Technical Update - (Revised May 2017 - Benefits in kind (avantages en nature) of company cars in France
If an employer provides an employee with a company car, the private usage of such a vehicle by the employee, outside of working hours, constitutes a benefit in kind or avantage en nature. The use of a company car to travel from home to the workplace is not considered to be part of the benefit in kind, as long as the employer is able to demonstrate that:
- the use of the vehicle is necessary for the work;
- the employee is unable to use public transport to get to work (either because of poor transport connections between their home and workplace or because of the hours or conditions of the work).
Benefits in kind are taxable in France in the same way as an employee’s salary. This is achieved by adding the benefit in kind to the gross salary on an employee’s payslip. Social security deductions are calculated on this total amount. The benefit in kind is then removed once the deductions have been made from the overall amount, giving the net salary to be paid to the employee. It should be noted however, that this net salary paid to the employee is not net in the English sense of the word, as income tax has not yet been deducted from it. In France income tax is not paid through the PAYE system as in England. Instead employees must declare their income at the end of the financial year (in France this is the same as the calendar year). The income tax is then calculated and paid in the following tax year.
Definitions of different types of company car available in France
Company car (véhicule de fonction): vehicle provided to an employee by an employer authorised for use during and outside of working hours.
Service vehicle (véhicule de service) : vehicle provided by a company to an employee exclusively for professional use during working hours only.
Commercial vehicle (véhicule utilitaire) : vehicle used specifically for the transportation of goods e.g. forklift, lorries etc.
Of the above, only a véhicule de fonction gives rise to a benefit in kind since a véhicule de service is only used for professional purposes during working hours and a véhicule utilitaire does not constitute a benefit in kind provided that it is stated in the company's rules and regulations that such a vehicle is for professional use only.
Calculating the benefit in kind for a company car (véhicule de fonction)
The benefit in kind associated with a company car can be calculated using one of two methods at the choice of the employer:
1. actual annual expenses (dépenses réelles) to include:
- the annual depreciation charge of the cost of the vehicle inclusive of VAT;
- annual petrol costs (corresponding to private usage only, not including home to work journey);
- annual insurance costs;
- annual maintenance costs.
2. an annual flat rate amount (forfait annuel) calculated as a fixed percentage of the purchase cost of the vehicle including VAT. If the employer pays for petrol, either the actual petrol cost used for private journeys is added to the flat rate amount, or an increased flat rate is used.
The table below summarises the different calculation methods of benefit in kind values for a company car that is owned (not rented) by the company:
|Method used||Amount of the taxable benefit|
|Time elapsed since purchase of vehicle by company|
|≤ 5 years||> 5 years|
|Actual expenses||Petrol paid by employer||20% of purchase cost + insurance cost + maintenance cost||10% of purchase cost + insurance cost + maintenance cost|
|Petrol paid by employee||20% of purchase cost + insurance cost + maintenance cost + petrol cost for personal journeys||10% of purchase cost + insurance cost + maintenance cost + petrol cost for personal journeys|
|Flat rate||Petrol paid by employer||9% of purchase cost + petrol cost for personal journeys
12% of purchase cost
|6% of purchase cost + petrol cost for personal journeys
9% of purchase cost
|Petrol paid by employee||9% of purchase cost||6% of purchase cost|
Example scenario and calculation of benefit in kind values
1. The vehicle is owned by the company (as opposed to renting it, for which different rates apply).
2 .The vehicle is for the use of one employee only.
3. The vehicle is stand-alone and not part of a fleet.
4. Evaluation to be calculated over a 12 month period i.e. the car is available for the employee to use during an entire year.
5. The employee does not contribute financially to the cost of the vehicle.
Purchase cost of vehicle including VAT: € 40,000
Annual cost of petrol used for personal journeys: € 1,800
Annual insurance cost: € 1,000
Annual maintenance cost: € 2,000
Percentage of mileage for personal use: 30%
Monthly gross salary of a member of senior management: € 15,000
Table of annual benefit in kind values using both methods:
|Method used||Taxable benefit in kind|
|Time elapsed since purchase of vehicle by company|
|≤ 5 years||> 5 years|
|Actual expenses||Petrol paid by employer||5,100||3,900|
|Petrol paid by employee||3,300||2,100|
|Flat rate||Petrol paid by employer||5,400 or4,800||4,200 or 3,600|
|Petrol paid by employee||3,600||2,400|
Annual effect on employee of benefit in kind
Using the upper and lower bounds of the benefit in kind values from the table above:
|No car||Lower bound||Upper bound|
|Monthly benefit in kind (BIK) /€||0||175||450|
|Monthly net salary /€||11,624||11,604||11,573|
|Decrease in annual net pay (A) /€||-||240||618|
|Annual taxable salary /€||145,480||147,400||150,416|
|Annual income tax bill /€||46,115||46,902||48,139|
|Increase in tax of having BIK (B)||-||787||2,024|
|Total annual cost of BIK to employee (A + B)||-||1,027||2,642|
The table above shows that the inclusion of a benefit in kind causes the employee's cash salary received to decrease and their taxable salary to increase thereby increasing their income tax payable. The overall result is a cash cost to the employee of between € 1,027 and € 2,642.
Annual effect on employer of providing one company car to one employee
Depreciating the car over five years gives the following results:
|Monthly benefit in kind value||175||450|
|Annual depreciation charge of car||8,000||8,000|
|Annual maintenance costs||2,000||2,000|
|Annual insurance costs||1,000||1,000|
|Increased social charges on BIK||567||1,459|
|Total annual cost of providing car (A)||11,567||12,459|
|Corporation tax saved (B)||(3,856)||(4,153)|
|TVS payable (C)||1,770||1,770|
|Total annual cost of company car to employer (A+B+C)||9,842||10,076|
|Total cost of company car to employer over five years||47,408||50,380|
The table above shows that a benefit in kind results in a saving of corporation tax since the expenses associated with the car (such as depreciation charge and maintenance etc) can be deducted from taxable profits. However, the benefit in kind will cause an increase in staff costs for the employer. The employer will also be required to pay tax on each company car they own or rent called taxe sur les véhicules des sociétés (see below). The saving in corporation tax is outweighed by the other costs payable.
Company car tax (Taxe sur les véhicules des sociétés) (TVS)
This tax is payable in one instalment annually from 1 January 2018 onwards (it was previously payable quarterly) by companies on all vehicles owned or rented for business purposes and is non-deductible from the profits of the business.
It is calculated for each vehicle by adding together the following elements:
1. a rate based either on the CO2 emissions of the vehicle or the power of the engine;
2. a rate based on pollutant gas emissions, the type of fuel used and the registration date.
For a car with a registration date in 2010, running on petrol, with CO2 emissions of 150 g/km this gives an annual tax of € 1,770.
If the employee were to purchase a car at a cost of € 40,000 paying over a five year period this would cost € 8,000 per year plus interest. The provision of the same car by their employer would cost the employee a maximum of € 2,642 per year in taxes. Therefore it is more advantageous from the employee’s perspective to have a company car as opposed to buying one themselves. But at the end of the day the car still belongs to the employer.