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 are classified as exempt mileage.

Knowing what these expenses are and what tax treatment they receive 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 before the Tax Agency.

In this article we present a classification of the expenses exempt from Personal Income Tax and detail the tax provisions on the subject.

See all software Expense Management

Which expenses are exempt from Personal Income Tax: per diems and travels?

Generally speaking, any payment made by a company to its employees constitutes earned income. This, therefore, would be part of the taxable and liquidable base on which the 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 that justifies them.

Within such exonerations are the expenses for locomotion, maintenance and stay that do not exceed the limits that we will review later in this article.

In the same sense, expenses for travel, subsistence and living 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 then see how the 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 fulfill the tasks and activities inherent to his/her position.

In this sense, the exoneration applies when the employee uses public transportation:

• makes use of public transportation, for which he/she must present as support invoices or other equivalent document (airplane, train, bus ticket, etc.);
• otherwise, up to 0.19 euros per kilometer traveled.

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

Meals and lodging expenses: how to justify them?

The expenses generated by subsistence and living expenses include travel expenses to municipalities other than the person's usual place of work and residence. Likewise, normal living expenses and those generated in:

• hotels and other hotel establishments,
• restaurants.

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

• day and place of the trip,
• reason or motive.

🙋‍♀️ Remuneration for meals, outside the context of work travel, is made by means of remuneration in kind (right to restaurant tickets or the possibility of eating in the company restaurant).

Summary table and other exempt expense provisions

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

Source: Personal income tax return.

The legislation also contemplates other special rules to define exemption from the levy with respect to:

• airline flight personnel,
• personnel stationed abroad,
• mobile or itinerant work centers,
• special employment relationships of a dependent nature,
• transfer of employment,
• members of the jury tribunal,
• members of polling stations,
• members of representative institutions.

Exempt expenses: update for 2020

Following the 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 workers, it is the company itself that must submit the supports justifying the expenses of per diems and travel expenses.

This shifts the responsibility that initially fell on the employee, although it does not prevent him/her from continuing to voluntarily provide the supporting documents.

See all software Expense Management

Exempt mileage: best practices

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 the items paid to their employees. Likewise, they must communicate them in each settlement period.

Let's get to work!