Nowadays, a passenger car becomes an indispensable factor in almost every business activity. Sometimes it’s a guarantee of success, because in addition to the benefits of convenience and time saved it can also affect the company’s reputation and enhance its good name. Many entrepreneurs cannot imagine running a business activity without a vehicle. There are several ways to get a car, which include purchase, rent or use of a private vehicle in business. Due to the fact that each of the above-mentioned possibilities has different tax implications it’s worth taking a closer look at the individual solutions before a decision is made.
Company car and VAT
In a situation where a vehicle is used both in business and for private purposes (the so-called mixed activity) a taxpayer is entitled to deduct input tax only in 50 per cent. The other part, i.e. non-deductible VAT will increase tax costs. However, it’s possible to deduct the whole tax amount. This will happen in two cases. One of the cases is when a vehicle is used exclusively for business purposes. If the entrepreneur wants to deduct 100 % VAT he should register the vehicle with the tax office within 7 days from the date of making the first expense based on a special VAT-26 application form. Besides, the taxpayer is obliged to keep a vehicle mileage record and provide regulations for using a car, which will make its use impossible for private purposes of the employees. Other grounds for making a full VAT deduction involves a special construction of the vehicle. This is possible with vehicles considered to be trucks. This group includes means of transport whose permissible total weight exceeds 3.5 tones, vehicles designed to carry at least 10 persons including the driver, or construction of which makes it impossible to use it for private purposes (e.g. specialized vehicles). It is worth emphasizing that in the case of trucks it’s necessary to have a technical check, which will clearly confirm the nature of the fixed asset.
Company car as a fixed asset
One of the possibilities of acquiring a car in the company is to purchase it. This entails the need to list the vehicle in a register of fixed assets, no later than at the time of putting it into use. As defined, fixed assets are assets which are the property of the taxpayer and that have been purchased or manufactured internally, they are complete and fit for use at the same time and the expected period of their use in business is longer than a year. In order to list a given component in fixed assets it is necessary to determine its initial value, including the purchase price and other costs related to this purchase, such as costs of transport, loading, unloading, and insurance. It should be pointed out that in a situation when the initial value of a given component does not exceed the net amount of PLN 10 000 the taxpayer should not list the vehicle in a register of fixed assets and the purchase related expenses will directly increase tax costs. The main advantage of listing the vehicle in a register of fixed assets is the possibility of making depreciation write-offs. However, there is a limitation here, write-offs which correspond to the value of the car not exceeding the amount of PLN 150 000 and in the case of electric and hybrid cars the amount of PLN 225 000 are charged to tax costs.
The correct proportion can be calculated on the basis of the formula given below:
x=(150 000 (225 000))/(value of the car )
Leasing, renting a vehicle
Operational lease or long-term lease is another possibility of acquiring a passenger car in the company. However, you should bear in mind that a beneficiary won’t list the vehicle in a register of fixed assets and thus cannot make depreciation write-offs. On the other hand the taxpayer has the possibility of charging fees and leasing installments to tax costs. Like in the case of fixed assets also here there is a limit of PLN 150 000 or PLN 225 000 for electric and hybrid cars. This restriction applies only to leasing installments and the initial payment, because interest rates are in 100% tax-deductible. The example below shows how to calculate this proportion:
An active payer of VAT has concluded an operating lease agreement. The initial value of the rented passenger car is the net amount of PLN 180 000. The monthly value of leasing installments is the net amount of PLN 4 000. The car is used for mixed business purposes.
The initial value of the car after taking VAT into account: 180 000 + 50%(180 000*23%) = PLN 200 700
Proportion: =150 000 /(200 700) = 74.74%
Installment value with VAT not deducted: 4 000 + 50%(4 000*23%) = PLN 4 460 Installment value constituting tax deductible costs: 74.74% * PLN 4 460 = PLN 3 333.40
How to settle operating expenses?
In order to properly account for operating expenses one should focus on the following issue – whether the vehicle is used for business purposes only or is it used in a mixed manner. This has significant impact on recognition of incurred expenditures in tax costs. In general, operating expenses are considered as costs related to vehicle use. These include fuel charges, car washing fees, wiper fluids / brake fluids or costs of checks. In addition, please bear in mind that according to the definition a tax expense is an expense related to obtaining, maintaining or securing a source of income. Since 2019 operating expenses are treated as a tax cost in 75 % only. It should be stressed that the net amount should be increased by non-deductible VAT. This rule applies to vehicles used in a mixed manner. In the case of trucks or passenger cars used in business activities only (remember to register your vehicle with the tax office and the obligation to keep a vehicle mileage record) the taxpayer has an option of charging the full amount into tax costs.
A private car in business
There may be a situation when the entrepreneur uses his private car in business. Since 2019 the mileage that limits the amount of operating expenses included in tax costs has been abolished. This was replaced with a 20 % limit and only this part of net expenses (plus non-deductible VAT) can be a cost for the company.