What is mileage allowance?
Most companies pay tax-free mileage allowance to employees for business related mileage driven in their own vehicle according to the tax authorities’ fixed rates. The mileage allowance helps covering some of the employee’s costs related to the vehicle – such as gas, maintenance, depreciation, insurance, vehicle tax etc.
It is important that you are aware of the fact, that you can’t receive both mileage allowance and a mileage tax relief (deduction for transport between home and work). Mileage tax relief is an allowance you can deduct in tax if you have more than 12 kilometers to work. Read more about that here (link to mileage tax relief).
Colloquially, mileage allowance can also be referred to as travel allowance, transportation mileage, gas money etc. – it goes by many names but let’s stick to mileage allowance.
You must keep a mileage record
The Danish Customs and Tax Administration (SKAT) may knock on employer’s door and ask for documentation of the employees’ mileage. It’s the employer’s responsibility to check whether all the requirements are met. The requirements are:
- The purpose of the mileage – the specific task to which the mileage is reported
- The destination with any sub-destinations – the start and end address of the mileage as well as any stops on the route
- The date – the date must be registered
- Number of kilometers driven – the exact number of kilometers must be specified as the calculation is determined by this.
- Calculation by rates – read the rates later on in this article
- The mileage must be conducted in the employee’s own vehicle – the mileage must be driven in own vehicle in order to qualify for mileage allowance. A partner’s vehicle falls into the same category, if you share finances
How to calculate the mileage allowance?
The mileage allowance is calculated by fixed rates, which can change slightly from year to year. The rate of mileage allowance varies at 20.000 km per year. In 2022, a tax-free payment of DKK 3.70 per. km. will be paid. However, if the employee exceeds 20.000 km. annually the rate for the excess part is DKK 2.17 per km.
Let us go through a simple example. Michael is a consultant, who visits many different customers and has driven 25.000 kilometers in 2022. The calculation of his mileage allowance is:
(20,000 x 3.70) + (5,000 x 2.17) = DKK 74,000 + DKK 10,850 = DKK 84,850
You can also receive mileage allowance if you use your own bicycle, moped, scooter or electric scooter. In 2022, the rate is DKK 0.57 per. km.
What is business related mileage?
Business related mileage cover:
- Mileage between home and work for a maximum of 60 days within 12 months
- Mileage between workplaces in your own vehicle for the same employer. The classic example is a salesperson or consultant who drives to and from a client/customer in a business context
- Mileage within the same workplace in your own vehicle. This might be the case when e.g. driving between factory and headquarter in a manufacturing company
Both Danish and foreign employers can pay tax-free mileage allowance. If the employee drives abroad, the same rules apply as when driving in Denmark.
Want to know more?
With a digital mileage book from Acubiz it’s easy to keep track of your business-related mileage. Track and register your mileage automatically through GPS or type it manually. Mileage allowance is calculated based on local rates and is sent for approval immediately.