Cabinet response to assessment of work-related expense scheme
The WKR (work-related expense) scheme is the system that provides for reimbursements and provisions in a payroll tax sphere. Its backbone consists of targeted exemptions and nil valuations in combination with a free margin. Reimbursements and provisions that qualify for targeted exemption remain untaxed in so far as they do not exceed the exempted maximum, whereas particular forms of wages in kind – such as workstations or workwear – are eligible for nil valuation. The employer has the option of posting reimbursements and provisions to which no exemption or nil valuation applies to the free margin, which is defined as 1.2% of the wage bill for tax purposes. The various reimbursements and provisions remain untaxed as long as the employer stays within the free margin; any excesses will be treated as taxable wages to which an 80% tax rate applies, to be settled up by the employer. The work-related expense scheme was first introduced in 2011 and gained mandatory status in 2015.
The State Secretary for Finance has now submitted the Cabinet’s response to the recent assessment of the work-related expense scheme for the scrutiny of the Lower House of the Dutch Parliament. The assessment has borne out that employers to date have failed to experience the envisaged alleviation of the administrative burden, one of the reasons being that they have become more aware since the introduction of the WKR scheme of the manner in which reimbursements and provisions are required to be accounted for. The practicalities of the WKR scheme have become too complex. The assessment has – perhaps somewhat unexpectedly – borne out that neither the Tax and Customs Administration nor the consulting industry is keen to revert to the old system of reimbursements and provisions, although it has been suggested that the number of targeted exemptions should be trimmed back in order for the free margin to be expanded. The main causes of free margin overruns are staff parties and company anniversary festivities.
Use of free margin
Employers make every effort to use the targeted exemptions and nil valuations before they post reimbursements and/or provisions to the free margin. This may well exacerbate the perceived complexity of the scheme.
The Cabinet has identified scope for streamlining the WKR scheme in certain respects.
The “necessity criterion” is working satisfactorily, and has not been shown by the assessment to warrant amplification.
The distinction between provisions at the workplace and those outside the workplace is perceived as defying logic. This could be resolved by additionally rendering off-workplace provisions subject to targeted exemption. The current distinction applies to parking spaces and staff parties. However, for the sake of budget neutrality the free margin would have to be cut down on if the above adjustment were to be made, as something which the Cabinet considers to be inadvisable.
If you have any questions on the subject of the work-related expense scheme, we will be happy – as always – to un-confuse you!
Dutch version: Kabinetsreactie evaluatie werkkostenregeling