Exempted mileage: what are they and which legal provisions apply?

The management of business expenses related to travel outside the office, including travel, meals and accommodation, often raises doubts as to whether or not they fall within the concept of exempt mileage.

Knowing what these expenses are and how they are treated for tax purposes allows you, on the one hand, to monitor and control them financially in order to maintain the economic balance of your business. On the other hand, you can comply with your obligations to the Tax Agency.

In this article we present a classification of expenses exempt from personal income tax and detail the tax provisions on the subject.

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Which expenses are exempt from personal income tax: allowances and travel

Generally speaking, any payment made by a company to its employees constitutes earned income. It would therefore form part of the taxable and taxable base on which Personal Income Tax (IRPF) is calculated.

However, article 147 of Royal Legislative Decree 8/2015 provides for exemption from taxation in the case of certain considerations and profits that meet certain conditions and have the support to justify them.

These exemptions include travel, living and subsistence expenses that do not exceed the limits that we will review later in this article.

In the same sense, expenses for travel, subsistence and allowances for a continuous period of more than nine months will be subject to taxation.

Types of expenses exempt from personal income tax: conditions to be met

Let us now look at how expenses must be justified in order to be excluded from the contribution base.

Generally, in cases where the exemption does not apply, companies refer to the rates established in the collective agreement and use an expense sheet or note to detail the amount to be paid.

1. Exempt travel expenses: how to justify them?

Mileage expenses refer to the expenses incurred by a person, which are generated within the framework of a professional trip, necessary to fulfil the tasks and activities of his/her position.

In this sense, the exemption applies when the employee uses public transport:

• uses public transport, which must be supported by invoices or other equivalent documents (airline, train, bus tickets, etc.);
• otherwise, up to 0.19 euros per kilometre travelled.

🙋‍♀️ Exempt travel expenses may include tolls and parking, provided that these are duly justified.

2. Meals and subsistence expenses: how can they be justified?

Subsistence and subsistence expenses include the cost of travelling to a municipality other than the person's usual place of work and place of residence. Likewise, normal subsistence expenses and those incurred in:

• hotels and other catering establishments,
• restaurants.

In both cases, it is necessary to have the supporting documents proving:

• day and place of travel,
• reason or motive.

🙋‍♀️ The remuneration for meals, outside the context of work travel, is in the form of remuneration in kind (entitlement to restaurant tickets or the possibility of eating in the company restaurant).

Summary table and other provisions on exempted expenses

Below is a summary of tax-exempt expenses and the applicable amounts, as well as other relevant provisions.

Source: Personal Income Tax Return.

The legislation also provides for other special rules to define the exemption from the levy in respect of:

• airline flight personnel,
• personnel posted abroad,
• mobile or itinerant workplaces
• special employment relationships of a dependent nature
• transfer of employment,
• members of jury tribunals,
• members of polling stations,
• members of representative institutions.

Exempt expenses: update for 2020

Following resolution 3972 of 2018 of the Economic Administrative Court (TEAC), it was established that since it is the company that defines and supervises the activity of its employees, it is the company itself that must submit the supporting documents justifying the expenses for per diems and travel expenses.

This shifts the responsibility from the employee, although it does not prevent the employee from continuing to voluntarily provide the supporting documents.

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Exempt mileage: good practice

Now that you have grouped and defined the expenses exempt from IRFP, the only thing left to do is to comply with good accounting practices.

Remember that companies are obliged to keep a record of the amount of all remuneration paid to their employees. Likewise, they must report them in each settlement period.

Let's get down to work!