20.000 euro paid and the new price was 50.000 euro, you still have to pay 500 euro – 1 percent of 50.000 euro – taxable per month.

The list price of the company car does not include

The costs of transferring and registering the vehicle,
The value of an additional set of tires including rims (for example, winter tires) and
The costs for a car phone (private calls are not allowed according to paragraf 3 nr. 45 income tax law tax-free).

If your employer reimburses you for the following expenses incurred during private trips with your company car, these expenses are considered to be taxable wages in full. They are therefore not covered by the one percent flat rate:

road tolls (e.g. parking fees, tolls, road vignettes),
expenses for the transport of the car (for example car train, ferries) as well as
Cost of membership in a car club or a car insurance policy.

cost capping– if an entrepreneur uses a company car that only incurs low vehicle costs, for example because it is fully depreciated, it is possible that the actual costs are lower than the private use share according to the one percent rule. In this case it can be capped. The private use is then taken into account for income tax purposes with the full actual costs assessed.

sales tax – if, for example, you are a freelancer (doctor, pharmacist, lawyer, journalist) or otherwise self-employed and use your company car for both business and private purposes, you will not only have to pay income tax on the private use, but as a rule also sales tax. This applies to both the one percent rule and the log book.

What to bear in mind when traveling between home and work

Are you also allowed to use your company car for journeys between your home and place of work and do you apply the one-percent rule, increased the monthly flat-rate value of the pecuniary advantage is calculated for each distance kilometer of the one-way trip by 0.03 percent of the list price.

Instead of this lump sum employee for a individual valuation decide. this is more favorable if you commute to the workplace on less than 15 days per month on average; thus up to 180 trips per year. You must then pay for each actual trip 0,002 percent of the list price per kilometer of distance. To do this, you must explain to your employer in writing when you made these trips.

Since 2019, you can require the employer to apply the method of individual valuation for payroll taxation. Detailed information on this subject, among other things, can be found in the letter from the Federal Ministry of Finance on the "wage tax treatment of the transfer of a company motor vehicle to employees" dated April 4, 2018. april 2018.

You must use the individual valuation method for the whole year apply. You can also change from the 0.03 percent rule to the individual valuation during the year. A change in the wage tax deduction retroactively for the entire calendar year is generally possible if you record the individual trips and can prove them. If the employer has initially settled according to the 0.03 percent rule, he could then recalculate the wage tax – for the entire year. this was decided by the heads of the payroll tax departments of the federal states (see brief information from the schleswig-holstein ministry of finance dated 21. May 2021, az. VI 302 – S 2334 – 372).

If this has not yet been taken into account in the monthly wage tax deduction, you could at least secure the tax advantage in the context of your tax return. However, any overpayment of social security cannot be corrected retrospectively.

Do you also use your company car for trips to the family home in the context of double household management, the flat rate is increased by 0.002 percent of the list price for each kilometer of distance between the place of employment and home. However, this does not apply to journeys that you can deduct as business expenses (§ 8 abs. 2 estg).

Tradesmen, freelancers and all other profit makers can use the individual valuation method not The German Federal Fiscal Court (Bundesfinanzhof) has ruled (judgment of 12 December 2009). June 2018, az. VIII R 14/15).

If, as an employee, you drive a company car exclusively from your home to your place of work, you do not have to pay taxes on private use of the car. The Federal Fiscal Court (Bundesfinanzhof, BFH) ruled on 6 June 2009 that travel between home and work is not part of the private sphere, but rather part of the professional sphere. October 2011, az. VI R 56/10).

Reason: the journey to work in a company car is not a private pleasure. The employer does not need to check whether the employee complies with the requirement not to use the car for private purposes. On the other hand, those who are explicitly allowed to drive the car privately would have to pay.

The complaint was filed by a car salesman who was allowed to use a demonstration car for trips between his home and place of work on the basis of verbal permission from his employer. However, according to his employment contract, he was not allowed to use the vehicle privately. The tax office nevertheless assumed private use and consequently a non-cash benefit according to the one percent rule – with the argument that the appearance speaks for private use.

The man appealed against the decision and then filed a lawsuit with the tax court, where he lost at first instance. the federal fiscal court ruled in favor of the car salesman in the last instance and ruled that he had not used it privately. Because this is exactly what the employer had forbidden in the employment contract and had also checked the mileage of the demonstration cars. It is not even necessary to check whether an employee is circumventing an explicit ban on private use. The tax office may not simply assume that the seller does not comply with his employer’s prohibition.

The one percent rule does not apply to commuting to and from work in a company car, the highest tax judges ruled. This is because the legislator has clearly "assigned the journeys between home and place of work to the sphere of employment".

Tip: you use your company car exclusively for business and want to avoid the one percent rule? Then your employer should pay the private use prohibit in writing. Whether you comply with this prohibition, he does not have to control.

If there is no regulation, the tax office can assume that you are allowed to use the car privately. Because it is not prescribed that corresponding agreements are only valid in writing. Your boss can also verbally allow you to use the car for private purposes. However, the tax office will not accept a ban on private use if the company car is the only car you can drive. However, if you use another car of your own for private journeys, you can credibly insure this.

What to consider with a logbook?

Instead of the one percent flat rate, you can also use the actual expenses as a pecuniary advantage (§ 6 abs). 1 nr. 4 sentence 3 estg).

