When employees get a company car from their boss, also called a company car, company vehicle, company car or company vehicle, the uncertainty often begins: Is a company car even worth it, how do I have to pay tax on the car and who is liable in the event of an accident? These are just a few of the questions that then arise. Part of running a business is that you'll have to address this issue with your startup at some point. The good news: Here you'll find the answers around company cars.
Note: Gender-appropriate language is important to us. Therefore, we use gender-neutral terms on this portal whenever possible. Besides that, we're switching to the generic masculine. This explicitly includes all genders (m/f/d). This approach is for editorial reasons only and does not imply any kind of judgment.
Company cars: when is a vehicle considered a company car?
A vehicle is considered a company car if the employer provides it to his employee for company use. But company cars aren't just for employees. Even self-employed people can drive a company car: If the car is part of your business assets and you use it yourself, that's also called a company car.
If you as an employer let your employees use the company car, you can specify to what extent the car may be used. Some bosses allow only business use, i.e. only official purposes, while others let their employees drive the company car privately as well. So these are individual agreements that employees and employers can and should negotiate together.
As a general rule, all contracts have in common that the company car must be returned when employment ends. When the notice period ends, so does the use of the company car.
Advantages of a company car
Both employers and employees can benefit from a company car. Like this, for example:
The company car is a status symbol and shows that the boss values the employee's work and role.
If the company car may also be used privately, employees do not need another car for private driving.
The option of a company car can be an argument for applicants to sign with the employer. Clear advantage in the fight for skilled workers, and to find good employees.
Depending on how much employees drive privately in the company car can really pay off and save money.
Employers can partially deduct company cars from taxes (input tax deduction and business expenses).
With a company car without private use, the employer takes care of all maintenance and repairs. This can also be arranged for a business car with private use.
The company car can be an alternative to the salary increase and save the employer costs in this way.
Buying or leasing: which is worth it for which companies?
Which companies are more likely to benefit from company car leasing and which companies are more likely to benefit from buying a company car depends on several factors. Leasing is worthwhile, for example, when the employer does not want to overstretch the credit line of his bank.
Company car taxation: What taxes do I have to pay for the company car??
If the company car may also be used privately, you must pay tax on it as a so-called non-cash benefit. Because a benefit is the private use of the company car in any case. You'll save yourself quite a bit of money, after all. For example this one:
- Costs for the purchase of the car
- Costs for insurance and road tax
- Costs for maintenance, TuV and repairs
- Cost of fuel
- Loss of value of the car
Therefore, the IRS considers a privately used company car like a raise or additional salary. The company car thus has an impact on your income, which you must pay tax on as part of your tax return.
Judgement of the Bfh
If the driver of the company car shares in the cost of the company car, that can lower the imputed income. There are two different rulings of the Federal Fiscal Court (Bundesfinanzhof, Bfh) (ruling from 30. November 2016, VI R 2/15 and judgment of 30. November 2016, VI R 49/14) on the subject of company cars, with the result that since 2017 these changes have also been accepted by the Federal Ministry of Finance. In concrete terms, this means that if the company car driver frequently fills up the tank at his own expense, has the car washed or even pays for repairs (in part) himself, this can significantly reduce the imputed income – ideally even to zero.
Logbook or 1% rule: Which is more favorable??
For a privately used company car, you have the choice between two different taxation options:
You should consider in advance which option is better for you if you also use the company car for private purposes. Once you have decided, you are bound to the chosen taxation for the current year. Exception: you get a different company car during the year. Then you can make up your mind.
Company car taxation: how the 1% rule works
Those who opt for the 1-% rule choose the flat-rate variant of taxation. Compared to the logbook, this way of taxing the company car is less burdensome – which may well be an argument for many company car drivers. The taxation of a company car with private use works like this: The starting point is the domestic list price.
List price and first registration of the motor vehicle
The list price is applied even if you bought a used car. Because the list price always refers to the first registration of the car. This also means that even when leasing or renting a company car, the list price is used for calculation purposes.
Also not very positive for employees: The list price also includes the sales tax that is incurred when buying the company car. As a boss, you don't have to pay sales tax at all – but your employees will still have it added to the value of the car and thus as an additional burden.
