Posted by James Financial Services Inc

Exploring The Necessities Of Work-Related Scheme

Exploring The Necessities Of Work-Related Scheme

The work-related costs scheme allows you to spend part of your total taxable salary on benefits, benefits in kind, and supplies for your employees without tax liability.

However, WES was changed on January 1, 2015:

  • The discretionary margin percentage (fixed) has been reduced from 1.5% to 1.2% of taxable income.

  • Tools, computers, and mobile media are exempt if they are reasonably necessary within the employer's rational reasoning for the service (the necessity test must also be met).

  • Discounts on your company's products are exempt under conditions (up to 20% of the market value and 500 euros per year).

  • The distinction between pay and service has expired for different work structures.

  • The final tax on the amount exceeding the discretionary margin can be determined at the group level. There is a group if there is at least 95% participation.

  • An owner who exceeds the discretionary margin will not have to pay before the first payroll tax return of the new calendar year.


How Does The Scheme Work?

Payroll tax does not need to be paid for the discretionary amount. You don’t have to pay a final tax of 80% for any amount you pay or in kind, above the discretionary scope. There is no need to pay or withhold health insurance premiums or employer health insurance contributions based on income above this amount.


Discretionary Scope

Employers can reimburse their employees up to a maximum of the company's total wage cost (i.e., the collective wage of all employees combined) without tax liability under the work-related costs scheme. This is called the discretionary zone. As of January 1, 2021, the discretionary scope is:

  • 3% on the first $400,000 salary costs (note that this percentage has increased due to the covid crisis and will decrease again from January 1, 2022).

  • 1.18% for amounts over $400,000.

For example, a firm where the salary cost is $400,000, the tax deduction is $6,800.


Specific Exemptions And Zero Contributions

You can reimburse certain expenses, offer in-kind benefits, or make provisions for your employees without tax liability. This includes travel, telephone or computer costs. This can be done through specific exemptions and zero valuation. Specific exemptions are, for example, travel allowances, meals, and overnight stays for courses or conferences, and expenses incurred for the payment of a certificate of good conduct. The zero valuation only applies to wages in kind, i.e., work clothes or drinks at work. It is not debited from your discretionary scope.


Employee Training

The specific exemption for employee training (this is current salaries) will be extended in 2021 with an exemption for previous employment salaries (it therefore also applies to former employees). The employee follows this training or studies to earn an income.


Step To Follow To Apply

The following steps must be followed for a correct application of WES:

  • Determine if the salary and performance of employees and former employees should be designated as salary.

  • Determine which offsets and dispositions are designated as a component of the final commission. Allowances and provisions that have not been fixed should be included in the salary as taxable salaries.

Apply special rules to designated items:

A. targeting of exemptions (does not affect the 1.2% margin of appreciation),

B. zero-rating (does not affect the discretionary margin of 1.2%),

C. fixed valuations (does not affect the discretion of 1.2%),

The calculation of the amount of the designated remuneration and the provisions calculated under these special rules is part of the discretionary margin of 1.2% of the tax remuneration. Working conditions may need to be changed. The basic assumption is that this is only allowed if the employee agrees. A collective and unilateral modification of working conditions to the employee's detriment is only permitted if accepted in writing and demonstrated as having a compelling commercial interest in this modification. You will also need to consider issues such as a phase-out plan and whether it can generate support in the works council (if applicable).

If the Work Expense Plan administration is not adequate, you run the risk of making incorrect income tax returns on wages and any other contributions and additional penalties.

FOR MORE INFORMATION ON HOW JAMES FINANCIAL SERVICES, INC. CAN BEST HELP YOU WITH YOUR TAX FILING NEEDS, PLEASE CLICK THE BLUE TAB ON THIS PAGE.


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