A company car versus a full-time employee and a B2B employee
A company car is one of the most desirable benefits that an employee working in a given company can count on. Employers are also eager to acquire new vehicles for their fleet, because thanks to this, they are able to reduce the company's revenues, while increasing the standard of work of their employees. Therefore, it seems that a company car is an ideal solution to problems with getting to the customer, both for the employee and the employer. However, in order for the said car in the company to be profitable for both parties in the tax sphere, an appropriate contract must be concluded and the use of the car by the employee himself must be properly accounted for.
An increasingly common practice in hiring employees is establishing cooperation on the basis of a B2B contract. This is called an economic contract in which the parties are two entities professionally performing specific economic activities. These contracts are not subject to labor law, but are regulated by generally understood civil law. The indicated type of contract is quite a "fresh" institution on the Polish labor market, so legal solutions related to it may cause many problems for "employers", also when it comes to a company car. So how to settle the rented vehicle so as not to lose on it? About it below.
At the outset, it should be emphasized that only making a company car available also for private purposes of an employee or co-worker (B2B) will create taxable income. Using the company vehicle only for the performance of activities for the employer, i.e. business activities, will generally be tax-neutral. In this article, we will try to explain the situation of the parties to the contract in the case of using the vehicle also for private purposes.
A company car and a full-time employee
In the case of employees employed under a contract of employment, the issue seems quite simple. Using a company car for private purposes is classified as gratuitous benefits, and their value is the employee's income from the employment relationship. This income is subject to personal income tax (PIT).
Pursuant to Art. 12 sec. 1 of the Personal Income Tax Act (hereinafter the PIT Act), income from employment is considered to be all kinds of cash payments and the monetary value of benefits in kind, or their equivalents. That provision therefore also applies to making the car available for private use by the employee. However, according to Art. 12 sec. 2a of the PIT Act, the employer, in the case of lending a vehicle to an employee for private purposes, is obliged to charge him a flat-rate monthly income. This tax is set at the level of:
- PLN 250 per month - for cars with an engine capacity of up to 1600 cm3;
- PLN 400 per month - for cars with an engine capacity of more than 1600 cm3.
In practice, the company car remains at the employee's constant disposal throughout the duration of the contract, therefore employees using the company car must take into account the monthly deduction of the above amounts from their remuneration. It is, however, a very good "deal" for them. If, however, the use of the vehicle is less frequent, e.g. several times a month, the value of the tax is determined for each day of using the car for private purposes in the proportionate amount, i.e. 1/30 of the above-mentioned amounts.
As part of the release of the vehicle for free use by the employee, the employer is obliged to cover the costs of insurance, purchase and replacement of tires, consumables, ongoing repairs, periodic inspections, oil and other fluid changes and wearing parts. In turn, the employee is responsible for the purchase of fuel used while driving for private purposes.
A B2B "employee" is not an employee for tax law
The provisions of the PIT Act (and other tax acts) differentiate the method of taxing the income of an employee and a person who performs duties towards the employer on the basis of civil law contracts. The second group includes people employed on B2B contracts.
The income generated by the PIT Act qualifies as sources of income from activities performed in person. The provision of art. 13 of the PIT Act, persons under the contract are included in the group of those who obtain their income on the basis of enterprise management contracts, managerial contracts or contracts of a similar nature. For the sake of simplification of this text, employees on a B2B contract will be referred to as "B2B employees".
A company car at the disposal of a B2B employee
As was the case with employees employed on the basis of an employment contract, also in this case the company car may be made available only as part of official activities or also for private purposes. Similarly, in the latter case, the B2B employee will receive income on which income tax should be paid.
The provisions of Art. 13 of the PIT Act did not establish a "flat-rate income". Thus, B2B employees pursuant to Art. 11 sec. 2 and 2a of the PIT Act are required to report income from using a company car for private purposes based on market prices. Unfortunately, the regulations did not indicate how to determine this "market value", therefore it is up to the taxpayers to develop an appropriate method. In practice, it was assumed that this value is determined in a manner analogous to the rental prices of similar vehicles, taking into account their useful life.
The above leads to the need for the employer to keep a detailed record of the use of the vehicle by a B2B employee. The records should include in particular:
type of private vehicle used;
time of use of the vehicle for private purposes;
When is the use of a vehicle considered private use?
In this matter, it is worth citing the judgment of the Constitutional Tribunal of 8 July 2014 (file reference: 7/13). According to this ruling, the criteria allowing to distinguish "other free benefits" met by the entrepreneur, which at the principals (i.e. B2B employees) may be treated as income within the meaning of the provisions of the PIT Act, when:
- the benefits were provided with the consent of the B2B employee (he used them fully voluntarily);
- they were met in his interest (and not in the interest of his employer) and gave him the advantage of increasing his assets or avoiding expenses he would have to incur;
- the benefit is measurable and attributed to an individual person (it is not generally available to all entities).
This means that the existence of income is determined by the extent to which the car is used. If the method of exploitation is justified by the nature of the order being performed, the B2B employee will not be required to determine the income and pay the tax. If it is possible to prove that the company car was used by a B2B employee only for the purpose of implementing the concluded contract, there is no income on his side. It is worth pointing out that the aforementioned Tribunal found that the travel from the place of residence to the place of work and back and the parking of the vehicle outside the employer's seat at the place of residence of the B2B employee cannot be considered "private purposes".
What about employer's costs?
Pursuant to Art. 22 sec. 1 of the PIT Act, the employer's tax deductible costs in the discussed case are the costs incurred by the taxpayer in order to achieve income or to maintain or secure the source of income, except for the costs listed as not constituting the costs of obtaining them. Handing over a vehicle to an employee or a self-employed (B2B employee), also for private purposes, contributes to the employer's income. In this situation, the costs of operating a car constituting a fixed asset in the company, made available for the proper performance of the contract or order, are incurred to generate revenues. Therefore, the costs of operating a shared company car may be included by the employer as tax deductible costs.
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A company car versus a full-time employee and a B2B employee - summing up
In many companies, a company car, in addition to a company laptop and telephone, is a basic work tool. However, the legislator distinguished the situations of employees and people employed under civil law contracts, including people under B2B contracts. If you hand over the car to a salaried employee also for private purposes, you are only obligated to pay a small flat-rate tax. In the case of those cooperating with the company, the situation is different, depending on the individual characteristics of the contract and the vehicle. At the same time, in each of the cases discussed, the employer who owns the vehicle has the right to deduct the costs of operating the vehicle as tax deductible costs and thus reduce its tax liabilities.