Working Life > Income > Company Car

Company Car

Definition, Explanation

A company car that can be used privately is one of the auxiliary services employers can render in addition to income. In doing so, employees are offered varying company car programmes. They do not always have free choice when it comes to the make. In fact, most companies only supply certain makes of car and equipment, in order to keep administration low. Usually the employer adds one percent of the list price of the vehicle provided to the taxable salary. This generalized monetary value advantage is liable to tax. If this arrangement is not practised, then a driver's logbook must be kept. The running costs are often paid for using a kind of credit card. This is used to pay for petrol and servicing and repair costs.

In the case of executives and sales representatives, a company car is usually part of the salary and is added to the income as an on-top-model. But even "normal" employees are more often offered a leasing model with regard to motivation. In doing this, the employee goes without a certain share of his gross income, usually amounting to a net leasing rate. This results in reduced income with lower taxes and social security contributions. The tax authorities allow this conversion of income. The provision of company cars pays off for companies with employees who travel a lot because of their job. A reimbursement of mileage is not tax-free in the case of business trips. Yet, it is possible to offset the business trip mileage against the leasing rate.

The private use of a company car was changed by law and came into effect at the beginning of 2006. Private journeys as well as journeys between home and work are to be taxed as monetary valued advantages. This also goes for the self-employed using their company car on a private basis. If this is not done in a proper manner, the tax office will not recognize it and will go back to the 1% method. A driver's logbook pays off for drivers who drive around more because of their job than on a private basis. For journeys between home and work, 0.03% of the gross list price times a one-way km distance is fixed. For family journeys, it is a factor of 0.002%.

Tips, Checklist

• Calculate in how far it is worth it for you to drive a company car instead of your own one. Criteria like the distance between home and work, type of health insurance, contributions towards pension schemes and unemployment insurance play a role just like the interest rate for a loan to buy a vehicle
• Talk to your employer about which running costs (petrol, maintenance) he will bear on private use
• Remember to have the contract of employment changed if you decide to go for a salary conversion in favour of a company car
• Note possible company car guidelines
• Mounting a navigation system as firm piece of car equipment increases the gross list price and will effect the leasing rate and monetary-valued advantage
• At income negotiations, you can negotiate the provision of a company car as well as a pay rise
• As a self-employed person, you can write off the leasing rates against tax
• Have the entitlement to use the company car on a private basis put down in writing and state make and equipment as well as arrangements on running costs
• If the vehicle is not mainly used for job purposes – more than 50% - then you have to present the tax office a driver's logbook together with an appointments calendar, travel costs statements and proof of events
• Keep a driver's logbook to prove the use of the car to the tax office, even if you use the 1% rule
• If the employer expressly prohibits you using the vehicle on a private basis, then this provides grounds for dismissal

Last update: 07/30/2010