What is Mileage Allowance - and what is transportation allowance?
Mileage allowance, driving allowance, travel allowance, kilometer reimbursement, transportation allowance, or gasoline allowance.
There are many names for it, but the definition is the same:
Tax-free compensation is calculated based on the number of kilometers driven with a fixed rate per kilometer to cover expenses when an employee uses their own car (or their partner’s/spouse’s) for work purposes.
That’s why it’s also called tax-free driving.
You can ensure a correct mileage log with Acubiz
If you drive your own car for work-related purposes, you can use our Google Maps integration to track your driving in real time.
In everyday language, transportation allowance is often called driving allowance or mileage allowance, which covers expenses related to a company driving in their own car. It can be insurance, maintenance, and fuel, also called gasoline allowance.
If you use a company car, you cannot get a tax-free driving allowance – you must drive your own car.
Transportation allowance is not the same as driving deduction
Transportation allowance (or driving allowance) is not the same as driving deduction, but they are often confused.
While transportation allowance is calculated based on a fixed rate and paid with your salary, driving deduction is a deduction you can get through your annual statement, which SKAT deducts from your tax payment.
You can either get a deduction or an allowance; you cannot receive both simultaneously.
The current rate for driving allowance
The employer’s bookkeeper must use the following driving allowance rate when they need to bookkeep for the mileage reimbursement:
Mileage allowance rate | 2023 | 2022 as of May 1st |
Private car or motorcycle up to 20,000 km/year | 3.73 kroner per kilometer | 3.51 kroner per kilometer |
Driving in a car or motorcycle over 20,000 km/year | 2.19 kroner per kilometer | 1.98 kroner per kilometer |
The numbers are from Skattestyrelsen’s website. The rates for 2022 were exceptionally raised in 2022 from May 1st.
The limit of 20,000 kilometers applies per employer.
If the employee receives mileage reimbursement at higher rates than those in the table, they must pay tax on the entire amount unless the portion that exceeds the rates is taxed as ordinary income.
If the employee receives mileage reimbursement at lower rates, the reimbursement remains tax-free.
Mileage allowance does not apply to private driving
Control via driving logbook
To ensure that it is only driving in connection with work, SKAT requires that a driving logbook be kept before an employee can be paid their mileage reimbursement.
Among other things, the employer must check that the following information is correct:
- Date with start and end time of the drive
- Purpose of the drive (including sub-goals)
- Number of kilometers driven
- Calculation according to applicable rates
- That the driving is in the employee’s own vehicle
If the above requirements are not met, the employee’s reimbursement is a taxable A-income. In this case, the employee can receive a driving deduction instead.
You can read more about documentation and control of mileage reimbursement on Skattestyrelsen’s website.
Do you want to know more?
It may sound complicated to track how many kilometers you have driven. But with a digital mileage log on your phone, you can streamline the process and ensure a quick way to a correct mileage log.
Contact us if you want to know how we can help your business or book a free online demo to learn more.