Liability insurance and AC and the sale of a company car

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The entrepreneur selling the car may receive from the insurer a reimbursement of some of the paid OC and AC premiums. What to do in the event that the civil liability and comprehensive insurance policy has been entered in the Tax Book of Income and Expenses?

Car liability and motor insurance in tax costs

The third party liability and comprehensive insurance policy is a tax cost in business activity. Passenger car liability insurance can be booked in full value, regardless of the value of the vehicle.

An AC policy for a passenger car exceeding PLN 150,000 is also a tax cost, but only up to a certain amount. The AC premium can then be classified as tax deductible costs in the proportion in which the amount of PLN 150,000 remains to the value of the car assumed for insurance purposes.
Car insurance and tax deductible costs

Unused liability and comprehensive insurance policy when selling a car and income from business activity

The applicable regulations do not require to directly disclose the income from the unused part of the third party liability and comprehensive insurance policies returned by the insurer, previously disclosed in tax costs. However, when analyzing legal regulations, we can conclude that the entrepreneur should prove income from activity in this situation.

Pursuant to Art. 14 sec. 3 point 3a of the PIT Act, to the revenues referred to in par. 1 and 2, does not include reimbursed other expenses not included in the cost of obtaining revenue. This provision explicitly states that income is not only those reimbursed expenses that have not been previously classified as tax costs, which would mean that other expenses should be considered income. Thus, revenues from business activity include reimbursed expenses previously included by the entrepreneur as tax costs. An example is the premiums for motor third party liability and motor vehicle liability insurance which are reimbursed to taxpayers.
If the entrepreneur has included in the tax deductible costs the paid third party liability and comprehensive insurance premiums, he is therefore obliged, in the event of returning a certain part of them, to prove the income from the activity. Such income is shown in the Tax Book of Income and Expenses in column 8. - Other income on the date of receipt of the return. However, you should not adjust the tax deductible costs.

Example 1.

Mr. Jacek runs a sole proprietorship in which he uses a passenger car entered into the fixed assets register. The entrepreneur included the liability and comprehensive insurance policy (in full value) paid in January 2019 as tax deductible costs. In July 2019, Mr. Jacek decided to sell the vehicle, and the insurer reimbursed some of the premiums paid. How should Mr. Jacek act? Is he / she obliged to correct costs or show income from the activity due to the unused third party liability and comprehensive insurance policy of the sold passenger car?

Due to the fact that the civil liability and comprehensive insurance policy was fully booked on the date of payment, Mr. Jacek, after receiving the reimbursement of part of the insurance premiums for the sold car, is obliged to prove income from business activity. However, you should not adjust the tax deductible costs.

Return of the AC policy when selling a passenger car exceeding the value of PLN 150,000

As already mentioned, the AC policy for cars in excess of PLN 150,000 may constitute a tax cost, subject to the limit.

Art. 23 sec. 1 point 47 of the PIT Act:
"Passenger car insurance premiums other than those specified in point 46, in the amount exceeding their part determined in the proportion in which the amount of PLN 150,000 remain to the value of the car adopted for insurance purposes, shall not be considered as tax deductible costs.”.

If, at the time of including the paid AC premium, the entrepreneur was obliged to show in the PKPiR the expenditure on the AC policy in a specific part (Article 23 (1) (47) of the PIT Act applied), the part of the premium returned to the taxpayer constitutes income from activity in proportion corresponding part of the premium constituting the tax deductible cost. The remaining part of the AC premium, returned to the entrepreneur as a result of the sale of the car, does not constitute income as a reimbursed other expense not previously included in the tax deductible costs, Art. 14 sec. 3 point 3a of the PIT Act). Start a free 30-day trial period with no strings attached!

Example 2.

Ms Weronika sells a passenger car entered into the register of fixed assets with a value exceeding PLN 150,000. The vehicle liability insurance premium has been booked in full, while the accident insurance premium has been booked only in a specific part (85% of the full premium value), as Art. 23 sec. 1 point 47 of the PIT Act. The insurer reimbursed Ms Weronika a part of the premiums for third party liability and comprehensive motor insurance, namely:

  • part of the civil liability insurance in the amount of PLN 800,
  • part of the AC premium in the amount of PLN 2,800.

How should Mrs. Weronika act?
Ms Weronika records the returned third party liability insurance as income in the full amount of the refund, i.e. PLN 800. However, the returned AC premium does not constitute income in proportion to the value not previously included in the premium costs. The remaining part of the AC premium returned should be registered with PKPiR.
Therefore, Ms Weronika's income from receiving the refund of part of the AC premium will be 85% of the amount received, i.e. PLN 2,380:
PLN 2,800 x 85% = PLN 2,380
Ms Weronika's income generated in this way should be reported in column 8. - Other revenues of PKPiR.

Entrepreneurs should bear in mind that operating income is not only about selling products or services. When obtaining various types of compensation, subsidies, returns, etc., the method of accounting should be verified each time. The reimbursement of expenses due to the unused part of the third party liability and comprehensive insurance policies, previously recorded in PKPiR as a tax expense, constitutes operating income.