The moment of truth is there to see if you have exceeded the ‘vrije ruimte’ (the scope of tax-free aggregated personnel costs) of 2020. In early 2021, you must draw up a balance sheet to see if your organization has provided more reimbursements and provisions charged to the ‘vrije ruimte’ than was possible. In case the ‘vrije ruimte’ has been exceeded, the excess amount will be subject to a final levy (‘eindheffing’ in Dutch), which means you must pay an additional wage tax and national insurance premiums over this excess.
The first step in assessing whether or not the ‘vrije ruimte’ has been exceeded is by checking how much this scope of tax-free aggregated personnel costs actually is. In order to calculate the scope, you need the total wage bill of your employees in 2020. If the ‘concernregeling’ (regulation for concerns) is applied, the wage bills of all concerns must be added together.
If the wages of ex-employees (i.e. employees who have been dismissed, have resigned or have otherwise stopped working for the organization in 2020) makes up more than 10% of the total wage bill, these wages should be left out of the calculation. In that case, only the total of wages from current employees should be taken into consideration. Once you have established the basis for the calculation of the ‘vrije ruimte’ of 2020, you will take 3% of the first € 400,000 of the wage bill and 1.2% of the remainder. The total of these two is the available ‘vrije ruimte’ of 2020. Remember that taking 3% of the first € 400,000 is only a temporary rule in effect for 2020 due to the coronavirus pandemic. And don’t forget to use this 3%-rule only once when the ‘concernregeling’ is applied.
The next step is to take the total of all provisions and reimbursements given to employees which have been charged to the ‘vrije ruimte’ in 2020. If the ‘concernregeling’ is applied, this must be done per concern. Remember that tax-exempt provisions and reimbursements shouldn’t be included in the ‘vrije ruimte’. If the total amount of all provisions and reimbursements together higher that the available ‘vrije ruimte’, your organization must pay a 80% final levy over the excess amount. When the ‘concernregeling’ is applied, the concern with the higher total wage bill must pay the final levy to the revenue service.
If a final levy must be paid, it should be declared during the payroll tax return of the second tax period in 2021. In other words, if you file your payroll tax returns every month, the final levy must be declared in the payroll tax return of February 2021 at the latest (which is filed in March 2021). This means that since this year, you have more time (i.e. one more tax period) to declare the final levy. In the tax return, you must declare the final levy due in the designated column, titled ‘eindheffing overschrijding forfaitaire werkkostenregeling’. You will then pay the final levy at the same time as any payroll tax due in that tax period.
It is possible that during the previous year, you have already calculated the ‘vrije ruimte’ and paid the final levy, if applicable, to the revenue service. This is the case, for example, if you draw up a balance sheet every month or every three months. If so, you must draw up a final financial statement in early 2021 to see if any amount in final levy for 2020 is still owed or if you have paid to much in final levy in 2020. Any deficit or excess in final levy here must also be declared in the payroll tax return filed during the second tax period of 2021.
Organization has existed for only part of 2020
If your organization has existed for only part of 2020, you may not recalculate the wage bill as extending over the entire calendar year for the purpose of assessing the ‘vrije ruimte’. Instead, the wage bill to be used must be the actual wage bill of 2020. If the reverse is true, i.e. your organization closed in the course of 2020, then you were probably already contacted by the revenue service to pay the final levy owed. After all, this must happen at the latest when filing the payroll tax return for the tax period during which the organization closed.
Written by Lotte van Rees, freelance specialist payroll taxes (original articles written in Dutch).