Example calculation: you drive with your company car 24.000 kilometers per year, of which 3 are.600 kilometers privately. The total expenses amount to 6.000 euro. This results in 0.25 euros per kilometer (6.000 euro divided by 24.000 kilometers), which means costs of 900 euros for private use (0.25 euros per kilometer times 3.600 kilometers). Accordingly, the tax authorities add 900 euros to your taxable annual income.

If you use a logbook, all costs related to the car count for the tax – also the annual depreciation of the vehicle without special depreciation. The assessment basis is not the list price, but the actual acquisition costs including sales tax. In the case of a new car, a six-year period of use is assumed. For used cars, you must estimate the remaining useful life, taking into account the age and condition of the vehicle.

Freedom of choice between driver’s logbook and one-percent rule

You have the option of first agreeing with your employer that he will tax the private use according to the one-percent method when calculating your salary, and then you can still claim the actual expenses in your income tax return on the basis of a properly kept logbook and individual receipts. However, you must keep this logbook from the beginning.

Electronic records are also possible

The tax office also accepts electronic logbooks, provided that the same information is obtained from them as from a manually kept logbook. For electronic driver’s logbooks, which automatically record the date, destination and mileage, there is even a simplification compared to manual logbooks: the reason for the trip can be entered within one week.

Handwritten logbooks are different: the employee has to record the reason for the trip immediately after it is made. If not, the trip is considered private, according to a letter from the federal ministry of finance (az. IV C 5 – S 2334/10/10006).

The recommended provider of an electronic logbook, vimcar, together with tax consultants, has developed a solution. With this system, a plug automatically records the mileage, start and destination addresses, and time stamps. the plug can be installed in a car built in 2004 or later. The driver’s logbook itself is managed as an app on the smartphone. However, a pure app solution can also be sufficient as an introduction to a digital driver’s logbook.

For those who prefer handwriting, there are many manual logbooks available in bookstores and online, which contain all the information required by the tax authorities.

What is the effect of additional payments?

Do you pay extra for your company car because of off-duty use?, reduces this sum your taxable pecuniary advantage. This always applies if you have to make the additional payment, for example, due to an employment contract agreement. The following are eligible as usage fees:

A mileage allowance,
A monthly lump sum,
(partially) assumed lease payments and
Partially or fully assumed individual vehicle costs (e.g. for gasoline or diesel).

According to two rulings by the German Federal Fiscal Court of 30. November 2016, this is possible for both the one-percent rule and the logbook method (BFH, az. VI R 2/15 and az. VI R 49/14).

The German Federal Ministry of Finance (BMF) has issued a letter dated 21. september 2017 accepted that the case law has changed and details regulated. It lists the costs assumed by the employee that can be counted as a usage charge and thus reduce the imputed income. These are expenses for:

Fuel,
Repairs and maintenance,
car wash, ,
motor vehicle liability and comprehensive insurance,
Garage/parking space rental,
A resident parking permit and
charging current.

Parking fees, tolls, warnings and fines are not taken into account.

If you pay a monthly lump sum as part of a transfer agreement with your employer one-time payment towards the purchase cost, this also reduces your imputed income. In this case, the amount can be distributed over the agreed transfer period (BFH, decision of 16. December 2020, az. VI R 19/18).

The pecuniary advantage can fall to a maximum of 0 euros as a result of the additional payment. if you as an employee pay more yourself than you would have in monetary benefits, you cannot deduct these expenses as business expenses.

Agree cost capping

the one percent rule can be quite expensive, especially if you have to pay something to your employer. Therefore, calculate exactly how much tax and other costs will be incurred for the company car. agree on a cost cap with your employer in your employment contract.

Otherwise, you may end up paying more than your imputed income – and you will be stuck with the difference. A tax deduction is only possible up to the amount of the calculated imputed income.

This is how the calculation is made for the logbook

If the employee keeps a logbook, the expenses paid by the employee are not included in the total costs to be calculated. The individual use value does not increase in this way. However, the BMF letter allows an alternative (non-objection regulation): according to this, the costs paid by the employee are included in the total costs, but are considered to be a usage fee and thus reduce the imputed income.

Example: in the employment contract it is agreed that the employee has to pay the complete fuel costs. They amount to 3.000 euro per year. The other vehicle costs amounting to 7.000 euros paid by the employer. The employee uses 10 percent of the company car for private purposes.

First alternative: the private use value is 10 percent of 7.000 euro (= 700 euro). A business expense deduction of 90 percent of the 3.000 euro fuel costs (= 2.700 euro) is not possible.

Second alternative: the total cost is 10.000 euro (= 7.000 euro + 3.000 euro), of which 10 percent (= 1.000 euro) as the value in use. Due to the additional payment of 3.000 euro the imputed income drops to 0 euro. In this case, too, no further deduction of business expenses is allowed.

Additional payments towards the purchase cost of a company car are also deducted from the value in use by the tax authorities – in the year of payment and in subsequent years as well. However, the value in use can be reduced to a maximum of 0 euros.

Importantas an employee you must be able to prove that you have paid the costs yourself. You must declare this and the total mileage in writing to your employer every year. The latter, in turn, must already take into account the costs borne by you in the payroll tax deduction procedure and reduce your pecuniary advantage accordingly.

If you pay extra for the company car, a driver’s logbook can therefore be useful.