Due to changes in the business allowances rules, many companies have recently been visited by tax auditors and find themselves facing huge penalties as they didn’t respect the correct rules.
A safe way to get business costs reimbursed by your employer is to deliver receipts that get signed off by a manager, but you don’t always get a receipt, that’s why it is possible to get a lump sum business allowance.
Such allowances are attractive because they are tax free for the employee and fully tax deductable for the employer. The employee or the employer do not need to justify the costs, however the employer must state that the costs are considered ‘serious’. Therefore the charge of proof lies on the employers side.
Different lump sum allowances are possible, such as daily allowances – mostly used for covering costs for small trips abroad or internal travel costs.
Expats can also benefit from an allowance called “tax free allowance for expats” which can cover things such as school fees.
In addition the social security office and tax authorities also recognise lump sum allowances for mobile phone, use of a car, parking, working from home or teleworking, use of internet etc.
Determining the amount of a lump sum allowance should be done very carefully by documenting yourself, benchmarking costs and checking over the costs regularly. The tax authorities will not accept costs that are not related to the actual job description of the individual being screened.
In short, I feel Eric tried to tell us not to just pinpoint an amount on a lump sum business allowance to give the employee a tax free extra salary, but to check the rules with your local tax authority and the social security, to be reasonable, prepared and to regularly update or review the allowance.
His conclusion was swift and sharp:
BE REASONABLE – BE PREPARED
SETUP – CHECK – UPDATE
I hereby like to thank Eric for his presentation and his company Eryv for sponsoring the session.
Topic of the discussion: Tax: Lump Sum Business Allowances by Eric Laurent from ERYV
Speakers: Eric Laurent – ERYV
Tuesday, 12 June 2012