Company car or mileage allowance: which should you choose?

Travel expenses are among the benefits in kind most valued by employees. As fuel prices soar, using a company car or claiming mileage allowances matters more than ever. It’s worth taking a closer look at both systems to determine which one proves most advantageous for the business owner, as well as for their employee.

How do mileage allowances work?

Mileage Allowances (in French, Indemnités Kilométriques or IK) correspond to the amount of expenses reimbursed by the company to its employees and its director. Payment is conditional on two criteria:

• trips must be made using a personal vehicle, whether a car or a two-wheeler;
• the expenses only apply to trips made for professional purposes.

Any employee may be entitled to mileage allowances, regardless of their status, seniority, grade, etc. However, these expenses cannot be paid to external contractors who are not part of the company.

Which vehicles are eligible?

All personal vehicles are eligible for mileage allowances, regardless of how they run: petrol, hydrogen, hybrid, bioethanol, electric, etc. The tax authorities classify them into three categories:

• mopeds with an engine capacity under 50 cm3;
• two-wheelers: scooters and motorcycles with an engine capacity over 50 cm3;
• cars.

Mileage allowances cannot be claimed for trips by taxi, boat, train or plane. In addition, only the vehicle’s owner can receive them, which rules out carpooling.

The sustainable mobility package

While business trips can be covered by the company, the commute between home and the workplace can also be compensated under certain conditions. Indeed, if you travel by bike (including electric bikes), carpooling, or public transport between your home and your workplace, your company can offer you a sustainable mobility package. The amount is capped at €500 per year and is exempt from social contributions and taxes for the company.

This mobility package is a significant benefit, but it remains optional. Each company is free to offer it to its employees or not.

The advantages of mileage allowances

Since mileage allowances are included in its expenses, the company benefits from a tax reduction. However, the amount is capped by the tax authorities and the VAT cannot be recovered.

The employee deducts the expenses related to the use of their personal vehicle from their actual expenses and thus benefits from a tax saving.

Actual expenses or flat-rate deduction?

A flat-rate deduction of 10% corresponding to professional expenses is applied by default on the employee’s income tax return. If this amount, in practice, exceeds the 10% flat rate, it becomes more advantageous for the employee to rely on mileage allowances, which allows them to declare their actual expenses.

Calculating mileage allowances

The compensatory allowance for mileage allowances is calculated using a mileage scale set by the tax authorities and updated each year. This scale is calculated based on the following criteria:

• fuel consumption;
• vehicle power;
• vehicle depreciation;
• tyre wear expenses;
• repair and maintenance costs;
• insurance premiums.

Mileage allowances do not take into account parking or toll fees. These must therefore be accounted for separately, upon presentation of a receipt.

As for mileage, it is divided into three brackets for calculating the allowance:

• up to 5,000 km;
• between 5,001 and 20,000 km;
• beyond 20,000 km.

Which trips are covered by mileage allowances?

Trips eligible for mileage allowances may include:

• the commute from home to the workplace;
• business trips during working hours: visits to clients or suppliers, attendance at seminars or trade shows, business meetings and appointments, etc.

If the employee lives more than 40 kilometres from their workplace, they must justify this distance with specific circumstances: geographic relocation, housing costs, taking into account a sales rep’s coverage of a defined area, etc.

In the event of an audit by URSSAF, the burden of proving the professional use of the personal vehicle falls on the employer, who must provide supporting documents for the trips.

How does using a company car work?

Rather than asking an employee to use their personal vehicle and then reimbursing their expenses, a company can invest in a company car or a fleet vehicle that it entrusts to its employee, while bearing the associated costs (insurance, maintenance and fuel, as well as parking and motorway toll fees). The director can also acquire a company or fleet car for themselves.

Company car or fleet car?

To be precise, it’s worth distinguishing between a company car and a fleet car: the former — also called a service vehicle — cannot be used for private purposes, unlike the latter, which is also used for personal trips. The employee must therefore leave their company car in their employer’s care once their working day is over.

The company car is made available to the employee for exclusively professional use. The employee must therefore use another means of transport for trips between home and work, unless the employer includes a clause in the employee’s contract allowing for this. Conversely, any trip that is not professional in nature cannot be made using the company car.

On the other hand, an employee can use their fleet car for private trips, outside working hours, including weekends and holidays, unless the employer states otherwise. It is considered by the tax authorities as a benefit in kind.

The advantages of a company car

The company car can be leased or purchased. It simplifies life for the employee to whom it is entrusted, as they don’t have to handle maintenance, insurance or refuelling. The employee is also not required to arrange technical inspections and servicing themselves.

The company can take back the company car at any time. In return, the employee will receive an allowance intended to cover their business travel expenses.

Financing and tax relief for company cars

Financing a company car depends on several criteria, notably the possibility of deducting the car’s depreciation from taxable expenses, as well as the Company Vehicle Tax (TVS). Both of these parameters depend on the vehicle’s CO2 emissions.

A purchased company car can be deducted from the company’s taxable income. In addition, the company may be exempt from the TVS depending on the type of fuel and CO2 emission level. Finally, the company recovers the VAT paid on the company car, as well as the VAT on fuel and maintenance expenses.

Tax benefits for hybrid company cars

Hybrid company cars, being considered less polluting, benefit from tax advantages. In particular, they are partially or fully exempt from the TVS, depending on their CO2 emissions.

For the exemption to be full, a hybrid company car must not emit more than 50g of CO2 per kilometre. This threshold is set by the WLTP standard: Worldwide harmonized Light Vehicles Test Procedures. If the vehicle exceeds this limit, it will only be exempt from the TVS for 3 years. This scheme does not apply to diesel hybrid cars.

Additionally, if your company car is a hybrid vehicle using hydrogen alongside electric power, you may be eligible for a partial or full exemption from the registration certificate tax.

For a company, choosing between mileage allowances and a company car depends on prior calculations. You need to review all the vehicle’s criteria, as well as how it will be used, then calculate the resulting financial and tax benefits.