LPG installation of a company car - how to settle accounts?

Website

Fuel prices have increased significantly in recent years, which is why people who use a car to travel on a daily basis are looking for alternative solutions to reduce costs related to transport. One of the available solutions may be the installation of LPG, i.e. a gas installation. It is worth leaving the analysis of the profitability of LPG installations to the drivers themselves. Check whether the LPG installation of a company car can be classified as tax deductible costs in a sole proprietorship.

LPG installation of a company car

Installation of LPG in a car entered in the fixed assets register and used in a company may, in principle, be included in tax costs in a sole proprietorship. The method of settling the expenses incurred for such an installation depends, however, on the purchase and assembly cost of the installation.

Installation of LPG for a company car - the value does not exceed PLN 10,000

If the value of the installation of the gas installation does not exceed the amount:

  • PLN 10,000 net for active VAT payers,

  • PLN 10,000 gross for entrepreneurs benefiting from VAT exemption

- then the LPG installation of a company car can be classified as tax deductible costs in the current accounting period. The costs incurred should be included in the tax book of revenues and expenses in column 13. - other expenses in full, in accordance with the tax explanations of April 9, 2020 published by the Ministry of Finance entitled The use of a passenger car in business - changes in income taxes from 2019.

LPG installation worth over PLN 10,000

If the LPG installation of a company car exceeds PLN 10,000 net for active VAT payers (respectively PLN 10,000 gross for VAT-exempt entrepreneurs), we are dealing with an improvement of the fixed asset. Upgrading the asset increases the initial value of the vehicle. Expenses for improving the car are gradually recognized in tax costs in the form of depreciation charges, ie they are spread over time.

It should also be remembered that if the value of the car exceeds the limit of PLN 150,000, depreciation charges are tax deductible only in a certain proportion.

What is an Asset Upgrade?

Pursuant to Art. 22 g of paragraph 1. 1 of the Personal Income Tax Act, a fixed asset is considered to be improved when in a given tax year the expenses incurred for its reconstruction, expansion, reconstruction, adaptation or modernization exceed PLN 10,000 and when these expenses increase the value in use in relation to the value of the date of acceptance of fixed assets for use, measured in particular by the period of use, production capacity, quality of products obtained with the help of improved fixed assets and the costs of their operation.

If the fixed assets have been improved, then the initial value of these assets is increased by the sum of expenses for their improvement, including also the expenses for the purchase of components or peripheral parts, the unit purchase price of which exceeds PLN 10,000.

The improvement of the car therefore takes place when, as a result of the work performed, the value of the vehicle increases or the vehicle is enriched with new functions. The installation of a gas system in a car entered in the fixed assets register is generally considered an improvement, however, if the value of the purchase and installation itself is lower than PLN 10,000, the expenses incurred can be included in company costs in the current settlement period, without the need to increase the initial value of these funds by the sum of expenditure on their improvement.

Depreciation of an improved fixed asset

If we are dealing with an improvement, the initial value of the fixed asset should be increased by the sum of expenditure incurred for its improvement, including the cost of purchasing components or peripheral parts. The value of a fixed asset updated in this way, which is the basis on which subsequent depreciation is calculated, is the sum of the initial value of the fixed asset and the expenditure incurred for its improvement. Start a free 30-day trial period with no strings attached!

Improving the fixed asset does not change the depreciation method or the depreciation rate used previously - only the value of the monthly depreciation write-off increases. Write-downs on the updated (increased) initial value of the fixed asset should be started from the first month following the month in which the fixed asset was improved and continued until the sum of all depreciation charges equals its updated initial value.

Installation of LPG for a company car and VAT deduction

The right to deduct VAT on expenses incurred for the gas installation in a passenger car used in business activities depends on the declared type of use of the vehicle in which the entrepreneur has decided to install the LPG installation. If the car has been reported to the tax office on the VAT-26 form as a company car, and the entrepreneur has drawn up the regulations for using the vehicle in business and keeps a record of its mileage, then he has the right to deduct 100% VAT on the purchase and installation of the gas installation in this car. Otherwise, i.e. when the type of use of the vehicle has been defined as mixed in the activity (the car is used for both corporate and private purposes), the taxpayer has the right to deduct 50% VAT from expenses related to this vehicle, including the purchase and sale of the vehicle. LPG installation.

In the case of trucks with a total weight exceeding 3.5 tons, taxpayers have the right to fully deduct expenses related to the purchase and installation of a gas installation without the need to meet additional conditions, such as reporting the vehicle to the Tax Office, drawing up regulations for the use of the vehicle in business or obligatory mileage for the purposes of VAT.