Two cars in a sole proprietorship - how to settle accounts?

Service-Tax

Self-employed persons often use cars. It happens that they have doubts (due to the size or number of employees) whether the entrepreneur can own two cars in a sole proprietorship.

Definition of tax deductible costs

Pursuant to Art. 22 sec. 1 of the PIT Act, the costs of obtaining revenues from a particular source are all costs incurred in order to obtain revenues, except for the costs listed in art. 23 of this act.

The phrase "for" used in this provision means that in order for a specific expense to be considered a tax deductible cost, there must be a relationship between this expense and the achievement of income, that the incurring of the expense has an impact on the creation or increase of income or the functioning of the source of income. .

As a result, companies have the option of including all costs as tax deductible costs, provided that they prove their connection with the conducted business activity, and their incurring has or may have an impact on the amount of the generated income.

Undoubtedly, as long as the car is used in business activities, expenses incurred for it can be counted as costs. In our opinion, there are no obstacles to include expenses for more than one car as costs in a sole proprietorship.

Two cars in a sole proprietorship and tax

The provisions of the tax law do not interfere with the number and type of assets that a taxpayer running a business can count as fixed assets - the decision in this respect is made by the taxpayer himself, who is best informed what movables or real estate are needed to perform activities related to the business activity. Undoubtedly, however, these funds should be useful, and therefore used in the conducted activity.

The fact that the activity is carried out by one person does not indisputably mean that in such a case a maximum of one vehicle may be used in the company. It is important that all vehicles intended for the company's needs are actually used in it.

In addition, expenses for the operation of the second (and subsequent) cars in the case of sole proprietorship will not be found in the catalog of expenses not considered costs. The provisions of the PIT Act do not contain any restrictions with regard to the number of passenger cars that the entrepreneur may use in a sole proprietorship. The decision in this matter was left to the sole discretion of the entrepreneur.

Thus, it should be concluded that there are no restrictions as to the number or types of vehicles owned by the enterprise, except for restrictions resulting from general conditions that must be met by a given expenditure in order to be considered a cost of economic activity.

This position is also confirmed by the tax authorities, an example of which is the letter of the Director of the Tax Chamber in Katowice of January 7, 2015, file ref. IBPBI / 1 / 415-1176 / 14 / SK, in which we can read:

"(...) The facts presented in the application show that the Applicant conducts a sole proprietorship involving the management and supervision of construction and assembly works in the sanitary installation industry, design and implementation of installations, preparation of measurement results, consultancy related to the works carried out, preparation of offers and visual inspection of facilities. The provision of the above-mentioned services requires the Applicant to travel to the places where they are performed. In connection with the above, the Applicant uses two passenger cars as part of his business.

(...) since the Applicant uses the passenger cars in question as part of his business and they have been recognized as fixed assets in this activity, he may include depreciation write-offs made on their initial values, however, taking into account the limit indicated in art. 23 sec. 1 point 4 of the above-mentioned of the Act, according to which write-offs for wear and tear of a passenger car, made in accordance with the principles set out in Art. 22a-22o, in the part determined from the value of the car exceeding the equivalent of EUR 20,000 converted into zlotys according to the average EUR exchange rate announced by the National Bank of Poland on the date of handing over the car for use (...) ”.

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VAT deduction

The taxpayer has the right to reduce the amount of tax due by the amount of input tax to the extent that the goods or services are used to perform taxable activities. The above regulations mean that the taxpayer is entitled to reduce the output tax by input tax only to the extent that the goods and services are used to perform taxable activities.

As a rule, pursuant to Art. 86a paragraph 1 point 1 and sec. 2 of the VAT Act, in the case of expenses related to motor vehicles, the amount of the input tax referred to in Art. 86 sec. 2 of the Act on the tax amount resulting from the invoice received by the taxpayer.

Expenses related to motor vehicles include expenses relating to:

  • purchase, import or manufacture of these vehicles and purchase or import of their component parts,

  • use of these vehicles on the basis of a rental, lease, leasing or other contract of a similar nature related to this contract, other than those listed in point 3,

  • purchase or import of motor fuels, diesel oil and gas used to power these vehicles, repair or maintenance services for these vehicles and other goods and services related to the operation or use of these vehicles.

As you can see, expenses related to passenger cars benefit from the limited right to deduct. There is no restriction on the deduction of input tax if the motor vehicle is used exclusively for the taxpayer's business. In this case, upon its acquisition, the taxpayer may deduct the entire amount of input tax (i.e. 100%, not only 50%).

Art. 86a paragraph 4 point 1 of the VAT Act. It follows from the content of this provision that in order to exercise the full right to deduct VAT related to the rental and operation of a passenger car, it is only business activity that includes:

  • report the vehicle to the tax office on the VAT-26 form, which must be submitted within seven days of incurring the first expenditure related to its use,

  • establish the rules of using the vehicle for business purposes,

  • set up and keep a log of the vehicle's mileage from the first day of using the vehicle.

The provisions of the VAT Act do not contain any restrictions as to the number of cars used in business. Thus, it should be recognized that the taxpayer may use two or more cars in his business and deduct VAT to a limited or full extent.