Fixed expense allowance granted retrospectively is, in principle, not specifically exempt

Important conditions for a fixed expense allowance are that it must be substantiated by specifically exempt expenses or intermediary expenses and that an investigation into the expenses actually incurred has taken place in advance. The Dutch Tax and Customs Administration recently published a Knowledge Group position explaining that a fixed expense allowance cannot, in principle, be granted retrospectively as specifically exempt. In this article, we explain this in more detail. 

Fixed expense allowances under the work-related costs scheme 

Under the Dutch Wage Tax Act 1964 (hereinafter: Wage Tax Act 1964), the basic principle is that reimbursements an employee receives from their employment is considered to be wage. Under the work-related costs scheme, an employer can also designate certain expense reimbursements as items subject to final levy. If a specific exemption applies, the reimbursement can be paid to the employee free of tax. 

It is also possible to pay a periodic fixed expense allowance for specifically exempt expenses and intermediary expenses. This requires an investigation into the expenses actually incurred by employees to have taken place in advance. In general, the Dutch Tax and Customs Administration takes the position that such an investigation should last approximately three months. It is important to carry out an expense investigation correctly. Forvis Mazars can assist with this. This may include discussing the parameters of such an investigation with the Dutch Tax and Customs Administration in advance, such as the number of employees who should participate, the expenses to be included and the period covered by the investigation. 

A fixed expense allowance differs in this respect from reimbursement on an expense-claim basis. With reimbursement on an expense-claim basis, the expenses actually incurred are reimbursed afterwards, based on receipts or invoices, for example. 

A fixed allowance cannot be substantiated retrospectively 

In the situation presented to the Knowledge Group, an employer decides in September 2025 to grant its employees a fixed expense allowance of €50 per month retrospectively from 1 April 2025. The employer pays the allowance for the period up to and including December 2025 in a single payment. 

Before making the payment, the employer has an investigation into the actual expenses carried out from September to November 2025. On that basis, the employer determines on 1 December 2025 that the expense allowance can qualify for a specific exemption. 

The question is whether the allowance for the period from 1 April to 1 December 2025 can be regarded as a fixed expense allowance to which the specific exemptions apply. The Knowledge Group answers this question in the negative. According to the Knowledge Group, the allowance for the period from 1 April to 1 December 2025 cannot be regarded as a fixed tax-free allowance. 

According to the Knowledge Group, a fixed expense allowance must relate to expenses that an employee has yet to incur. It is a predetermined amount intended to cover future expenses. In the situation presented, the expenses had already been incurred before the employer had completed the expense investigation and determined the fixed allowance. According to the Knowledge Group, the fact that the expense investigation was carried out before payment of the allowance (in this case in September) is not sufficient. 

Reimbursement on an expense-claim basis may still be possible 

The fact that the payment does not qualify as a fixed expense allowance does not automatically mean that every reimbursement of expenses already incurred is taxable. The employer may still be able to reimburse the actual expenses incurred by employees during the relevant period on an expense-claim basis under a specific exemption. The employer must then substantiate the expenses incurred using invoices and receipts, for example. 

Want to know more? 

Do you have questions about the options for paying a fixed expense allowance? Or would you like support with an investigation into the expenses actually incurred? Please contact us.