Calculating mileage allowance for business travel

The rules for tax-free mileage allowance

For every kilometre you travel for business purposes with a private vehicle, you may transfer a tax-free amount to yourself or your employee. This applies to client visits, deliveries, and all other journeys with a clear business character.

If you pay a higher allowance per kilometre than the legal standard? Then the excess amount is considered by the Tax Authorities (Belastingdienst) as taxable income or salary, on which you owe tax and premiums.

The importance of accurate journey registration

To substantiate the tax-free mileage allowance for tax purposes, accurate administration is essential. In the event of an audit by the Tax Authorities, you must be able to demonstrate that the declared kilometres were actually travelled for business.

In addition to the standard mileage allowance, there are often additional tax choices to be made when organising your business transport. Read more about business investments and tax benefits to discover which option best suits your mileage.

VAT reclaim when using a private car

If you drive business kilometres with your private car, you can partially reclaim the VAT on maintenance and running costs via your VAT return. The mileage allowance itself is VAT-exempt, but the actual maintenance costs incurred do include VAT.

The extent to which you can reclaim VAT depends on the ratio between the number of business kilometres and the total annual mileage of the car. Good mileage registration helps to accurately substantiate this ratio.

What role does CO2 emissions play in the mileage allowance?

For the tax-free mileage allowance that an employer pays an employee for business kilometres, the CO2 emissions of the car used play no direct role. The allowance is primarily intended to cover the costs of using a private car for business purposes, regardless of the type of fuel or the environmental performance of the vehicle. The amount of the tax-free allowance is set annually by the Tax Authorities (Belastingdienst) and is a standard amount per kilometre that applies to all cars.

However, the choice for a vehicle with low CO2 emissions can indirectly influence, for example, if tax incentives apply for the purchase of such vehicles, which affect general car costs. This can then impact agreements made about any additional allowances on top of the tax-free mileage allowance. For the employee, the tax-free portion is always the same, regardless of the type of car used for business journeys.

Are there differences between the mileage allowance for employees and entrepreneurs?

Yes, there are fundamental differences in how mileage allowance is treated for employees and entrepreneurs. An employee receives a tax-free mileage allowance from the employer for business kilometres driven with a private car, up to a maximum amount per kilometre. This amount is a compensation for incurred costs and is subject to specific rules to qualify as a tax-free allowance. This concerns an allowance paid by the employer.

For an entrepreneur making business journeys with a private car, it works differently. The entrepreneur cannot receive an 'allowance' in the sense of an employee allowance, but may claim the costs for the business use of the private car as a deductible expense. The deduction is linked to a fixed amount per business kilometre driven. This amount is intended to cover all costs, such as fuel, maintenance, depreciation, and insurance, and reduces taxable profit. Maintaining accurate journey registration is essential in both cases for correct processing.

• Employee: tax-free allowance from employer.
• Entrepreneur: deductible expense per kilometre for taxable profit.
• Both: journey registration necessary for evidence.

Frequently asked questions