Not all car expenses can be a company expense

Service-Tax

As a general rule, a tax deductible expense may be an expense related to a car that contributes to obtaining or maintaining a source of income.A car used for company purposes certainly meets this condition, but it should be remembered that not every cost related to the car may be a tax expense. There are exceptions and cases that may be the subject of dispute with the tax authorities. The answer to the question what expenses related to the vehicle cannot constitute a company cost can be found in the article below.

The cost of the car in excess of the mileage limit

One of the most frequently used forms of acquiring a car for a company is the use of a private car. If we are dealing with a passenger car, it is necessary to keep records of the vehicle mileage (kilometers), including with an indication of the routes traveled and the number of kilometers multiplied by an appropriate factor. Mileage rates depend on the engine capacity. In such a case, the company costs may be expenses, but only up to the limit resulting from the vehicle mileage records. Expenses above the limit cannot constitute a cost in a given month, but are carried forward for settlement to the next period within the same year.

The above limitation results directly from the act on personal income tax.

 

Art. 23 sec. 1 point 46 updof:

Expenses incurred classified as tax deductible costs are not considered to be tax deductible costs, subject to paragraph 36, for the use of a passenger car not entered into the register of fixed assets, including one owned by a person running a business, for the purposes of the taxpayer's business - in part exceeding the amount resulting from the multiplication of the number of kilometers of the actual mileage of the vehicle and the rate for 1 km, specified in separate regulations issued by the competent minister; in order to determine the actual mileage of the car, the taxpayer is obliged to keep records of the mileage of the vehicle.

 

Example 1.

Mr. Marek decided to use his private car in the company and runs a mileage test. The engine capacity is 1300 cm3, hence the rate for 1 kilometer is PLN 0.8358. In November, he incurred the following expenses:

fuel PLN 200

car wash 25 PLN

current repair PLN 450

washer fluid 15 PLN

The total amount of expenses is PLN 690

In the same month, Marek covered 550 kilometers for business purposes. The mileage limit is therefore PLN 459.69 (550 x 0.8358 PLN) and this is also the amount that can be included in the costs of November. The remaining part of the expenses above the limit of PLN 230.31 cannot be the cost in November. This amount is transferred to the settlement for December, provided that the entrepreneur will be traveling on business during this time.

The need to drive a mileage applies to passenger cars:

  • private used in the company,

  • covered by a rental or lease agreement that is not a lease,

  • used on the basis of a loan agreement.

 

Expenses related to rent for renting or renting a car are not included in the mileage limit. More on this subject in the article End of mileage allowance when renting a car.

 

The kilometer distance and thus the limitation in terms of operating costs does not apply to cars:

  • trucks,

  • in operational leasing,

  • covered by a rental or lease agreement that meets the conditions for recognizing it as an operating lease agreement,

  • constituting a fixed asset.

Car related expense meaning a car worth more than € 20,000

Another cost-limiting case is when the price of a company passenger car exceeds the equivalent of € 20,000. In this case, the amount above the limit, even though it is an expense related to the car, will also not be a cost. This restriction results directly from the provisions of the Income Tax Act.

 

Art. 23 sec. 1 point 4 updof:

The costs of obtaining write-offs for the wear and tear of the passenger car, made in accordance with the principles set out in Art. 22a-22o, in the part determined on 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 day the car is put into use.

 

Regardless of the value of the car, the entire initial value of the car is depreciated, but only a part up to the limit of PLN 20,000 will be included in the costs. euro.

Example 2.

On March 5, 2015, Mr. Tomasz purchased a passenger vehicle worth PLN 130,000 for business purposes. The car was accepted for use in the company on March 9. In this case, the average NBP exchange rate on March 9 should be used to calculate the limit:

EUR 20,000 x 4.1259 (Table no.046 / A / NBP / 2015 of 03/09/2015) = PLN 82,518

Therefore, the tax cost will be write-offs only up to PLN 82,518, and the remainder will not be the company's cost.

Importantly, in this case also premiums for voluntary company car insurance in the amount exceeding their part determined in the proportion equal to the equivalent of EUR 20,000 - will not constitute a cost.

 

Art. 23, sec. 1, point 46 updof:

The costs of obtaining premiums for car insurance in the amount exceeding their part determined in the proportion equal to the equivalent of EUR 20,000, converted into zlotys according to the selling rate of foreign currencies announced by the National Bank of Poland on the date of concluding the insurance contract in the value of the car are not considered costs. accepted for insurance purposes.

 

The expense related to the car regarding the third party liability insurance as obligatory, regardless of the value of the car - will be a tax cost in full.

Deductible VAT versus car related expense

At first glance, it seems obvious that VAT on purchase invoices is deductible in the VAT return and not included in costs, as the deduction is more beneficial for the taxpayer. The exception are, of course, entrepreneurs benefiting from VAT exemptions.

