Company car for private use

What it means

A company car for private use is a company vehicle the employer also lets an employee use for private journeys, such as commuting, holidays or weekends. For the employee it is non-cash income, taxed and subject to contributions like wages.

The amount is not based on private kilometres but is a flat rate. For every calendar month the car is provided, a statutory percentage of the vehicle’s entry price is added to pay, with a lower rate for electric vehicles. The rule applies however much or little the employee actually drives privately.

The flat rate covers use of the car, not fuel. If the employer also pays for fuel used on private journeys, that is additional taxable income of the employee in its actual amount.

How it works in practice

When introducing company cars we prepare a policy with the client: who has a car for private use as well, who pays for fuel for private trips and how records are kept. A mileage log is needed to separate business from private journeys, especially for fuel and VAT.

In payroll we add the flat rate to pay for every month the employee had the car. If the car changes during a month, the one with the higher entry price is used. For cars on an operating lease, the entry price is based on the vehicle’s price, not the rent.

For employers that are VAT payers we deal at the same time with deducting VAT on the car and fuel. With private use, the deduction must be restricted or private consumption taxed. We choose with the client a method that is correct and manageable to administer.

What to watch out for

A car the employee takes home is treated as available for private use unless the employer proves otherwise. If a company does not want the flat rate to apply, it needs a clear ban on private use and records that support it.

For directors and shareholders who use a company car privately without an employment relationship, different rules apply and it may be treated as a hidden profit distribution. We therefore set this up individually, especially for more expensive vehicles.