Halfway through 2023, few will have missed the increase in the tax-free mileage allowance. But how much was it again? How does it work in practice? And how should you really think about the mileage allowance as an entrepreneur, in order to benefit from it in the right way? In this holiday season, we thought we'd refresh our memories a bit for the upcoming fall.
What is a mileage allowance?
A mileage allowance is a financial allowance to which you are entitled to cover car expenses related to business travel. It is usually based on the number of miles driven and a fixed price per mile. Most commonly, the employer pays the mileage allowance on a regular basis, but you can always deduct €25 per mile driven in your income tax return to get the money back for the travel expenses afterwards. When you are on a business trip, you are also often entitled to tax-free subsistence allowances.
Tax-free limits for mileage reimbursement in 2023
In 2023, the limit for the tax-free amount of mileage allowance was increased to €25 per mile, from €18.50 per mile previously. This means that for business trips by car, you are entitled to a tax-free allowance of €25 per mile.
However, the rules differ between private cars and company cars or company cars:
- Private car: 25 kr/mile (regardless of fuel)
- Benefit car: €12/mile (diesel, petrol or other fuel)
- Electric car: 9.50 kr/mile (applies to electric cars powered 100% by electricity).
These amounts are standardized and set by the Swedish Tax Agency, and are intended to cover the fuel, wear and tear and other costs incurred during business travel.
Taxable mileage allowance
It is not unusual to agree on a higher mileage allowance, as the car, depending on the model, often costs more than SEK 25 per mile. Unionen recommends that employers pay at least SEK 19.50 per mile driven in addition to the tax-free amount.
However, when agreeing on a higher compensation than the Swedish Tax Agency's standard amount, it is important to remember that the part that exceeds the tax-free amount is considered a salary supplement, which means that the employer needs to pay employer's contributions and that the employee will be taxed. For example, if a driver receives SEK 35 in mileage compensation from his employer, SEK 25 of this is tax-free while the remaining SEK 10 is taxable.
Invoice the customer for travel costs
As we mentioned, the real cost per mile driven is often much higher than €25. Exactly how high it is depends very much on the circumstances, but a common surcharge to make on the invoice for travel expenses is usually somewhere around SEK 50 per mile. If you travel as an entrepreneur in the service with your private car, you will still be able to pick out SEK 25 of this SEK 50 tax-free, while the remaining amount - in this case - SEK 25 is counted as income in the company.
How to record the mileage allowance
To take an example, let's say you as a business owner need to travel 40 miles to complete an assignment. You then agree with your customer that you will invoice them €2,000 plus VAT (40 x 50) for your car expenses. This means that you can take out 1000 SEK (25 x 40) tax-free, while the other 1000 SEK (25 x 40) is counted as income in your company.
- The revenue, i.e. SEK 2000, is recorded as a credit on 3041 and a debit on account 1930. The output VAT is recorded as usual, credit on 2611 and debit on account 1930.
- The tax-free mileage allowance, i.e. 1000 SEK, is recorded as a debit on account 7331 and a credit on account 1930.
Also, don't forget that you may be reimbursed for other expenses, such as parking fees, which you then deduct as normal costs in your accounts.
Mileage records and mileage reimbursement
In the case of a tax audit, the burden of proof is reversed, which means that it is up to you to prove that you are doing the right thing. You therefore need to be able to prove that the distance driven has actually been done within the business activity, which in turn means that it is very important to keep a mileage log. In the mileage log, you must show, among other things:
- Which organization you are visiting
- The purpose of the trip
- Meter reading
- Number of miles driven
For more information on how to fill in the journal correctly, we refer you to the Swedish Tax Agency's guide.
Mileage allowance for travel to and from work
When it comes to travel to and from work, you are entitled to deduct the part of the expenses that exceeds SEK 11 000. However, for this deduction to be applicable, it is required, among other things, that:
- The workplace should be at least 5 km away
- You save at least 2 hours per day by using your car instead of public transport.
- However, if there is no public transport at all on the route, a distance of only 2 km to the place of employment is sufficient.
For consultants who work for a long time at the same workplace, it may be worth pointing out that this workplace will be considered your main place of work, and that you therefore need to comply with the above-mentioned criteria to be entitled to tax-free mileage reimbursement. To find out exactly what applies to you and your company, we recommend reading the Swedish Tax Agency's website or contacting an authorized accountant.