So let's say your employee gets a company car that pays 60.000 Euro is worth. One percent of this is 600 euros and thus the monetary advantage, which is applied in his case. You have to pay tax on this additional 600 euros per month with his wages.
But that is not all. The employee has to pay extra for the trips to his place of work again. Currently, 0.03 percent of the gross list price is due per kilometer.
Taxing a company car: How to keep a logbook
The logbook is the option for company car drivers who want actual taxation rather than a flat rate. Because with this instrument, you only pay for the distance you actually drive with the company car.
The calculation is still quite simple: Let's assume that with the company car per year a total of 40.000 kilometers are driven. Of these, only 3.000 kilometers on the private use. The costs accrued in the year for the company car are 11.000 euros.
To calculate the cost of each mile driven, here's how you do it: You divide the amount of money by the number of miles, which is 11.000 : 40.000 = 0,275.
To get the actual expense of the company car, multiply that number by the number of miles driven privately. Power in our example 3.000 x 0,275 = 825. So only 825 euros of the costs were incurred. And only these 825 euros must be declared in the tax return for the company car – for the entire year. This is a clear difference from the 1% rule, where m previous example already had to pay tax on 600 extra per month.
Which already tells you when which option is worth it: if you don't drive your company car much for private purposes, the logbook is probably the cheaper option. If, on the other hand, you drive the company car around a lot and extensively, even in your free time, the 1% rule and the associated taxation may be more worthwhile. An initial overview of the different types of company car taxation and how they affect gross and net pay is provided by so-called company car calculators, which you can find all over the Web.
If you keep a driver's logbook, you must pay close attention to ensure that all the details are included, namely:
- Date of the trip
- Mileage at the beginning and at the end of the trip
- Purpose of travel (if applicable. Including customer or contact person who was visited)
Also important: The tax office does not accept logbooks that can be changed afterwards. The good old Excel spreadsheet falls flat, as does a simple pad that some company car drivers still have in the driver's door tray.
Instead, you should keep an electronic logbook or alternatively use an app. It's best to discuss this issue with your tax advisor, as electronic versions in particular can be costly.
FAQs: Frequently asked questions about company cars
The subject of company cars can be quite extensive. Especially employees who deal with this topic for the first time often ask themselves the following questions about the company car, to which we provide a direct answer:
As is so often the case with legal issues, this depends on the individual case. If employee and employer have agreed that other people can also drive the company car, that's ok. As a general rule, it is advisable to put all regulations regarding the company car in writing, for example in a so-called company car transfer agreement. This way you're on the safe side if the worst comes to the worst.
This also depends on the particular agreement. Some employers take out a fully comprehensive insurance for the company car, while others insure the car only partially comprehensive. In the latter case, the employee is at least partially in the obligation. It is also conceivable, however, that employees could be required to pay for certain damages to the car in full. Ideally, this should also be set out in writing in a company car contract. However, it is impossible to say in advance whether a court will unconditionally allow the individually made arrangements to stand upon review. For an initial assessment, you can use negligence as a guide:
- If the employee can be proven to have been slightly negligent, he or she will probably not be liable for the damage to the company car.
- If he is proven to have been moderately negligent, he is partially liable.
- In cases of gross negligence or even willful misconduct, he or she will likely have to pay for all of the damage to the company car.
The rule is that the company car may be used as long as the employment is in effect. So-called company car privileges apply during illness (for the first six weeks) and vacation, but also when the employee is away from work for an extended period of time, such as maternity leave. But – you might already guess – even in these cases it depends on what the employer and employee have contractually agreed upon. This question becomes interesting anyway only if the passenger car is also used privately.
Even if you have a company car, the company car driver can claim mileage allowance to get to work. By the way, the distance allowance can be deducted from the share to be paid in the 1% rule. However, there are some peculiarities, depending on how you as an employer tax the company car. A tax advisor or even the tax office can help you individually on the subject of taxation of the company car.
Since the beginning of 2019, there are a whole range of tax benefits for employers when they purchase an electric car as a company car. Legally, these provisions are spelled out in what is known as the 2019 Annual Tax Act. For employees, an electric car can also be worthwhile as a company car: With the 1% rule, you then only have to declare half the list price of the company car as a non-cash benefit.