The decision to return your lease car can have a significant impact on your financial situation.
While many employees see the benefits of having a lease car, there are also situations where returning the car can have financial benefits. In this article, we explore both the positive and negative financial consequences you can expect.
Perhaps we should first talk about the misconception about the addition. Addition is not the same as your wage, but it is a tax measure that affects your taxable income and therefore your net salary. If you get a lease car from your employer and you also use it privately (more than 500 kilometers per year), a certain percentage of the car's catalog value will be added to your taxable income. This is called addition.
Suppose you drive a petrol car for business purposes with a catalog value of € 30.000 and the addition in 2023 is 22 percent. Then use € 30.000*0,22 = € 6.600. In that case, that is your gross addition for 2023. Because the Tax and Customs Administration sees driving a company car as wages in kind, the addition is added to your gross salary.
Because the addition to your taxable income is added, it does increase the amount on which you pay income tax. As a result, your net salary may be lower than if you had no addition, depending on the way in which the salary was calculated. In practice, the addition is often settled monthly via the salary administration. This may mean that you receive a lower net salary, but it is not the case that the addition is money that you first receive as wages and then hand in again. It is more of an extra item that is included in the calculation of the income tax you have to pay.
It is therefore a misconception that handing in the company car will automatically generate extra net salary because the addition is not wages, but a benefit in kind for the Tax and Customs Administration. Because your taxable income decreases, the income tax you pay will decrease. You will immediately see this on your salary slip under the heading 'income tax' or 'loonbelasting'. In some cases, returning a lease car can also mean a reduction in the social security costs you have to pay. However, this is usually a smaller effect than the change in income tax.
It is likely, but not automatically guaranteed, that you will have more left over on your salary slip if you return the lease car and the addition will therefore lapse. The way in which the wages are calculated can affect the wages you actually receive. In general, you will probably have more left over on your salary slip if you no longer have the addition for a lease car, but that will come from other compensations. This can vary from a mobility allowance to a higher pension contribution. Depending on the tax treatment of these compensations, your net salary may change further.
Tax rules are never static and subject to change. The amount of the addition can fluctuate, which can be both an incentive and a deterrent to keeping or returning a lease car. It is essential to keep up to date with the most current tax legislation.
While returning your lease car may sound attractive from a financial point of view, there are also a number of potential drawbacks that you should not overlook. Returning your lease car means you lose the flexibility and convenience that come with always having an available car. The costs of owning a car, such as insurance, road tax and maintenance, can quickly add up.
In many cases, the employer can offer other compensation. If your employer offers another form of compensation, such as a mobility allowance, this may affect your net salary. The employer can decide to adjust other aspects of your employment conditions when you return your lease car. Although some employers offer a mobility allowance as an alternative to a lease car, this is not a guarantee. Moreover, the reimbursement is often lower than the value of the lease car, especially if you include all additional costs such as fuel and maintenance.
It can be more difficult to visit business appointments without a lease car, especially if these are far from your place of residence. This can lead to higher costs for public transport or carpooling, and may appear less professional to customers or business partners. Although this may sound superficial, returning a nice lease car can also have an impact on how you are perceived by colleagues, customers or even friends. For some, a car can be a status symbol, so handing it in can also have social implications.
alternatives
Having a lease car is a common fringe benefit, but not always the most suitable or economical option for everyone. Here are some alternatives to consider. If you live close to a station or stop and your employer is also easily accessible by public transport, this can be an efficient and environmentally friendly option. Some employers offer public transport reimbursement or even a fully reimbursed public transport card.
For shorter distances, the bicycle can be a practical and healthy option. Some employers offer the option of leasing an (electric) bicycle or have a bicycle plan that allows you to purchase a bicycle at an affordable price. In urban areas, there are often car sharing options, which can save on the cost of owning a car. Driving together with colleagues can save costs and is also more pleasant and better for the environment.
You can also choose a combination of the above options depending on your needs. For example, you can use a shared car for specific business appointments and public transport for your daily commute.
Some employers offer a mobility budget, a certain amount that you can use for your way of traveling, such as public transport, shared cars, or even plane tickets for business trips. With a mobility budget you can choose the best means of transport for each situation.
business rides
If you use your own car for business trips, your employer can offer a mileage allowance. When you use your own car for business trips and your employer offers a mileage allowance, there are some important insurance considerations. You are responsible for taking out WA insurance (Third Party Liability), which covers damage to third parties. This is a legal obligation. Not all car insurance policies cover business use. It is important to report this to your insurer. Some insurers set additional requirements or charge a higher premium for business use.
In some cases, your employer may be liable for damage you incur during business trips. This depends on your employment contract and the policy conditions of any insurance policies that your employer has taken out. All in all, it's crucial to talk to both your employer and your insurance company to make sure you're well covered while making business trips in your own car.
It is recommended that you speak with a financial advisor or tax professional to determine which model is most appropriate for your specific situation.
Addition for the company car affects the gross and gross wages because it is seen as a form of income. The addition is the percentage of the catalog value of the car that is added to your gross annual income if you drive more than 500 private kilometers per year with a company car. The amount of the addition percentage can vary depending on the CO2 emissions and the type of car.
gross pay versus grossed up
When you use a company car and you drive more than 500 private kilometers per year, an addition percentage is applied to the catalog value of the car. This amount is added to your gross annual income, and you pay tax on it as if it were regular income. So your gross wage will be higher when you take the addition into account.
If there is a grossed-up wage, for example because you received a net allowance or benefit, the addition for the car can make this more complicated. You must first gross up the net amount to find the corresponding gross amount, and then add the addition for the car to this grossed-up gross wage. This can affect the taxes and social security contributions you eventually have to pay.
For the employer, there are also some important differences when it comes to gross wages and grossed-up wages, as well as the addition for a company car. The gross wage is a fixed cost item for the employer and is usually agreed in advance in an employment contract. The employer is responsible for paying certain social contributions and taxes based on the employee's gross wages. Gross pay is generally a predictable amount that can be included in the employer's budget.
If a salary has to be grossed up, for example because a compensation was first awarded net, this requires additional administrative steps to ensure that all taxes and premiums are paid correctly. Grossed-up wages can fluctuate based on taxes and contributions required, which can make it more difficult for an employer to forecast total staff costs. The addition itself usually costs the employer nothing extra, but increases the employee's taxable income.
However, the employer must correctly record this and report it to the tax authorities. Because the addition increases the employee's gross income, this may affect matters such as pension contributions or other wage-related aspects, depending on the specific situation and agreements.
There isn't really a "best" model that works for everyone; it depends very much on individual circumstances, needs and preferences. An employee who values predictability and simplicity may prefer a fixed gross salary. An employer who wants to maintain flexibility may prefer a grossed-up wage.
Of course, holiday pay is an important part of the employment conditions and is regulated by law in many countries, including the Netherlands.
In the Netherlands, holiday pay is usually calculated on the basis of the gross salary, excluding extras such as bonuses and overtime compensation, unless otherwise agreed in the employment contract or collective labor agreement. The percentage for holiday pay is set by law at 8% of the gross annual salary.
If you receive a fixed gross salary, the calculation of the holiday pay is usually simple. You take 8% of your gross annual salary (excluding bonuses, overtime, and the like). With a grossed-up wage, the calculation of holiday pay can be more complex, because this type of wage often consists of one-off or irregular payments. However, the principle remains the same: the holiday pay is calculated as a percentage (usually 8%) of the gross salary.
If you have a company car and pay the addition for it, this can increase your gross income. However, the addition is usually not included in the calculation of the holiday allowance. The holiday pay is usually calculated on the basis of the gross wage excluding the addition.
