Avoiding tax risks associated with daily allowance payments

We continue the daily allowance analysis that we started on May 10, 2017 and we present further on some specific situations that raise accounting issues or sanctions at audits.

Many companies lose money because they have not implemented a control system for advances payments to the employees.

The most common situations are:

• employees who left the company, but they are registered as having to give back money to the company;
• employees who do not clear their advances payments after returning from the delegation;
• fraud.

Effective payouts of daily allowance to employees involve more tax risks if companies are not careful about offering these amounts. For example, if the companies grant daily allowance, they can no longer reimburse the employee for other meal or transport expenses. However, the tax risks associated with payments of daily allowances can be easily avoided if the companies comply with the money-awarding rules outlined below.

Tax errors related to payments of daily allowances to the employees:

• inadequately adjusting of the amounts received by the employee as daily allowance;
• the amounts exceeding the limit are not correctly taxed;
• a daily allowance is granted, but the transport and meals during the delegation are also settled;

• The existence of the limit for cash payments in the case of travel advance payments is misinterpreted;
• there is no internal procedure for settling advance payments in the company, which can result in big amounts of money that cannot be recovered;
• delegation for more than 120 days in 12 months.

The daily allowance is only granted if the employees / administrators are delegated to a locality that is more than 5 km away from the place where the employee has a permanent place of work. The delegation period must be at least 12 hours.

According to the Labor Code, an employee cannot be delegated for more than 60 days over 12 months and this period may be extended for successive periods of up to 60 calendar days only with the employee’s agreement.

We will continue to present daily allowance casuistry on Monday, May 15, 2017, with a special case: daily allowance in Registered sole trader cases.