Kilometer for VAT purposes and mileage for PIT purposes - how do they differ?

Service-Tax

Entrepreneurs who use private passenger cars in their business activities know well the vehicle mileage records, otherwise known as mileage records. However, the kilometer mark may also be obligatory for this group of entrepreneurs who use cars that constitute the company's fixed assets. Therefore, entrepreneurs often have doubts when mileage is required for VAT purposes and when mileage is required for PIT purposes.

Thus, the mileage mileage mechanism was also necessary for those who own company passenger cars used exclusively for business purposes in their company. Pursuant to the regulations, 100% of the tax can be deducted from expenses related to passenger cars that are fixed assets - but on the condition of driving, among others, VAT kilometers.

As a result, in practice, two kilometers are distinguished - for PIT purposes and for VAT purposes. What is the difference between mileage for VAT purposes and mileage allowance for PIT purposes?

Kilometers of private car vehicles

Vehicle mileage records - or mileage, is associated by taxpayers primarily with private cars that are used for business purposes. Its basic function is to calculate how many of the "car" expenses actually incurred in a given month can be classified as tax deductible costs (but only up to a certain limit).

This means that such a kilometer is used to correctly settle the cost on the basis of personal income tax (PIT).

What should be included in the "profitable" mileage test? Information on this issue can be found in Art. 23 sec. 7 of the PIT Act. Pursuant to this provision, the entrepreneur should include in the register of mileage of his vehicles at least:

  • surname, first name and address of the person using the vehicle,

  • Vehicle registration number,

  • engine capacity,

  • consecutive number of the entry,

  • date and purpose of departure,

  • route description (where-to-where),

  • the number of kilometers actually traveled,

  • the rate for 1 kilometer of mileage,

  • the amount resulting from the multiplication of the number of kilometers actually traveled and the rate for 1 km of mileage,

  • signature of the taxpayer (employer) and his data.

Kilometer for PIT purposes introduces a restriction in including actual expenses as costs, but it is not a permanent percentage restriction. Everything depends on how many kilometers the entrepreneur has traveled in his private car in a given month for business purposes.

When it comes to VAT on expenses incurred for the purchase of fuel and other operating costs, the matter is simple in the case of private cars. Currently, entrepreneurs can only deduct 50% VAT on operating expenses (car wash, car items or current repairs) and on fuel purchases.

Fixed assets and mileage

From April 1, 2014, also those entrepreneurs who have motor vehicles that constitute fixed assets in the company began to be interested in mileage. It is related to the rules of settling the tax on goods and services (VAT), incurred when purchasing cars, and then for other car expenses, such as fuel, current minor repairs, parts, etc.

In the case of passenger cars that are a fixed asset in the company, it is possible to deduct 100% or 50% VAT on operating expenses and fuel purchases.

Taxpayers who decide to deduct 50% VAT on expenses are not required to complete additional formalities related to the vehicle. However, the possibility of a 100% deduction of VAT on expenses related to a passenger car that is a fixed asset exists only after the entrepreneurs meet certain conditions, namely:

  • reporting the vehicle on the VAT-26 form,

  • keeping mileage allowance for VAT purposes,

  • creating regulations for the use of the vehicle in the company.

According to the regulations, a full deduction of VAT on expenses is possible only when the vehicle is used exclusively for business purposes, which in the case of, inter alia, passenger cars must be documented with a VAT mileage.

Kilometer for VAT purposes - what data?

The elements that should be included in the VAT mileage note are indicated in Art. 86a paragraph 7 of the VAT Act. These are:

  • motor vehicle registration number,

  • day of beginning and ending keeping records,

  • the status of the mileage counter of the motor vehicle on the day of starting the record keeping, at the end of each accounting period and on the day of ending keeping the records,

  • entry of the person driving the vehicle for each use of this vehicle, including the subsequent entry number, date and purpose of departure, route description (from where-to-where), the number of kilometers traveled, and the name and surname of the person driving the vehicle, confirmed by the taxpayer at the end of each accounting period in the scope of the authenticity of the entry of the person driving the vehicle, if he is not a taxpayer,

  • the number of kilometers traveled at the end of each accounting period and on the day the record keeping is completed.

As you can see, the register of vehicle mileage - VAT mileage is much more detailed than the one for PIT purposes. Importantly, in the case of such records, the value of expenses, which constitute tax deductible costs, is in no way limited - when a car is a fixed asset, these costs may reduce the tax base in full. Start a free 30-day trial period with no strings attached!

Is the mileage mark for VAT purposes obligatory?

The VAT kilometer allowance for fixed asset passenger cars is not obligatory. However, its lack is related to the aforementioned limitation - instead of deducting 100% VAT on fuel purchases and other operating expenses, the taxpayer has the right to deduct only 50% of the tax on car costs.

Please note that the car entered into the company's fixed assets should not be used for private purposes, regardless of which method of VAT accounting has been chosen. The possibility to opt out of the VAT mileage is given to entrepreneurs only in order to reduce the formal burdens. If the taxpayer wants to use the car both in the company and privately, he should not enter it into the company's fixed assets register, but settle PIT kilometers on the basis of tax returns. As can be seen, the mileage mark for VAT purposes also includes all the required elements of the PIT kilometer mark. The PIT Act indicates that the vehicle mileage register must contain at least these elements - there is nothing to prevent more information from being available. Therefore, taxpayers who want to keep records of vehicle mileage for both private cars and fixed assets do not have to set up separate kilometers. All settlements can be made using one register.