Understanding Reimbursement for Private Vehicle Use
When a company reimburses an employee for costs related to the use of their private vehicle for business purposes, this payment is classified as "expenditure on account of an employee." This means:
- It is not taxable for the employee—it is treated as exempt income under tax law.
- Shareholder-employees without PAYE income can still receive these reimbursements.
- The reimbursement can be calculated using the mileage rate set by the Commissioner, among other methods.
How Reimbursement Works
The reimbursement amount should reflect the actual business use of the vehicle. Companies can choose:
- Mileage rates: Using IRD’s standard mileage rates.
- Actual costs: Keeping track of all business-related vehicle expenses.
Using the mileage rate is often the simplest and most commonly accepted approach.
Links
- Reimbursing shareholder-employees for motor vehicle expenses and the use of the Commissioner's mileage rate
- Meaning of expenditure on account of an employee
- Expenditure on account, and reimbursement, of employees
- Commissioner's statement of a mileage rate for expenditure incurred for the business use of a motor vehicle