Mileage allowance

What it means

Compensation for using one’s own vehicle is due to an employee who, at the employer’s request, uses their private car for a business trip. It is governed by the travel expenses act and has two parts: a basic allowance for every kilometre and compensation for the fuel used.

The basic allowance covers wear on the car, insurance and the owner’s other costs. Its rate per kilometre is set by ministerial decree and changes with prices. Fuel compensation is calculated from the consumption in the registration certificate and the price on the receipt or the average price published by the Statistical Office.

The condition is that the employer approves the use of the private car in writing in advance. Without that there is no entitlement, and the employer may reimburse at most what the trip would cost by public transport. Compensation at the statutory level is not taxable income for the employee.

How it works in practice

To settle the claim we need the travel order approving the car, the number of kilometres, the consumption from the registration certificate and a fuel receipt, or a note that the average price applies. The employee documents the trips with a record similar to a mileage log.

Together with the car allowance we settle the meal allowance and other trip expenses, so the whole claim is in one place. For directors who use their own car for company business we set up the same procedure, because a director is also entitled to travel expenses under the act.

For the company the compensation is a tax-deductible expense at the statutory level. Where private cars are used often we compare whether a company car, possibly under the company car for private use regime, or an operating lease would pay off.

What to watch out for

Compensation paid beyond the statutory framework, such as a flat sum with no record of trips or a higher rate per kilometre, becomes taxable income for the employee and attracts contributions too. In an audit the tax office will reclassify it and the employer will pay the tax and contributions.

An employee’s private car is not covered by the company’s comprehensive motor insurance. In an accident on a business trip the owner’s policy deals with the damage and the Labour Code decides on compensation by the employer, so the rules are best agreed in advance in an internal policy.