How to prove that the car is used exclusively in the company
Amendments to the VAT Act regarding the use of cars in the company resulted in the need to prove that the car is used only in the company since April 1, 2014. The mileage and reporting the car to the tax office on the VAT-26 form is not always enough. So how to prove that the vehicle is used only for business and that we are entitled to deduct 100% VAT from expenses related to its day-to-day operation?
Lead the kilometer in detail
The entrepreneur usually restricts the mileage to entering the city or street, and specifying the destination in a very limited form, eg "departure to the customer". On the other hand, in order to reliably capture the events, the entries should be kept a bit more precisely each time - in the example given, the name and surname or company of the client should be indicated. Certainly, a short description of the matter being handled, e.g. delivery of documents, submission of a VAT-7 declaration, etc., will not hurt either.
You have two cars: company and private - separate and document the expenses
Because the Ministry of Finance draws attention mainly to the suspicion of using a company car for private purposes at the same time, when a sole proprietor owns one car below 3.5 tons and it is not a vehicle that is structurally intended solely for company purposes, in fact it is certainly 100% the deduction of VAT would be challenged by the tax authorities. In such a case, there is clearly a potential possibility of using the car for private purposes - and it cannot be ruled out.
However, when an entrepreneur owns two cars: one private and one for the company, the situation is more favorable for the taxpayer. It is possible to prove that one car is for business trips only, and the other is for private use. An additional way to prove such a state of affairs is to store documents confirming the expenses for both the company and private car. Then it should be ensured that the invoices contain information about the registration number of the car to which the expense relates, even though the regulations no longer require it. Demonstrating that costs are also incurred from the private pocket for a car outside the business will show that the taxpayer is able to and separates private and corporate use.
The procedure proposed above does not result from any of the currently applicable regulations, but until clear and specific jurisprudence in this type of cases is developed, any additional form of documentation may protect the taxpayer's interests.
Define the company's rules of using cars - regulations
The suspicion of the possibility of using a company car for purposes other than the conducted activity also falls from above on taxpayers who employ employees in their company. As a rule, it is not possible to exercise 100% control over the actual purpose of their use of cars. The entrepreneur may, however, establish clear rules for the use of cars in the company, e.g. by including them in internal regulations. Its content should explain the obligation to reliably drive mileage, as well as the prohibition of using cars for purposes other than official activities. In addition, the obligation to leave official cars after the completion of employee duties in one designated place for this purpose should be outlined.
In addition, it would be the employer's responsibility to inform all employees of the rules laid down. In order to confirm that each of the employees is familiar with the regulations in force in the company, it is necessary to collect signed statements about the performance of this activity. Regulations should be generally available. Ideally, it should be in each of the vehicles.
However, the mere establishment of rules and familiarizing employees with them may turn out to be ineffective if no supervisor is appointed to control the implementation of the regulations. Therefore, the entire procedure related to the use of cars in the company and the control of this use should be defined.
Create a contract of entrusting the vehicle to an employee
Another form of protection against the accusation of using the car for purposes other than business activities in a situation where company cars are made available to employees for use is the preparation of a car entrustment agreement between the employee and the company. Then the employee undertakes to assume responsibility in writing for the use of the company car in accordance with the rules applicable in the company.
Supervise the use of vehicles in the company with the help of GPS
To control the use of company cars, you can also use GPS technology, which allows you to record the routes traveled by company cars. This form of "tracking" company vehicles should, however, be absolutely notified to employees using these vehicles. It should also be remembered that the GPS logger itself does not replace the obligation to keep mileage allowance for VAT purposes. However, it may be an additional form of control and documentation of the use of cars solely for the purposes related to the conducted activity.
Do not rent cars to employees!
The explanations prepared by the Ministry of Finance show that if an entrepreneur employing employees uses cars of less than 3.5 tons in the company, from which he deducts 100% (current operating expenses, including fuel purchases), he should not rent these cars to employees. Of course, provided that the business run by the entrepreneur does not generally deal with this type of activity. As indicated in the brochure prepared by the Ministry, such action “may indicate an attempt to circumvent the regulations implementing the derogation decision”. Of course, the regulations do not explicitly prohibit such a state of affairs, but it is recommended to pay special attention to the issue of determining the price for a possible rental to one's own employee.