The 20,000 kilometre rule, mileage reimbursement, mileage allowance and mileage deductions. Intempus provides you with a guide through the work mileage jungle, so you're well equipped to handle any questions your employees may have.

What is mileage allowance?

If your employees drive their own car for business purposes, you as an employer can choose to pay them a tax-free mileage allowance. The purpose of this allowance is primarily to cover the expenses that your employee may incur for the car in connection with the journey. The government sets the rate for the mileage allowance, which is where the “20,000 kilometre rule” comes into play. The highest tax-free rate is paid until the employee hits 20,000 kilometres driven per year. Below you can get an overview of the rates for 2020 - 2025.

Driving allowance rates in 2021 - 2025

As an employer, you are not locked into these rates. This means that you can choose to give your employees higher or lower rates than the above. However, please note that this will have different consequences for your employees. If you choose to pay higher rates, the entire amount will be taxable for the employee. The exception to this is if the portion that exceeds the rates is taxed as regular salary. If you choose to pay a lower rate, the amount will still be tax-free for the employee.

Is mileage allowance the same as mileage deduction?

No, it isn't. A mileage allowance is a tax-free payment to your employees for business mileage. A mileage allowance can be given if the employee drives more than 24 kilometres to and from work (minimum 12 km each way) and it can be given for all types of paid work. A mileage deduction is not paid directly to the employee, but is instead recognised in the employee's annual tax return. The employee cannot report the mileage deduction until the income year ends. This is because you only get deductions for the days you have been physically present at the workplace. Alternatively, as an employee, you can wait until you receive your annual statement in March and then check if there is a mileage deduction in advance. If it's missing or if the figure doesn't match, you can enter the correct mileage deduction and it will be included in the annual statement. As an employer, it's important to remember that you can NOT give your employees both mileage allowance and mileage deduction. Rather, it's a choice you have to make as an employer: If you don't want to pay mileage allowance, your employees can get mileage deductions instead.

Rules for driving from home directly to the customer

Driving from the company's workplace to a customer is considered business driving. But what if the employee drives directly from home to a customer? Here it is relevant to know the rules for tax-free transport allowance, which can be paid to employees who drive their own car for business purposes.

If an employee drives directly from their own home address to a customer (or vice versa), the distance between the employee's home address and the workplace address must be deducted when calculating the kilometre allowance.

Example 1: Let's say an employee is travelling to a customer whose address is 120 km from the employee's home and 70 km from the office. If the employee drives directly from home to the customer, the 50 km (which is the difference) should be deducted from the mileage allowance. If the employee drives from the office to the customer, the entire distance (the shortest) is included.

Example 2: Let's say the employee is going to a customer whose address is 2 kilometres from the employee's home and 20 kilometres from the office. If the employee drives from home to the customer, the employee can get kilometre allowance for the 2 kilometres. If the employee drives from the office to the customer, this will also give 2 kilometres, as 20 minus 18 (assumed distance from home to office) = 2 km.

Let Intempus keep track of distances

As mentioned above, it is a great advantage to register your mileage in a systematic and clear way, so that both employee and employer have an overview of the number of kilometres driven. With the Intempus app, your employees can quickly and easily register their business mileage. All they have to do is enter the respective addresses and the distance is automatically calculated in the Intempus app. 

In addition, both employee and employer can continuously see how many kilometres the employee has driven and when the employee is approaching 20,000 kilometres driven - and thus a new payment rate. At the same time, your employees no longer need to keep a notebook in the glove compartment where business mileage is recorded. Instead, it can be done with a few simple taps in the Intempus app. If you are interested in hearing more about how Intempus can help you and your company, you are always welcome to contact us by phone +45 26390400 or to book a non-binding conversation.

Did you also know that...

- The mileage allowance must be calculated according to the actual number of kilometres your employee drives. Therefore, if you choose to pay your employee a fixed amount, regardless of the number of kilometres driven, this amount will be taxable.

- You cannot choose to give the employee less salary in exchange for a mileage allowance. Reduced salary will therefore make the mileage allowance taxable.

- Expenses for ferry tickets, bridge tolls or parking are not included in the tax-free mileage allowance. You can pay these expenses as an outlay or bill if the employee can provide you with the original receipts. 

You can also read more about how Intempus can handle your journey tracking Here.

Sources: skat.dk