Are company cars worthwhile? – Advantages for employees
Many employees still see having a company car as being a status symbol. It represents an advancement into a higher salary group and underscores the company’s belief in the employee. What it says is: You’re vital to us and our giving you a car confirms your elevated status.
However, a personal company car is not only symbolic, it is also a unique perk. It means not having to take public transport or resort to one’s own vehicle to get to work or to a client – for a large proportion of Germans it is the alluring brass ring.
A car from the company offers many advantages, but there are some statutory regulations every employee should know before deciding on a company car. In this blogpost we will explain what you need to be aware of when providing a company car and why the non-cash benefit plays such a decisive role.
Non-cash benefit of a company car – All you need to know
Many employees have come across the term “non-cash benefit” while doing their taxes, but few really know what it means.
A non-cash benefit comes not merely from having a company car. It is when the employer expressly permits in the employment contract the personal use of a company car. The use of a business vehicle solely for work purposes does not qualify for tax deductions.
How is this non-cash benefit calculated? There are two ways: by flat rate, also known as the 1% method, or by keeping a logbook.
Both are used – though only the 1% method is recognized by lawmakers.
The 1% percent method – how to get the most out of your company car tax-wise
When a company car is used for personal reasons, the driver pays one percent of the domestic list price of the car on a monthly basis starting at the time of registration.
In addition, tax must be paid on all commutes to work at a rate of 0.03% of the gross domestic list price each month. The advantage of the 1% rule is calculations are simple and time-saving, as trips need not be individually recorded.
However, this formula is based on the car’s list price. This means the more expensive a vehicle is, the higher the taxable amount. Even an “economical” company car and a long trip, in this way, can end up being disadvantageous tax-wise using the 1% method.
Assessing the non-cash benefit of keeping a logbook
A logbook, as the name suggests, is a book or notepad in which all trips are recorded, whether private or business. It is important to document the trips as thoroughly as possible without later changes or additions.
The tax office can only determine the correct tax rate if the details in the logbook are complete. The procedure to determine the non-cash benefit using the logbook is far more complicated than the 1% method, though in the long run it might tax-wise prove to be more favorable to the employee.
Nevertheless, one should not underestimate the work involved in keeping a logbook. To save time and hassle, many company car drivers now use software solutions to seamlessly record the mileage of each trip.
Electronic logbook
An electronic logbook comes in handy if many trips are taken in a company car and complete documentation is near impossible. As with manual logbooks, electronic logbooks need not be customized or specially set.
For large fleets, electronic logbooks are also useful with regard to respondeat superior liability and driver’s license check. As with other electronic solutions, data protection requires particular attention, since a logbook creates a precise record of the driver’s movements. It is up to the company to ensure the data is protected and cannot be accessed by unauthorized third parties.
In a nutshell – When is a company car worthwhile?
A company car is not only worthwhile for sales reps but also for the rest of the staff. Besides it being an alluring perk, a business vehicle offers comfort, speed and mobility in the course of carrying out work-related tasks as well as in the employee’s personal life. But before an employee decides on a company car, they should consider the reasons for using the vehicle. Accuracy, both in keeping a logbook and applying the 1% rule, pays off when it comes to filing the annual tax return.
A company car without private use privilege does not offer tax advantages of any kind, though it does provide mobility – a benefit not to be underestimated, which for some employers may outweigh tax savings in the long term.