The Work-Related Costs Scheme (WKR) became compulsory for all employers on 1 January 2015. The idea behind the WKR is simple. All allowances and benefits in kind to your employee are considered wages and are, in principle, taxable. Under the WKR a maximum of 1.18% of the total tax payroll, the so-called 'discretionary scope’, may be spent on tax-free allowances and benefits in kind for employees. This means that you are not required to pay payroll taxes on this. On everything above that, you pay a final levy of 80%. Some allowances and benefits in kind are not charged to the discretionary scope. These are the so-called specific exemptions, zero valuations and intermediary costs.
For this year, the discretionary scope has been expanded in connection with the corona crisis. This year, the discretionary scope is 3% of the total taxable wage up to € 400,000, and 1.18% of the taxable wage in excess of € 400,000. You may therefore have opportunities to do something extra for your employees in the month of December. This can even be cost-neutral!
In order to determine whether you have extra discretionary scope, it is important that you establish whether you are applying the rules concerning the WKR correctly. Below we describe five misconceptions we often come across.
Misconception 1: When it comes to the WKR, it refers to the 1.18% 'discretionary scope' and tax is due if this is exceeded.
The WKR covers more than the discretionary scope and also includes specific exemptions, zero valuations and intermediary costs. This brings us straight to misconception 2.
Misconception 2: Commuting allowances (€ 0.19 per km) are always untaxed because they are specifically exempt.
Without designation, the work-related costs scheme does not apply! Without application of the work-related costs scheme, commuting allowances are therefore considered taxable wages for the individual employee.
Despite the fact that no employer in the Netherlands would choose to pay out a fully taxed commuting allowance to his employee, such allowances are, according to the relevant legislative text, considered taxed wages of the individual employee if they have not been explicitly designated as a final levy component under the WKR.
Despite the fact that since 2020 the Dutch tax authorities’ Manual on Payroll Taxes stipulates that specific exemptions do not need to be designated, the law has not been amended accordingly. In view of this and recent decisions, we advise you to ensure that specific exemptions are also designated.
The same applies to other allowances for which a specific exemption has been included in the law, such as for example the '30% facility' or reimbursement of actual extraterritorial costs, study costs, business meals.
- Check whether all expenses that may be eligible for a specific exemption have been designated as a final levy component under the WKR;
- if not, make sure that these costs are designated this year!
Misconception 3: Christmas baskets are tax-exempt when the employer's discretionary scope has not yet been exhausted
The same applies here: the WKR may not be applied without designation. As a consequence, Christmas baskets must then be considered as taxable wages for the employee. You obviously do not want employees to pay tax on their Christmas baskets. Grossed-up, these Christmas baskets suddenly cost more than twice as much.
Action item if you are planning to give your staff a Christmas basket this year:
- Check whether the Christmas basket has been designated as a final levy component under the WKR;
- If not, you may still be able to arrange this for this year!
In short, no designation? Then it is considered wages!
To clarify, a sample calculation:
Commuting expenses (€ 0.19 km): € 18,000
Travel and accommodation expenses: € 13,000
30% facility: € 15,000
Study costs: € 9,000
Christmas baskets: € 11,000
Staff party in the workplace: € 10,000
Total: € 76,000
If you have not designated any of the above expenses, they are considered wages. For 2021, the additional tax assessment may be as high as € 82,164 (excluding penalties and interest).
Misconception 4: A working from home allowance of € 2 per day may be paid to employees tax-exempt
The Dutch government’s 2022 tax plan includes a specific exemption for the working from home allowance of € 2 per day. This working from home allowance has been widely covered in the news, which has created the misconception that it may already be paid tax-exempt to employees. However, this is not the case. The working from home allowance will be included in the law as a specific exemption as of 1 January 2022. This is currently not the case and, as such, a working from home allowance provided to employees will be considered taxable wages. Of course, the working from home allowance may be designated as a final levy component under the WKR for 2021, as a result of which it comes under the discretionary scope and may thus be provided tax-exempt as long as the discretionary scope is not fully utilized. As of 2022, this will also apply to any excess of the working from home allowance (i.e. if more than € 2 per day is reimbursed). This excess may, if so designated, also be placed in the discretionary scope.
Misconception 5: For 2021, the tax-exempt travel allowance may be paid for the entire year
In connection with corona, continued payment of the tax-exempt travel allowance is indeed subject to approval, even if the employees no longer travel to the office. However, this approval only applies to employees who were already entitled to the fixed untaxed travel allowance before 13 March 2020. Employees who joined the company after 12 March 2020 and who have been granted a fixed travel allowance, but who have been working from home, may also receive this travel allowance tax-exempt, in which case this allowance must be designated as work-related costs and charged to the discretionary scope (since the relaxed regulations in connection with corona did not apply to them).
Are you having doubts about whether the WKR is properly implemented within your organisation? Or would you like to know about any possible extra things you can do for your employees in December? If so, please contact your trusted contact person at RSM.