The provisions of the VAT Act, as of April 1, 2014, imposed a number of restrictions on entrepreneurs in relation to VAT deductions on the purchase of cars and related expenses. Among other things, VAT is not deducted from fuel for passenger cars in mixed use (until the end of June 2015, 50% later), and there is a 50% limit on other expenses. In such a situation, the deductible VAT cannot be a business expense.

However, there are situations when the invoice, e.g. for the purchase of car parts, is lost in company documents and will not be entered in the month of its receipt or in one of the two subsequent periods. Thus, the provisions of the VAT Act do not allow the deduction in the current period, but only by correcting the VAT declaration. Mistakes quite often occur here, because due to delays, VAT cannot be deducted in the current period, but it cannot be a cost (Article 23 (1) (43) updof).

Example 3.

Mr. Jacek, who owns a mixed-use company car, in January received an invoice for the purchase of fuel (PLN 123 gross) and for the purchase of parts (PLN 246 gross). Both invoices were inadvertently not booked and were not found until May. The entrepreneur settles VAT on a monthly basis.

In the case of fuel purchased by July 2015, VAT is not legally deducted, so the invoice can be included in the gross amount in the costs of May (it is important to post in the same tax year).

The invoice for the purchase of parts is subject to a 50% VAT deduction (i.e. PLN 23). In May, therefore, the cost can be included in the amount of the net value + 50% VAT (PLN 223), while the remaining PLN 23 VAT cannot be the cost. In this case, VAT is not entered at all or deducted by adjusting the VAT return for the first period in which the deduction was due, in this case for January.

Another situation that quite often causes errors in the settlement are toll motorways. For the payment made, a receipt is issued, which, after meeting certain conditions, can be considered an invoice.

A receipt for using a motorway can be treated as an invoice only if it contains:

  • number and date of issue,

  • name and surname or name of the taxpayer (issuer),

  • the number by which the taxpayer (issuer) is identified for tax purposes,

  • information enabling the identification of the type of service,

  • tax amount,

  • the total amount due.

This is one of the exceptions where a receipt can be an accounting document and 50% or 100% VAT can be deducted based on it, depending on the type and destination of the car. Therefore, if a receipt meets the definition of an invoice, then also the deductible VAT cannot be a business cost. Do not apply the simplification in the form of accounting in the costs of the gross amount.

Operating expenses related to a private trip

In the case of vehicles in mixed use, a part of the expenses incurred throughout the month is assumed to be the cost of a private entrepreneur, as it is related to journeys not related to the conducted activity. This means that even if the car is a company vehicle (e.g. under a leasing contract), the expense of a fuel car for private journeys should not be included in the company's costs.

In this case, the main principle of the relationship between the incurred expenditure and the achievement of operating income is not fulfilled. Therefore, not always just having a car in the company allows you to settle all fuel expenses.

Depreciation for private car use

The issue of recognizing depreciation charges in company costs raises many doubts when the car is used in a mixed manner. In this respect, the line of jurisprudence has changed in recent years. For example, in the individual ruling of February 21, 2013 (reference number ITPB1 / 415-1261 / 12 / WM), issued by the Director of the Tax Chamber in Bydgoszcz, it was specified that when the car is used for private purposes, depreciation write-offs cannot constitute the cost of:

The legislator does not allow the possibility of using a car entered in the fixed assets register for private purposes. (...) In view of the above, when assessing the possibility of including depreciation charges on the passenger car in question as tax deductible costs, it should be stated that when using a passenger car for private purposes, the Applicant will not be able to include depreciation charges as tax deductible costs, because as As indicated above, one of the basic conditions for making depreciation write-offs for a passenger car constituting a fixed asset in business activity is to use it only for the purposes related to the conducted business activity.

Entrepreneurs' concerns about whether depreciation may be a cost in the case of mixed use of a car appeared, in particular, after April 1, 2014, when there was a change in the provisions on VAT deductions. Currently, the taxpayer determines in advance how a given vehicle will be used. It turns out that the mere choice of a 50% VAT deduction, suggesting private use, does not have to make it impossible to include depreciation as costs. However, this will certainly be the case when referring only to potential private use and not to actual personal use.

The currently issued interpretations are, however, on the side of entrepreneurs, allowing even for actual private use to include depreciation charges for a car in the costs (e.g. interpretation no. IBPBI / 1 / 415-1176 / 14 / SK, dated January 17, 2015). . However, this position of the tax authorities should be approached with a certain degree of caution, as it does not result directly from the regulations, but is developed by the current line of jurisprudence. In this case, it is worth asking for an individual interpretation that will protect the entrepreneur. An ORD-IN application must be submitted for this.

Entrepreneurs should bear in mind that not every expenditure incurred in connection with the use of a car in the company may be qualified as tax costs. Most of the restrictions result directly from the Income Tax Act. What rights the entrepreneur is entitled to depends on the type of vehicle (e.g. passenger car or truck) as well as the method of obtaining it (e.g. private, leased or fixed asset). Before starting to use a car in a company, it is worth getting acquainted with the limitations that are defined by tax regulations and the current line of jurisprudence.